Originator creates a niche with Fannie Mae HomeStyle Renovation

April 10, 2017 | By

Lenders and real estate agents will be familiar with the lament: “Love the house, hate the kitchen.”

It can be a deal breaker. But it doesn’t have to be.

Dustin Swigart — an originator with PrimeLending in Cincinnati — hears opportunity. He’s carving a niche for himself with buyers interested in Fannie Mae’s HomeStyle® Renovation mortgage. Swigart closed 30 HomeStyle Renovation loans in 2016.

HomeStyle Renovation allows financing of home improvements for up to 50 percent of the as-completed value of the improved property in a purchase or refinance transaction. “With renovation loans, the buyer can do light to moderate repairs — such as flooring, roofing, electrical, and plumbing repairs — all the way up to major renovations like room additions and foundation repairs,” Swigart explains.

To originate HomeStyle Renovation, lenders must

  • Receive prior approval from Fannie Mae.
  • Have two years direct experience originating and servicing renovation mortgages within the past five years.
  • Meet certain financial capacity and operational requirements.

With a HomeStyle Renovation loan, borrowers can do repairs or renovate a kitchen, add a bedroom to accommodate a growing family or relatives requiring care, or modify the home to age-in-place. Plus, lenders can use HomeStyle Renovation to save deals that have repair contingencies — such as repairing a wall or ceiling.

Buyers like the idea of being able to roll improvements into the purchase cost and closing with some equity. While equity-at-close figures range, Swigart says he’s seen consumers close with $10,000 to $90,000.

“We can do all of this while still being affordable,” Swigart says. “That’s what makes these loans so appealing.”

This type of financing can be less costly for borrowers than a second mortgage or home equity line of credit. It combines the cost of the home and renovation into one single-cost mortgage. Individual homebuyers, investors, nonprofits, and local government agencies can all use HomeStyle Renovation.

Shopping for ‘Unique’

In Troy, OH, buyers Cameron and Eden Barnett — both 29 — were looking for a unique home in the spring of 2016. They fell in love with a 1850s brick farmhouse just outside of town.

“We wanted something unique, older, and something that we could make into our own,” says Eden. “This farmhouse was sort of the extreme of that. But the housing market at the time was not very diverse. A lot of the houses were either new construction or not very inspiring.”

Adds Cameron: “We loved the look of the home – the brickwork and the curved bannister going up the stairs. But we knew we’d have to renovate the outdated kitchen and bathrooms.”

The couple met with Swigart to discuss financing, and he introduced them to HomeStyle Renovation. It met their needs “perfectly,” says Cameron. The young couple loved the idea of being able to roll improvement costs into their loan.

The $35,000 renovation loan allowed the couple to gut the small kitchen and enlarge the space for modern appliances and fixtures (large top photo). And even though the renovation took longer than expected and was challenging for the contractor because of thick walls, they would “make the same decision all over again.”

“We got the house of our dreams, and we saved money,” Eden says. “It just feels better to be putting money into a house that we are fairly confident we will one day earn back, and then some, when we eventually move.”

Worth the Effort

Originating renovation loans is not without challenges for lenders. If you’re new to them, they can be tricky to underwrite and take longer to close. And unlike credit lines, renovation loans require lenders to administer the renovation funds by escrowing the funds and issuing draws once periodic and final inspections confirm the planned work is on track or has been completed.

Still, Swigart finds these loans and working with borrowers who use them highly rewarding. “I’ve made renovations my focus and have gotten really good at them by systemizing the process,” he explains. “So we end up closing in 45 days or less in most cases.”

His 2017 goal is to fund 50 HomeStyle Renovation loans. “It’s a product I really believe in.”

Learn more about HomeStyle Renovation at Fannie Mae.com.

 

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