Fannie Mae Homestyles Loan

[Andy Tomaswick]

Hi All,

I recently started talking to a lender (a nationwide bank with a strong presence locally) about possible funding options for flips in my area.  He described what he called a Fannie Mae Homestyles loan.

From my understanding, this loan has the estimated repair cost rolled in with the property cost on the closing date, with the repair costs held in escrow until the contractor can prove he has completed however much of the work (25%, 50%...whatever).  In addition, it has a 4.7% rate and can have a term of 15 or 30 years, which would dramatically reduce the financing costs on any potential deal.  It does require a 25% down payment, but I have the capital to finance that for most homes in my area worthy of flipping.

That being said, this sounds almost too good to be true.  I've heard of hard money lenders charging upwards of 16% with 2-3 points on a flip financing deal, where the full amount is due back in 6 months.  This Homestyles financing path blows that out of the water, giving no points, 1/4 the interest rate, and essentially an unlimited payback time.  Also, apparently there is no minimum hold time on the mortgage as well.  Does anyone have any experience with these loans?  Is there a down side to them?

Thanks in advance for the feedback!

[Chris Mason]

Originally posted by @Andy Tomaswick:

@Chris MasonAhh, so it's a timing thing. That makes sense. I've heard conventional loans to take longer, so I guess that makes sense. So you're suggesting doing the BRRR method everyone seems to love here, but refinance before you rent or even rehab, correct?

 Cash is fastest, with effectively a 'negative interest rate' because you're 0% leveraged. Hard money is 2nd fastest. Traditional/conventional mortgage is next. Exotic traditional/conventional mortgage is the slowest.

And the renovation refinance would ~~BE~~ the rehab. You don't just have to do bare minimum stuff to get it up to code using renovation financing, you can put in hardwood floors, new windows, etc.

They will not let you add silly things that wont add value (giant unicorn statue in the front yard, etc), but if it's something a reasonably intelligent landlord would want to put in, it'll probably be ok to include it in the reno because things that increase rent tend to also be things that increase value.