16 Important Updates to Fannie Mae’s HomeStyle Renovation Loans

Remodeling contractor working on exterior of home

Fannie Mae’s HomeStyle Renovation program is an essential option for many borrowers.

Sometimes a borrower wants to purchase a home that needs significant upgrades, repairs, and improvements, but most mortgage products only provide enough funding for the purchase of the property itself. The borrower would be left with little to no money for upgrades, which means, in many cases, that the home is not purchased.

To fill this need, Fannie Mae has created the HomeStyle Renovation program, which provides loans that cover both the cost of the home as well as the cost of upgrades.

To improve the program and make it more accessible, Fannie Mae recently announced changes to their Selling Guide. Having a basic understanding of these changes will help you get the most from your HomeStyle Renovation loan.

Important Updates to Fannie Mae’s HomeStyle Renovation Program

Approval Modification

If a seller or servicer chooses to deliver all HomeStyle Renovation loans directly to Fannie Mae after renovation is complete, they no longer have to be approved for HomeStyle Renovation. If they deliver the loans before the renovation is complete, approval will still be required. 

LTV Ratios Increased

This is an important change that will impact borrowers. The maximum loan-to-value ratio for HomeStyle Renovation loans is now 97% for fixed-rate mortgages. This includes single-unit, principle residence, purchase, and limited cash-out refinancing, which all need to be underwritten by Desktop Underwriter, the mortgage-writing program used by Fannie Mae and other organizations.

Manually-written loans, however, have loan-to-value limits of 95.1% to 97%, depending on the details of the transaction.

Manufactured Homes Now Eligible

Previously, you could not use Fannie Mae’s HomeStyle Renovation to update or enhance a manufactured home. Now, however, this program is available, but the changes cannot be structural. The same loan-to-value requirements apply, and the total funds are limited to 50% of the “as-completed” value or $50,000, whichever is smaller.

Loan Limits Increased

The total limits on HomeStyle Renovation loans have been increased. The limit on eligible renovations are now 75% of one of two numbers:

  • Acquisition plus renovation costs
  • The “as-completed” appraised value

Essentially, you will look at both of these number; whichever is smaller will be your starting point. You then take 75% of that number to determine your loan limit.

Projects No Longer Have to Add Value

Previously, the borrower had to essentially demonstrate that the project would add value. Whether you were renovating a kitchen or repairing a roof, the lender would need some sort of evidence that the project would enhance the value of the home. This requirement is now dropped.

HomeStyle Loans Can Be Used to Create New Units

If you want to add a whole new unit to your property, you can now use HomeStyle Renovation loans to complete the task. Previously, this was not an option.

Material Draws May Be Made

Lenders may now release material draws at the beginning of the project for the expressed purpose of acquiring materials that are identified in the project estimate. This can be done for up to 50% of the total up-front materials cost, and a portion can be used to pay for design, fees, permits, and other expenses.

Licensed Contractors Must Be Used When Required

This is really a clarification more than a new update. Fannie Mae included a note that licensed contractors must be used whenever required by state or local regulations. If your specific type of renovation requires licensing, the contractor you choose will need to show proof of their licenses.

Inspections are Required

Before escrow draws are made, all required inspections must be completed to ensure the work is being completed properly. Inspectors will usually compare the work to the plans and specifications to ensure everything is lining up properly.

Larger Reserves Can Be Requested

This update essentially gives lenders the right to request higher amounts of reserves if they see fit. Lenders can now increase reserve requirements by 15% if they determine that a larger reserve is needed. This is basically up to the discretion of the lender.

Future Representation Available

If a HomeStyle Renovation loan is delivered before the project is complete, it will be eligible for future representation. It will warrant relief under Versions 1 and 2 of the specific framework used to complete these transactions. The relief must be completed and the recourse will need to be removed before the renovation is eligible for relief.

Recourse Removal Updated to Include Payment History

There are specific requirements outlined by Fannie Mae that outline how to remove recourse when the renovation is complete. These requirements have been updated and now include a payment history from the borrower.

Old Forms Retired, New Forms Required

Bathroom remodel with luxury white features
Fannie Mae’s HomeStyle Renovation loans make changes like bathroom remodels more accessible.

Previously, the HomeStyle Completion Certificate, which was Form 1036, was required. That form has now been phased out and the Appraisal Update and/or Completion Report (Form 1004D) is now required. The new documents will outline the completion renovation work and will need to be submitted when requesting removal or recourse.

New Requirements for Extended Projects

If you have a project that is extended over a lengthy period of time, there are new requirements that will impact your loan. These requirements impact two different situations. The first is when construction cannot be completed within 12 months of delivery. The second is when improvements are not being completed as planned. Speak with your lender for details on how the regulations impact your project and loan.

Servicing Transfers are Completed When Construction is Complete

To ensure that renovation escrows and completion of the projects are properly managed, Fannie Mae is now restricting the service of transfers until the renovation is complete.

Providing the Right Support for HomeStyle Renovation Loans

Want more information about HomeStyle Renovation loans? Contact the team at San Diego Purchase Loans and we’ll help you understand the advantages of using Fannie Mae’s program to purchase a home and make upgrades.

With a dedication to service and common-sense underwriting, we can help you get the best possible terms on a high-quality HomeStyle Renovation loan.



Thank you, Chad. You have been amazingly responsive to all my questions, and you have a great staff assisting you. Thanks so much for all your help!

Incredible Turnaround and Stellar Customer Service. Chad and his team helped us get into our first home here in San Diego. When we first started the process we were skeptical it would even be worth applying. But Chad and his team walked us through the whole lending process with integrity and know how that surpassed our expectations. After helping us to pull together our pre-qualification, he and his team stayed at the ready. Before we even walked up to a home we were seriously interested in he had the data we needed over to us and our realtor. After finding the home we wanted to place a bid on, we were able to place a bid with a matter of a few hours. Then, after having our offer accepted, he had our loan package completed and the keys in our hands in under a month — I am pretty sure it was less than. Like I said, incredibly fast and professional turnaround. if you are looking for a motivated lender who can walk you though every detail and have your back every step of the way, Chad and his team at HomePoint Financial is your best decision. Recommend them highly!”

“We’re loving our new place and we’re very pleased with how smoothly everything went through closing. Thanks for keeping us up to date on the possibility of refinancing at a lower rate; we trust your judgement as far as waiting until the rate is around 5% lower before we refinance. We’re very interested in pursuing that if rates drop to that level. Thanks so much for all your help and personal attention!”

I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for Cross Country Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2019. Got a question for Chad? Call (858) 353-8331 or submit your question online