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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.

Author
By Amy Fontinelle

Written by

Amy Fontinelle

Writer

Amy Fontinelle is a personal finance journalist with over 15 years of experience. Her work has been featured on Forbes Advisor, The Motley Fool, NewsBreak, Reader's Digest, USA TODAY Blueprint, and Fox Business.

Edited by Reina Marszalek

Written by

Reina Marszalek

Senior editor

Reina is a senior mortgage editor at Credible and Fox Money.

Updated June 26, 2024

Editorial disclosure: 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. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

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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.

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 at $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.

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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 purchasing 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 type
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Cash-out refinance
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Home equity loan
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HELOC
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Learn More: HELOC: Is a Home Equity Line of Credit Right for You?

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

Pros
Cons
  • 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

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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 type
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