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The Case For A Renovation

A shortage of homes for sale in the most desirable neighborhoods has created a difficult reality for prospective buyers in today’s real estate market. You love the idea of being downtown but can’t find the right house at the right price. So you are stuck paying large sums in rent just for the privilege of muddling through in neighborhoods like Cannonborough, Westside, or Hampton Park Terrace. When you walk by the for sale sign in front of that chic Charleston Single or classic southern bungalow, you may wonder how you could possibly afford it, and ask “why is that POS so expensive?”.

Like many, you have been priced out of the market thanks to the areas growing popularity. That reality now means that the most affordable places on the market look like they would be way too much trouble. On the outside, they look halfway decent, though there may be a few rough spots. But when you go inside they look like they need way too much work and that prospect has planted the seeds of doubt and dismay. The prospect of a remodel and all the expense that it carries is enough to scare you away. You simply don’t have the cash you need in order to pull something so ambitious off.  In some cases, such fear is a healthy thing. But if the price is right, the house has good bones and you can see the potential, then fear not!  There is a way forward, and help to finance all the renovation work thanks to Fannie Mae.

Enter Fannie Mae’s HomeStyle Renovation Mortgage

fanniemaeFannie Mae is a GSE (government sponsored enterprise) that was created during the great depression as part of the New Deal to make it possible for more people to buy homes. It does that by providing the liquidity which lenders use to provide mortgages. In the case of the proposed fixer upper, Fannie Mae’s HomeStyle Renovation Mortgage provides a convenient and economical way for borrowers considering moderate home improvements to make repairs and renovations with a single-close first mortgage, rather than a second mortgage, home equity line of credit, or other, more costly methods of financing. . At closing all funds for your renovation will be escrowed in an interest-earning account.  After all renovation work is done, any remaining funds will be used to pay down the principal balance of the loan. The loan can also be used to finance architectural services, engineering, and permit fees.

Notes on the HomeStyle Renovation Mortgage

  • Max loan:  $417,000
  • Must use a licensed contractor
  • Max Finance Amounts
    • Primary 95%
    • Second Home 80%
    • Investment 75%
  • Any type of renovation or repair is eligible, as long as it is permanently affixed to the property and adds value. Renovations should be completed within a twelve-month period from the date the mortgage loan is delivered.
  • The loan amount is based on the “as-completed” value of the home rather than the present value.
  • For purchase transactions, loan-to-value ratio is based on the lesser of: 1) purchase price and cost of renovation, or 2) the “As-Completed” value.
  • Renovation costs are limited to 50% of the “as completed” appraised value of the home. Renovation costs may include:
    • Labor and materials
    • Soft costs (architect fees, permits, licenses)



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