FHA 203K or Fannie Mae Homestyle Renovation Loan - Los Angeles

[Nathan Yee]

Hi Everyone,

I've been researching home renovation loans (FHA 203K and Fannie Mae Homestyle Renovation Loan [which I recently discovered]) for my first, owner-occupied property in Los Angeles and wanted to know which home renovation loan made the most sense based on my current scenario.

Currently, I have a high credit score (800+) with a stable six-figure W2 job and a $50,000 down-payment allotment.

Here's the data I've found:

2017 Mortgage Loan Limits in Los Angeles County are as follows: (Fannie Mae bumped up their loan limits for high cost areas)

Source:

https://www.fanniemae.com/singlefamily/loan-limits

-1-unit - $636,150

-2-unit - $814,500

-3-unit - $984,525

-4-unit - $1,223,475

FHA 203K vs. Fannie Mae Homestyle Renovation

Sources:

https://themortgagereports.com/14946/fha-203k-loan-mortgage-lender-rates (FHA 203K)

https://thelendersnetwork.com/fha-pmi-mip-chart/ (FHA Mortgage Insurance Premium Rates)

https://themortgagereports.com/18836/homestyle-renovation-loan-fannie-mae-craig-berry (Fannie Mae Homestyle Renovation)

https://themortgagereports.com/21895/fannie-mae-homestyle-vs-fha-203k-renovation-loan (FHA 203K vs. Fannie Mae Homestyle Renovation)

FHA 203K (Pros)

-Must be owner occupied

-Lower Credit Score requirements (as low as 580)

-Lower down payment requirements (as low as 3.5%)

-Low interest rates

-Down payment and closing costs can be given as a gift

-Streamline refinancing (no home reappraisal, credit check, or income verification)

FHA 203K (Cons)

-Upfront Mortgage Insurance payment (~1.75%) and monthly for life of the loan

-Need to secure reputable contractors, and need to be very diligent with paperwork

-Lengthy Loan process (~45-60 days based on my research)

-Rehab Limitations under Streamline FHA 203K ($35,000 max rehab budget + requires 15% contingency in case of cost overruns)

Most non-structural, non-luxury items are acceptable:

-Kitchen and bathroom remodels

-Appliance replacement

-Carpet and flooring

-Roof replacement

-Painting

-Repairing safety and health issues

-Energy-efficient improvements

Fannie Mae Homestyle (Pros)

-Doesn’t have to be owner occupied

-Any type of renovation or repair is eligible (as long as it’s permanently affixed to the home and adds value)

-Loan-to-Value is based on your home’s expected future value and not its value today

-Renovations must be completed in 12 months and seller concessions are permitted (home sellers can pay closing costs if you add to your contract)

-No upfront Mortgage Insurance Premium

-Potentially lower Mortgage Insurance costs (if you’re putting less than 20% down) based on down payment and credit score

Fannie Mae Homestyle (Cons)

-Higher down payment requirements (as low as 5% for 1-unit, 15% for 2-unit, 25% for 3-4 unit)

-Higher credit score requirement (as low as 620 for primary residences, as low as 700 for second home or investment property

If you were in my situation, what type of home renovation loan would you use?

[Michael Cohen]

Nathan Yee We (lenders here on BP, including Chris Mason ) can't say which loan is right for you, because there are too many other factors. In general, I don't suggest you spent a lot of time researching the two loans, as that will just lead to further "analysis paralysis." Go speak with a qualified lender and they can help guide you to the right product for your situation.