Refinance, Renovate, and Rebuild Equity with a Fannie Mae HomeStyle Renovation Loan

  • Tags: Calculators, New Construction, Spec Homes

Step 1: Understanding the Scenario

If you already own a home and you’re sitting on big renovation plans, a Fannie Mae HomeStyle Renovation Refinance Loan might be exactly what you need. Instead of taking out a separate home equity line or paying out of pocket, this program allows you to refinance your current mortgage—and bundle in renovation costs—into one fixed-rate loan.

Here’s how the Conventional Renovation Refinance Calculator can help you determine your monthly payment, cash required at closing, and your ability to qualify.

Let’s look at a real-world example:

  • Current Loan Balance (Payoff Amount): $400,000
  • Renovation Costs: $100,000
  • After Repair Value (ARV): $600,000
  • New Loan Term: 30 years
  • Estimated New Interest Rate: 7%
  • Monthly Taxes and Insurance: $800 total
  • No HOA

This setup includes both the existing mortgage payoff and future renovation costs in one simplified loan.

Step 2: Total Project Cost

The total financeable amount includes:

  • Mortgage Payoff: $400,000
  • Renovation Costs: $100,000
  • Contingency Reserve (10% of reno budget): $10,000
  • 6-Month Interest Reserve: $17,850
  • Estimated Closing Costs (4%): ~$21,114

Total Financeable Allowable Costs: $548,964

Step 3: Loan Limits and LTV Rules

Fannie Mae allows you to borrow up to 75% of the After Repair Value (ARV) for refinances. In this example:

  • 75% of $600,000 = $450,000 max loan
  • Desired Loan Amount: $450,000

This is the highest amount you can borrow unless your ARV increases, in which case the loan limit can also rise.

Step 4: Estimate Your New Monthly Payment

Your new monthly housing payment breaks down like this:

  • Principal & Interest: $2,994
  • Insurance: $300
  • Taxes: $500
  • HOA: $0

Total Monthly Housing Expense: $3,794

While this is higher than your current mortgage, it reflects the cost of a fully renovated home without requiring a separate loan or second mortgage.

Step 5: Cash to Close

Because your maximum loan is capped at $450,000 and your total cost is over $548,000, the difference must be covered in cash:

  • Estimated Cash Out of Pocket (no lender credit): $98,964

Depending on your plans and how long you’ll stay in the property, you may want to explore lender-paid closing costs by accepting a slightly higher interest rate in exchange for a credit.

Step 6: Qualifying Income

To qualify under Fannie Mae guidelines:

  • Target Monthly Income Needed: $7,588
    (Assumes a debt-to-income ratio up to 50% and minimal other monthly debt)

If this is an investment property or multi-unit home, qualifying rules will vary slightly, and rental income projections may help offset the required income.

Why Choose a Renovation Refinance?

This approach is ideal when:

  • Your home needs repairs or upgrades but you want a fixed 30-year payment
  • You want to avoid juggling two loans (purchase + renovation)
  • You’d prefer to finance the project with low, long-term rates instead of using high-interest credit cards or HELOCs
  • You’re aiming to boost property value, equity, and rental potential

Final Thoughts

The HomeStyle Renovation Refinance Loan is more than a mortgage—it’s a smart tool for homeowners and investors looking to increase the value of their property while streamlining their financing. With the right planning and a trusted mortgage expert, you can turn your current home into your dream home—without the financial juggling act.

Ready to Renovate Through Refinancing?

Get a customized refinance renovation plan tailored to your budget, timeline, and long-term financial goals. Whether you’re upgrading your kitchen or building an ADU, we’re here to help you fund it all with one powerful loan.

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Important Disclaimer

This calculator is for illustrative purposes only and does not constitute financial, legal, or investment advice. Results are based on general assumptions and may not reflect actual performance or eligibility. This is not a loan estimate or approval. Please consult with a licensed mortgage advisor before making financial decisions.

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