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Renovation Mortgage: One Loan to Buy and Repair a Home

A renovation mortgage gives you the money to buy a home and fix it up — something a traditional mortgage can’t do.

Amy Fontinelle Amy Fontinelle Edited by Chris Jennings Updated October 13, 2021

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. By refinancing your mortgage, total finance charges may be higher over the life of the loan.
Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

A renovation mortgage is a type of mortgage that includes funds for home repairs and improvements. Maybe you want to move into a neighborhood with stellar schools, but the only way you can afford that is by getting a property in less-than-ideal shape. A renovation mortgage can help you buy the home and fund the remodeling.

Whether you’re looking to buy a fixer-upper or renovate a home you already own, you’ll have plenty of options to choose from.

Here’s what you need to know about renovation mortgages:

  • What is a renovation mortgage?
  • Should you get a renovation mortgage?
  • Options for a renovation loan
  • Which renovation loan is right for you?

What is a renovation mortgage?

Most mortgages can’t exceed the home’s value minus your equity or down payment. For example, if you want to buy a home that appraises for $200,000 and your lender requires you to put 3% down, the most you can borrow is $194,000.

A renovation mortgage, on the other hand, will provide the extra money required to purchase the home and fix it up — all in a single loan. These loans also have few restrictions on the repairs and upgrades you can make.

Tip: You will, however, need a slightly larger down payment because the loan will be based on the home’s after-renovation value, not the purchase price.

While this article will focus on purchase mortgages that come with additional funds for repairs, there are other loans — such as a cash-out refinance or home equity loan — that can help you renovate a home you already own:

Loan typeBest if:
Cash-out refinanceYou want to take advantage of low interest rates. Credible can help you find the best refinance rates.
Personal loan

You need cash fast. Get started with Credible.
Home equity loan

You need a lump sum but don’t want to refinance. Learn more about home equity loans.
HELOCYou want to pay for a series of projects over time. Learn more about HELOCs.
Credit cardYou could benefit from a 0% introductory APR. Use Credible to find a card that works for you.

Learn More:

  • HELOC: Is a Home Equity Line of Credit Right for You?
  • How Much It Costs to Renovate a House

Should you get a renovation mortgage?

A renovation mortgage for buying a home is best if you:

  • Don’t have enough cash for the purchase and repairs
  • Want to buy a home in poor condition that wouldn’t normally qualify for financing
  • Have the patience to deal with extra loan paperwork and inspections
  • Can complete renovations in six to 12 months or less

An all-in-one renovation loan can be simpler and less expensive than getting separate loans for the home purchase and repairs.

The interest rate on a first mortgage is one of the lowest borrowing rates you can get, and you’ll only have to qualify for one loan.

However, renovation mortgages do tend to require extra paperwork and inspections, and they do place some limits on how you can use the money.

When separate loans might be a better idea: A separate home purchase mortgage and home improvement loan could be a better idea if the home’s condition doesn’t prevent you from purchasing it with a non-renovation mortgage, such as a conventional, FHA, VA, or USDA loan.

You’ll likely have fewer administrative headaches if you take out a separate home improvement loan. That’s because you won’t have to get the lender’s approval for the repairs and renovations you want to complete.

Find Out: How Much Does It Cost to Buy a Home?

Pros and cons of a renovation mortgage

ProsCons
  • Buy a home not otherwise eligible for financing
  • Potential for significant home equity after renovations
  • Low interest rate
  • Limits and oversight on use of renovation funds
  • Extra paperwork and inspections
  • Not every lender offers them

Credible doesn’t currently offer renovation mortgages, but it can help you find a great rate on a purchase loan. With Credible, you can compare all of our partner lenders and see prequalified rates in as little as three minutes.

Credible makes getting a mortgage easy

  • Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.
  • We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.
  • A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.

Find Rates Now

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Options for a renovation loan

Four types of renovation loans are available to finance a home’s purchase price plus the cost of repairs:

Loan typeMin. credit scoreMin. down paymentResidence typesAllowable improvements
Fannie Mae HomeStyle Renovation loan6203%Principal residence (1-4 units); 1-unit second home or investment homeAny renovation or repair that’s permanently affixed to the property
Freddie Mac CHOICERenovation loan6205%Principal residence (1-4 units); 1-unit second home or investment homeRenovations that’ll be permanently affixed to an existing dwelling
FHA 203(k) limited loan500 with 10% down, 580 with 3.5% down3.5%Principal residence (1-4 units)Minor remodeling and nonstructural repairs
FHA 203(k) standard loan500 with 10% down, 580 with 3.5% down3.5%Principal residence (1-4 units)Major remodeling and structural repairs
Note: The U.S. Department of Veterans Affairs normally allows VA loans to be used for nonstructural renovations. However, it can be hard to find a lender who offers them during normal times, and the pandemic has made these loans unavailable through at least April 30, 2021.

