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Renovation financing is perfect for:
Borrowers Purchasing a Fixer-Upper Home in Need of Repairs or Upgrades
Homebuyers Purchasing a Foreclosed or Short-Sale Property
Borrowers Wanting to Make Improvements to Their Current Home
couple hugging before renovation

What Is Renovation Financing?

Renovation financing refers to loans that allow the borrower to use some of the financed money to make updates to the home they are purchasing. Depending on the type of financing chosen, your renovation loan may be a private loan or backed by the federal government. You’ll need decent credit to qualify for each of the options listed below.

Types of Loans

Fannie Mae’s Homestyle® Loan

With this type of private loan, you can either buy a home that needs improvements or refinance with a new mortgage in order to make updates to your current home. Unlike the FHA 203(k) loan, this can be an investment property or second home, though these require a higher downpayment. The funds for the repairs are held in an escrow account and are paid directly to the pre-approved certified contractor. You’ll be required to make at least a 5% downpayment, and all financing will be based on the post-renovation value of the home. If you put down less than 20%, you’ll still need to take out Private Mortgage Insurance (PMI).

Standard FHA 203(K) Loan

This government-insured loan has a lower minimum credit score than the HomeStyle® loan as well as a lower downpayment requirement – as little as 3.5%. You’ll be required to hire a qualified 203(k) consultant who will be involved from the beginning planning phase to the very end of the renovation. This is actually a benefit, as the consultant will serve as a project manager and help make decisions, assess costs, and ensure the work is being done in a timely fashion. Like any FHA loan, you’ll be required to pay the upfront mortgage insurance premium of 1.75% as well as the annual premium around 0.85%.

Limited FHA 203(K) Loan

This type of loan is capped at $35,000 and is designed for cosmetic improvements or upgrades rather than a full fixer-upper. It is not meant to be used for homes that have structural or foundational problems. If you can accomplish the improvements you need for under $35,000, this may be the right loan for you.

Renovation Financing


A big advantage for choosing this type of financing over a separate home improvement loan is that you only have one loan for both the purchase of your home and the repairs. This means less paperwork, one monthly payment, and only one set of closing costs.

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