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203k vs HomeStyle. What is better to choose

You bought a house (or are planning to do so) and are already considering renovations. That’s why FHA 203(k) and Fannie Mae HomeStyle will allow you to buy and upgrade immediately with just one loan. The renovation begins as soon as you close the deal. But who will win the battle 203k vs HomeStyle? And what is better to choose?

203k vs HomeStyle

Let’s take a closer look at how loans work and what repair work they involve.

  • FHA 203(k) loans are loans insured by the Federal Housing Administration.
  • HomeStyle loans are mortgage loans guaranteed by Fannie Mae.

Please note that FHA 203(k) loans have several options:

  • Limited — repair costs up to $35,000. Structural repairs are not covered by the loan (as explained further).
  • Standard — repair costs over $35,000. The loan allows for major structural work, such as replacing walls. The total cost of improvements must be at least $5,000.

Remember — repairs do not have to be global

When choosing between 203k and HomeStyle, note that you won’t necessarily have to turn your property into a construction site, knock down walls, or completely change appliances. These two loans cover structural repairs, cosmetic repairs, or intermediate improvements.

Structural renovations involve improving your home, such as replacing plumbing or electrical wiring or adding rooms.
Redecorating, such as replacing outdated kitchen cabinets.
Interim improvements — such as replacing the roof.

Loan differences

What distinguishes 203k and HomeStyle is the strictness of the repair conditions and leniency towards the borrower’s financial situation.

Thus, the FHA 203(k) is more lenient on the borrower’s credit and stricter on renovations. With HomeStyle, the situation is completely opposite — they are more stringent with the borrower and more loyal to repair work.

Credit score

  • For an FHA 203(k), you’ll need a credit score of 500 or higher.
  • For HomeStyle, the minimum score is 620.

An initial fee

  • For an FHA 203(k), the minimum contribution is 3.5% if your credit score exceeds 580. Or 10% if your credit score is between 500 and 579.
  • For HomeStyle — a minimum contribution of 3% if you buy a home for the first time or use it as a permanent residence.

Allowed improvements

203(k) loans cannot be used for work the FHA considers a luxury job. For example, a swimming pool, adding a jacuzzi, sauna, barbecue area, or fireplace.

HomeStyle loans have few restrictions on making improvements. The primary condition is that the improvements must be attached to real estate or land. Therefore, you can build a pool 🙂

203k vs HomeStyle. Conclusion

Once you’ve found your dream home and realized it’s not in perfect condition, apply to multiple lenders. This way, you can compare their requirements and make a choice. Next, hire a 203k or HomeStyle loan consultant to list improvements, select contractors, and create estimates for the work. Once the deal is closed and the home is purchased, renovations will begin immediately.

If you’re looking to simplify your journey through the complex world of mortgage finance, contact LBC Mortgage for advice. This way, you will have all the information, be able to choose the best type of financing, and close a profitable deal.

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