Renovation loans: What they are and where to find them

Before we get started

We don't specialize in renovation loans at MortgageCS. These loans require specific expertise, contractor coordination, and draw schedules that fall outside our core focus. But since people ask about them, we wanted to explain how they work and help point you in the right direction.

What is a renovation loan?

A renovation loan lets you finance both the purchase (or refinance) of a home AND the cost of renovations in a single mortgage. Instead of buying a house and then taking out a separate loan for improvements, you roll everything together.

This is especially useful when you're buying a fixer-upper and the home wouldn't qualify for traditional financing in its current condition.

Types of renovation loans

FHA 203(k) Loan

The FHA 203(k) is backed by the Federal Housing Administration and comes in two versions:

Limited 203(k):

• For smaller projects up to $35,000
• No minimum repair cost
• Can't include structural work
• Simpler process with less paperwork

Standard 203(k):

• For larger renovations with no maximum limit
• Requires a HUD consultant
• Can include structural changes, room additions
• More complex but handles bigger projects

Both require the home to be at least one year old and have specific contractor requirements.

Fannie Mae HomeStyle Renovation

The HomeStyle loan is a conventional option that offers more flexibility:

• No dollar limit on renovations (up to the loan limit)
• Can include luxury items like pools and landscaping
• Works for primary homes, second homes, and investment properties
• Typically requires higher credit scores than FHA

Freddie Mac CHOICERenovation

Similar to HomeStyle, Freddie Mac's version offers:

• Flexible renovation options
• Can finance resilience improvements (storm protection, etc.)
• Works with various property types
• Competitive rates for qualified borrowers

Why renovation loans are tricky

These loans aren't just about qualifying for a mortgage. They involve:

• Detailed contractor bids before you can close
• Draw schedules where funds are released in stages
• Inspections at various points during construction
• Tight timelines for completing the work
• HUD consultants for FHA 203(k) standard loans

Most mortgage companies don't do many of these loans because the process is so different from a standard mortgage. You want a lender who does them regularly and has systems in place to handle the complexity.

Where to find renovation loan specialists

Look for lenders who:

• Advertise renovation loans prominently (not buried on their site)
• Can explain the process clearly and answer detailed questions
• Have recent reviews specifically mentioning renovation loans
• Work with HUD consultants (for FHA 203k)

Some larger banks and credit unions offer these programs, as do certain mortgage companies that specialize in them. Ask how many renovation loans they've closed in the past year.

Alternatives to consider

Depending on your situation, you might not need a renovation loan:

Buy and renovate separately:

• Purchase with a traditional mortgage
• Use a HELOC or home equity loan for renovations later
• Often simpler if the home is livable as-is

Cash-out refinance:

• If you already own the home
• Take equity out to fund improvements
• We can help with this option

Personal loan:

• For smaller projects
• No home equity required
• Higher rates but simpler process

Questions about your situation?

Even though we don't offer renovation loans, we're happy to help you think through whether you actually need one or if another approach would work better. Sometimes what seems like a renovation loan situation turns out to have a simpler solution.

Schedule a call and we'll help you figure out the best path forward.