All Forum Posts by: Brad Roche

 Thank you for the comment Jeff and the information on CHOICERenovations! Huge game changer for Investors

Fannie Mae Homestyle Renovation Loan vs. FHA 203(k)

The FHA 203(k) is the most widely known renovation loan, but did you know about the Fannie Mae Homestyle Loan?

Here's how they break down:

Fannie Mae Homestyle

• Minimum Down Payment: 3%-5% (Primary Residence) & 20% Down (Investment/Second Home)
• Credit Score: 620
• Minimum Loan Amount: $50,000
• Maximum Loan Amount: Per County Loan Limits
• Occupancy Types: Primary Residence, Second Homes, and Investment Properties
• Unit Maximum: 4 Units
• Acceptable Renovations:
  • -Structural Improvements (e.g., new roofing, foundation repairs)
  • -Cosmetic Enhancements (e.g., new flooring, updated bathroom/kitchen fixtures)
  • -Energy Efficiency Upgrades (e.g., solar panels)
  • -Accessibility Modifications (e.g., ramps, widened doorways)
  • -Luxury Items (e.g., pool)
  • -Landscaping
• Not Acceptable Renovations:
  • -Commercial Use (e.g., turning a residential property into a commercial property)
  • -Temporary Structures
  • -Non-Residential Buildings (e.g., barns, stables)

FHA 203(k)

• Minimum Down Payment: 3.5%
• Minimum Credit Score: 620
• Minimum Loan Amount: $50,000
• Maximum Loan Amount: $524,225
• Occupancy Types: Primary Residence ONLY
• Unit Maximum: 4 Units
• Acceptable Renovations:
  • -Structural Improvements/Reconstruction (e.g., adding rooms, bathrooms)
  • -Cosmetic Enhancements
  • -Eliminate Health and Safety Hazards
  • -Energy Efficiency Improvements
  • -Major Landscaping (e.g., grading, tree removal, adding walkways)
• Non-Acceptable Renovations:
  • -Luxury Items
  • -Commercial Use
  • -Temporary Structures
  • -Non-Residential Buildings

Both of these renovation loans are similar in many ways, but the key differences are:

• 1. FHA only allows for primary residence occupancy types, whereas Fannie Mae allows for investment properties and second homes.
• 2. FHA does not allow for luxury items like adding pools or outdoor kitchens. Fannie Mae offers much more flexibility regarding the types of renovations you can and cannot do.
• 3. Fannie Mae allows for higher loan amounts and larger renovations (up to $806,500 in most states). While FHA's max loan limit is $525,225

Please comment any questions or if I missed anything!

 We are considering doing a webinar in the future. Thank you for the comment, Brad!

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Please sign up using the attached link to save your spot! 

Gathering Real Estate Professionals and Investors from the Lake Norman and Charlotte regions to foster connections and broaden our networks! All are welcome, whether you're a seasoned investor or just beginning your journey in real estate. Join us for complimentary refreshments and food as we come together to grow and learn.

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 Yes- this program is offered in all 50 states!

 Thanks for the comment, Henry!

The no-ratio rates are similar to DSCR- heavily based on your credit score and cash reserves. DSCR also tends to have requirements like you have to have experience managing or owning a investment property for at least 1 year to qualify. As well- the DSCR rate is heavily based on the ratio. If the ratio comes back lower than expected- then the rate could be increased by 1-2% . Makes more sense to go No-Ratio and not have to worry about the projected rent coming back low.

 Hey Bill- Thank you for the comment!

The cash reserves are lowered as the credit score goes down because the down payment increases, the monthly payment would be a lot lower putting 35% down vs. 20% Down. I agree with you that even buyers with the best of credit scores do not have 100K laying around to put down. In my business- the no-ratio loan program has been utilized for clients that have great equity in their house they are selling and want to transfer that as a down payment to their new property- hence why have the extra money to put down. 

As stated in the post- this is best for non-traditional buyers (aka. self employed / business owners). This is not an ideal for traditional buyers- because Conventional will have better terms 10/10 times. I also agree that seller-finance can be a better alternative but at least here in NC- they are around but not as easy to find. Sense this loan is for primary residence's- many of the buyers are not interested in doing the work to find a seller finance and it doesn't make sense to add a partner for a primary residence. The No-Ratio is a good loan if you have no other options- 

 I agree with Justin! I'm on the lending side but we have seen a lot more seller concessions coming back into play sense a good bit of houses are sitting for longer. Ideally, the seller will give you the Seller Concession right off the bat but if not, (assuming the house would appraise)- you can raise the purchase price 6-7K and ask the sellers to give that 6-7K extra back as seller concessions- Both sides are still netting the same.

For example- I had a client that when negotiating with the sellers- the sellers said they wanted to net $305K. We had the client offer 318K with 13k in seller concessions to pay for closing costs and a 2/1 temporary rate buydown. Allowed for the client to keep that extra 13K in their pocket to use towards renovations/ next investments. Here is how much you can ask in seller concessions based on the loan:

Conventional (Primary) : 

- (3-9% Down) =3% of sales price

- (10%- 24% Down) = 6% of sales price

- (25% Down+) = 9% of sales price

- (All Investment Properties) = 2% of Sales Price

FHA (Primary)

- 6% of Sales Price

As far as down payment- FHA does have a 0% down loan option but the next lowest down payment would be 3% with Conventional (First Time Home Buyer) or Regular FHA with 3.5% Down. These would have to come from your personal funds or as a gift from a family member. There are also a lot of down payment assistance programs but I would recommend taking a deep dive into the qualification because they can have some unique rules like you have to be a first time generational home buyer and of that nature.

Hope this helps and glad to connect if you have any further questions!