Loan Programs
Renovation Loans
Buy the house with potential and finance the improvements all in one loan. Turn the fixer-upper into your dream home.
What Is a Renovation Loan?
A renovation loan lets you finance both the purchase of a home and the cost of renovations into a single mortgage. Instead of buying a home, closing, and then taking out a separate construction loan or personal loan for improvements, everything is rolled into one transaction with one closing, one monthly payment, and one set of closing costs.
There are two primary renovation loan programs. The FHA 203(k) comes in two flavors: the Standard 203(k) for major renovations with no dollar cap (within FHA loan limits), and the Limited 203(k) for smaller projects up to $35,000. Then there's the Fannie Mae HomeStyle Renovation loan, which is a conventional product allowing renovations up to 75% of the after-renovation appraised value.
Both programs require a licensed general contractor, detailed renovation plans, and a HUD-approved consultant (for Standard 203k). The process involves more paperwork and coordination than a standard purchase, but the upside is massive: you can buy a property that most buyers overlook, renovate it to your specifications, and finance the entire thing based on what the home will be worth after the work is done.
Program Comparison
FHA 203(k) Standard
For major renovations, structural repairs, room additions, complete remodels. No set renovation dollar cap (within FHA limits). Requires a HUD consultant to oversee the project. Credit score 580+ with 3.5% down.
- • Structural work allowed
- • No renovation amount cap
- • HUD consultant required
FHA 203(k) Limited
For smaller, non-structural projects up to $35,000, new flooring, kitchen and bath updates, paint, appliances, HVAC, roofing. Simpler process with no HUD consultant required. Same FHA credit and down payment guidelines.
- • Up to $35,000 in renovations
- • Non-structural work only
- • Streamlined paperwork
HomeStyle Renovation
Fannie Mae's conventional renovation program. Renovations up to 75% of the as-completed value. Better terms for borrowers with strong credit, no upfront MIP and potentially lower monthly insurance costs.
- • Up to 75% of after-reno value
- • Conventional guidelines apply
- • PMI cancels at 80% LTV
Why Renovate With a Mortgage?
Spreading renovation costs across a 30-year mortgage at mortgage rates (typically 6-8%) is far cheaper than a personal loan (10-20%+) or credit cards (20%+). Plus, you're borrowing against the future value of the home.
- • Lower rates than alternatives
- • Based on after-renovation value
- • One loan, one payment
Requirements
- ✓ Contractor: A licensed general contractor is required. You cannot DIY renovation loan projects.
- ✓ Plans & Bids: Detailed renovation plans and contractor bids must be submitted before approval.
- ✓ Credit Score: 580+ for FHA 203k programs. 620+ for HomeStyle. Better credit = better terms.
- ✓ Down Payment: 3.5% (FHA 203k) or 3-5% (HomeStyle) based on the total loan amount including renovations.
- ✓ Timeline: Renovations must typically be completed within 6 months (Limited) or 12 months (Standard/HomeStyle).
Who Is This For?
Renovation loans let you see potential where others see problems. They're great for:
- → Buyers eyeing fixer-uppers or homes that need updating
- → Homeowners who want to renovate their current home through a refinance
- → Buyers in competitive markets who can win deals others pass on
- → Anyone wanting to customize a home to their exact preferences from day one
- → Buyers in older neighborhoods with great locations but dated inventory
Frequently Asked Questions
Found a fixer-upper with potential?
Let's talk about renovation financing. I'll walk you through the process and help you find the right program.