Renovation Loan Explained
A Renovation Loan is a mortgage that finances both the home purchase (or refinance) and the cost of repairs or upgrades in one loan. This program is ideal for buyers purchasing fixer-uppers or homeowners completing major improvements.
How Renovation Loans Work
Instead of taking separate loans for the home and the repairs, the lender combines everything into one mortgage. Renovation funds are held in an escrow account and released in stages as work is completed.
Who Renovation Loans Are For
- Buyers purchasing fixer-uppers
- Homeowners upgrading or remodeling
- Borrowers wanting to roll repairs into one loan
- Investors improving rental properties
- Buyers who want instant equity after renovations
What Lenders Look At
- Renovation plans and contractor bids
- Appraisal based on “after-improved” value
- Credit score
- Down payment
- Contractor licensing and experience
- Project timeline
Basic Requirements
- 620+ credit score (varies by lender)
- 3.5%–20% down payment depending on loan type
- Licensed contractor required
- Detailed repair budget
- Appraisal based on completed value
Loan Structure
- Funds for repairs held in escrow
- Contractor paid in draws
- Inspections required before each draw
- One loan covers both purchase and renovation
- Available for primary homes, second homes, and some investment properties
Types of Renovation Loans
- FHA 203(k)
- Fannie Mae HomeStyle
- Freddie Mac CHOICERenovation
- Jumbo renovation loans (varies by lender)
- Investor renovation loans (limited availability)
Property Types Allowed
- Single-family homes
- Condos (with restrictions)
- Townhomes
- 2–4 unit properties
- Some mixed-use properties (program-specific)
Benefits
- One loan for purchase and repairs
- Finance upgrades, repairs, and improvements
- Appraisal based on improved value
- Great for fixer-uppers
- Can increase home value immediately
Next Steps
If you’re buying a fixer-upper or planning major upgrades, a Renovation Loan may be the best option. Gather contractor bids, finalize your renovation plan, and compare lender programs before applying.
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