Men Working Inside a House Under Repairs

Conventional Renovation Loan

What is a Conventional Renovation Loan?

A Conventional Renovation Loan is a type of mortgage that allows homebuyers to finance both the purchase price of a home and the cost of renovations or improvements in a single loan. These loans are backed by conventional mortgage lenders and conform to guidelines set by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that provide liquidity to the mortgage market.

How Do You Get One?

  1. Consult with our experienced team: Schedule a consultation with one of our experienced team members who is knowledgeable about conventional renovation loans. They can help you understand the loan programs available, eligibility requirements, and the application process.
  2. Choose a loan program: Our experienced team members will listen to your goals and needs and determine which program is right for you. Fannie Mae and Freddie Mac offer several renovation loan programs, including the Fannie Mae HomeStyle Renovation Mortgage and the Freddie Mac CHOICERenovation Mortgage. Each program has its own set of guidelines and requirements, so it’s essential to choose the program that best fits your needs.
  3. Complete loan application: Once you’ve chosen a loan program, we will assist you in completing the loan application. Be prepared to provide detailed information about the property, your financial standing, and the scope of renovations.
  4. Underwriting process: Our underwriters will review your application and conduct a thorough underwriting process to assess your creditworthiness and the feasibility of the renovation project. This may include a property appraisal, credit checks, and verification of income and assets.
  5. Loan approval: When your application is approved, you’ll receive a loan offer outlining the terms and conditions of the loan, including the loan amount, interest rate, and repayment schedule.
  6. Closing: Once you accept the loan offer, you’ll proceed to the closing process where legal documents are signed, and the funds are disbursed. You can then begin the renovation process in accordance with the approved scope of work.

Requirements to Meet

While specific requirements may vary depending on the loan program, common requirements for obtaining a conventional renovation loan backed by Fannie Mae or Freddie Mac include:

  • Good Credit History: Typically it requires a minimum credit score to qualify for a renovation loan. A strong credit history demonstrates your ability to manage debt responsibly and may improve your chances of loan approval.
  • Stable Income: We will assess your income to ensure you have the financial means to repay the loan. You may be required to provide pay stubs, W-2 forms, or tax returns as proof of income.
  • Down Payment: Depending on the loan program and your creditworthiness, you may be required to make a down payment ranging from 3% to 20% of the purchase price plus renovation costs. The down payment amount will vary based on factors such as your credit score, loan amount, and property type.
  • Property Eligibility: The property must meet certain requirements regarding its condition, occupancy, and use. Additionally, there may be restrictions on the types of renovations that can be financed with the loan.
  • Renovation Plans: Lenders will require a detailed renovation plan prepared by a licensed contractor. The plan should include a comprehensive scope of work, cost estimates, and a timeline for completion.

Conventional Renovation FAQs

What is the difference between the Fannie Mae HomeStyle Renovation Mortgage and the Freddie Mac CHOICERenovation Mortgage?

While both programs offer similar benefits, they may have different eligibility requirements, loan limits, and allowable renovations. It’s essential to review the guidelines for each program and choose the one that best fits your needs.

Can I use a conventional renovation loan to finance a second home or investment property?

Conventional renovation loans backed by Fannie Mae or Freddie Mac are typically available for primary residences only. However, there are other renovation loan programs available for second homes and investment properties.

How are renovation funds disbursed with Fannie Mae and Freddie Mac renovation loans?

Renovation funds are typically disbursed in stages as the work progresses. The lender may conduct inspections to verify that the renovations are being completed according to the approved scope of work before releasing funds.

Are there any restrictions on the types of renovations that can be financed with Fannie Mae and Freddie Mac renovation loans?

While most types of renovations are eligible for financing, there may be restrictions on luxury upgrades or renovations that significantly alter the property’s structure or function. It’s important to discuss your renovation plans with your lender to ensure they meet the loan requirements.