Fannie Mae HomeStyle Renovation loan

Fannie Mae’s HomeStyle Renovation loan is a conventional mortgage where the amount you can borrow is based on the property’s post-improvement value.

This loan is extremely flexible: You can use it for everything from cosmetic improvements to accessory structures.

Its main limitations are that you can’t use it to tear down and rebuild a home or to build another home on the property.

If the home isn’t habitable, however, you can finance six months of mortgage payments so you can afford to live somewhere else during major construction. Renovations can cost as much as 75% of the home’s post-renovation value.

  • Min. credit score: 620
  • Min. down payment: 3%
  • Residence types: Principal residence (1-4 units); 1-unit second home or investment home; condos and co-ops allowed
  • Allowable improvements: Any renovation or repair that is permanently affixed to the property

Freddie Mac CHOICERenovation loan

Freddie Mac’s CHOICERenovation loan is also a conventional loan based on the property’s post-improvement value.

You can use this loan to pay for cosmetic or structural renovations to an existing home, but not to tear down and rebuild a home. You can also use it to renovate or build an accessory unit.

Like Fannie Mae’s offering, you can also finance six months of mortgage payments if necessary, and renovations can cost as much as 75% of the home’s post-renovation value.

  • Min. credit score: 620
  • Min. down payment: 3%
  • Residence types: Principal residence (1-4 units); 1-unit second home or investment home; condos and co-ops allowed
  • Allowable improvements: Renovations to an existing dwelling

FHA 203(k) limited loan

The FHA 203(k) limited loan lets you finance a maximum of $35,000 in repairs, and they can’t be structural. You must be able to live in the home for all but 15 days of the work, which has to be complete within six months.

Allowable renovations are generally anything that fixes, upgrades, or modernizes the property, with a few exceptions, such as adding a new swimming pool, hot tub, or tennis court.

  • Min. credit score: 500 with 10% down, 580 with 3.5% down
  • Min. down payment: 3.5%
  • Residence types: Principal residence (1-4 units); condos allowed
  • Allowable improvements: Nonstructural repairs and improvements up to $35,000

FHA 203(k) standard loan

An FHA 203(k) standard loan lets you borrow up to 110% of the home’s after-renovation value, and you can use it to make structural repairs.

In fact, you can tear a home down to its foundation and rebuild it. You can also make less-drastic structural changes such as home additions.

The requirement to use a 203(k) consultant with this loan adds an expense that other renovation loans don’t entail. You also have to refinance at least $5,000 worth of repairs, and you still can’t make renovations the FHA considers luxuries, like installing a new outdoor fire pit.

  • Min. credit score: 500 with 10% down, 580 with 3.5% down
  • Min. down payment: 3.5%
  • Residence types: Principal residence (1-4 units); condos allowed
  • Allowable improvements: Structural and nonstructural repairs and improvements

Learn More:

  • Are Condos a Good Investment? Figuring Out the Pros and Cons
  • Should You Refinance to Pay for Home Improvements?

Which renovation loan is right for you?

Depending on what you want to do with the property and how good your credit is, one of these renovation loans might be a better fit for you than the others.

If any of the following reasons apply to your situation, consider taking out the respective loan.

Refinancing optionBest if...
Fannie Mae HomeStyle Renovation loan or Freddie Mac CHOICERenovation loan
  • You want to renovate a second home or investment property
  • You want to borrow more than the FHA loan limit
  • You want to avoid FHA mortgage insurance and your credit score is at least 620
  • You can’t put more than 3% down
  • You want to make improvements that the FHA doesn’t allow, like adding a swimming pool
  • You’re not renovating a teardown
FHA 203(k) limited loan
  • You don’t need to spend more than $35,000 to improve the property and it doesn’t need structural work or major repairs
  • Your credit isn’t good enough for a conventional renovation loan
FHA 203(k) standard loan
  • You want to tear down a home and rebuild it on the same foundation
  • You want to buy a property that needs structural repairs and your credit isn’t good enough for a conventional renovation loan
About the author
Amy Fontinelle
Amy Fontinelle

Amy Fontinelle is a mortgage and credit card authority and a contributor to Credible. Her work has appeared in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, and more.

Read More

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