We closed on our first home this past September using a Fannie Mae HomeStyle Renovation Loan (similar, but different from an FHA 203k loan). I'll start by saying that due to the appraisal based on the scheduled renovations we needed to make a decision between coming up with extra capital for the HomeStyle loan or switching to an FHA 203k loan. We probably would have rather walked away then switch to an FHA 203k if we weren't able to come up with extra capital. Long story short, the cons for the FHA 203k seemed overwhelming.
I don't have my real estate license, but I did make sure to learn about the entire process. The process was rather involved so forgive my if there are any inaccuracies for how this all works.
First we needed to get a general contractor that all work would fall under. The contractor comes out and gives a comprehensive quote for all work to be completed under the loan. You submit that to the lender and then get a consultant to come out to basically go over everything the contractor quoted you on. The consultant writes up a detailed scope of work that goes into the specific things that will be completed along with the criteria the work needs to meet to pass his future inspection. The appraiser uses this consultant's scope of work to appraise the home based on the estimated value after the scheduled renovations are completed. I believe the house needs to appraise for both the pre-renovation and post-renovation amounts (could be wrong, but at a minimum the post-renovation amount).
The renovation loan can cover work to be completed, permitting fees, and consultant fees. A 10% contingency is built into the loaned amount. As you're doing work the contractor will request to make a draw from the loan. Each time you make a draw the consultant is supposed to review the progress of the work to make sure things are being completed appropriately. I think there are two different "tiers" of renovation loans through this program. We're in the more expensive tier, so it's possible the situation could be simpler for you if the renovations were in the lower tier.
We started our house hunting in May 2020 in NJ. We knew the market was wild (I understand it's even crazier now) and we were very interested in a true fixer-upper. This was the very first house we put an offer on, and I believe the fact that we came in planning to do a HomeStyle loan helped get our offer accepted. I believe this because the homeowners marketed their house as move-in-ready meanwhile the house was in really, really bad shape. So I think they knew that we were prepared for crazy stuff to come up in inspection and were less likely to walk away (they were facing foreclosure and likely couldn't afford the lost time of someone walking away).
The process of securing the HomeStyle loan was difficult because there are so many people involved. You need to get a lender, contractor, consultant, and appraiser all on the same page. The added complexity of the contractor and consultant can make it a bit tough. From our point of view it was completely worth it. We were able to close on a home in a super competitive market. We got exactly what we wanted and we've been able to fix it up.
Hopefully this was helpful.