203K Rehab Home Loan VS HomeStyle Home Renovation Loan

Looking to purchase or refinance a home that needs some TLC, but can’t decide which home renovation loan program best fits your individual needs? Home renovations, big or small, have never been easier with a 203k rehab or the HomeStyle home renovation loan. Learn about the differences and benefits of both home renovation programs.

What is a 203k rehab home loan?

A 203k loan is a Federal Housing Administration (FHA) government insured loan program.

What is a HomeStyle home renovation loan?

A HomeStyle loan is a Fannie Mae (FNMA) conventional loan.

How are these loan programs similar?

Both are home renovation loans with slight variations in guidelines and borrower qualifications. (See details in next section).

Both loan programs can be used to acquire and renovate existing properties, or refinance and renovate currently owned properties.

203k and HomeStyle renovation loans also include the following benefits:

  • On a purchase – One fixed-rate mortgage loan purchase and cost to complete renovations.
  • On a refinance – One fixed-rate mortgage loan on an existing mortgage and cost to complete renovations.
  • A licensed HUD consultant is utilized to oversee the renovations and entire project meets requirements.
  • Work is started on the property after the file is closed and permits are obtained from the city or village.
  • Mortgage payments may be financed if the property cannot be occupied during renovations, if the property has sufficient equity.

How are 203k and HomeStyle renovation loans different?

Qualifying for a 203k or a HomeStyle renovation loan vary by eligible property types, types of renovations allowed and financing requirements.

Eligible Property Types

203k – Standard loan limit requirements

HomeStyle – Standard loan limit requirements

  • Single Family Homes, Townhomes, Warrantable condos allowed – Requires 5% down payment
  • 2-unit residential – Requires 15% down payment
  • 3 & 4 unit – Requires 25% down payment
  • Investor and 2nd homes – Requires 10% down payment
  • Look up county loan limits: https://www.fanniemae.com/singlefamily/loan-limits

HomeStyle – High Balance requirements

  • Single Family Homes, Townhomes, Warrantable condos allowed – Requires 10% down payment
  • 2, 3, 4 units – Required 25% down payment
  • Investor properties with 1 unit only – Requires 35% down payment
  • 2nd homes with 1 unit only – Requires 35% down payment

Type of Renovations Allowed

Full 203k rehab loan – Property must conform to the following:

  • US Department of Housing and Urban Development’s (HUD) minimum property standards
  • Local building codes
  • Structural improvements allowed
  • No limits on the dollar amount of repairs as long as the total loan amount is less than the FHA local county limit
  • Borrower desired repairs allowed
  • Minimum of $5,000 worth of work required
  • No luxury items allowed

Streamline 203k rehab loan – Property must conform to the same standards as a Full 203k EXCEPT no structural and there is no minimum dollar amount for repairs allowed. Also, not permitted:

  • No luxury items allowed
  • No landscaping allowed
  • Project that would not allow borrower to live in the property within 30 days of closing

HomeStyle renovation home loan – Property must conform to the following:

  • Repairs or improvements must be permanently affixed to the real property and add value to the property
  • Local building codes
  • Luxury items allowed
  • Borrower desired repairs allowed
  • No minimum dollar amount for repairs
  • Total alterations/renovations must be less than 50% of the after-improved value

Financing Qualifications

203k requirements

  • Minimum FICO score of 640
  • Max debt-to-income ratio of 50% with compensating factors
  • Non-occupying co-signer allowed
  • Down payment can be gifted
  • Up-front mortgage insurance of 1.75% financed in the loan amount
  • Monthly mortgage insurance required
  • Current value and after-improved value are a factor
  • Seller paid closing costs max of 6%
  • After-improved loan-to-value ratio of up to 110%
  • 3 & 4 unit properties must pass “self-sufficiency” test
  • 3 & 4 unit properties must have 3 months reserves PITIA of borrower’s own funds are required (no gift funds)
  • Cannot have multiple FHA mortgages
  • Seasoning required for payoff of 2nd mortgage

HomeStyle requirements

  • Minimum FICO score of 660
  • Max debt-to-income ratio of 45%
  • Down payment can be gifted
  • Self-sufficiency not required
  • Private mortgage insurance with varying rates-usually lower
  • After-improved value is used
  • Seller paid closing costs max of 3% for owner-occupied properties
  • Non-occupying co-signer income NOT allowed
  • Max of 4 financed properties
  • Cannot pay off non-purchase money 2nd mortgages (subordination allowed)
  • Reserves requirements determined by DU

Finding the best home loan program fit and eligibility can be challenging, but you don’t have to decide which loan program best fits your financial needs – We are here to assist and analyze which loan program is right for you. If you’re interested in taking advantage of a renovation home loan program, contact Christine DePaepe, Guaranteed Rate Renovation Loan Division Manager to discuss your financial goals.