Buying a fixer-upper home can be a smart way to break into the housing market, but it requires the right financing. With a fixer-upper loan, home buyers can cover both the purchase price and renovation costs in one loan.
From FHA 203(k) loans to Fannie Mae HomeStyle loans, there are many renovation loans for first-time home buyers to finance a house that needs work. This guide explores fixer-upper mortgage loans, budgeting, and key steps to transforming your home.
Now that you know a fixer-upper loan lets you buy a house that needs work and roll renovation costs into your mortgage, let’s explore which option might fit you best.
Some require a special appraisal to estimate the home’s post-renovation value, and others may need an approved contractor to handle the upgrades.
Below, we’ll break down the most popular renovation loans for first-time home buyers who plan to live in their fixer-upper home. If you’re flipping a property, an investment property loan might be a better fit.
1. Fannie Mae Homestyle Renovation
Program benefits
The Fannie Mae HomeStyle Renovation loan is a conventional mortgage that allows buyers to finance both home purchase and renovation costs with a single loan. Unlike government-backed options, it is suitable for primary residences, second homes, and investment properties, which makes it one of the most flexible renovation programs available.
You can cancel PMI once the loan reaches 80% loan-to-value (LTV).
Combines purchase price and renovation costs into a single mortgage.
Loan amount based on the home’s after-renovation value.
Available for primary residences, second homes, and investment properties.
Allows a wide range of renovations, from cosmetic updates to major structural work.
Permits limited DIY work, with licensed professionals required for safety-related repairs.
Eligibility requirements
Minimum 3% down payment for primary residences (higher for second homes and investment properties).
Minimum credit score of 620.
Renovation plans and cost estimates required before closing.
Licensed contractors required for most renovation work.
Property must meet conventional loan standards after renovations.
2. Freddie Mac CHOICERenovation
Program benefits
The Freddie Mac CHOICERenovation loan is similar to HomeStyle but includes support for resilience upgrades. It is ideal for buyers looking to strengthen a home against natural disasters while financing repairs through a conventional mortgage.
Finance your home purchase and renovations with a single loan.
Loan amount based on the property's appraised value.
Supports disaster-resilience improvements, like flood or storm mitigation.
Available for primary residences and select investment properties.
You can cancel PMI once you have 20% equity.
Renovations are required to be finished within 12 months.
Eligibility requirements
Minimum 3% down payment required.
Minimum credit score of 620, subject to lender discretion.
Approved renovation plans and contractor bids are required.
Renovations must be completed within 12 months of closing.
Property must meet Freddie Mac guidelines after repairs.
3. Freddie Mac CHOICEReno eXPress
Program benefits
CHOICEReno eXPress is a simplified renovation loan created for smaller repair budgets. It maintains many of the benefits of CHOICERenovation while streamlining timelines and paperwork.
Consolidates purchase and renovation costs into a single mortgage.
Intended for minor renovations limited to 15% of the purchase price.
Faster renovation timeline than full renovation loans.
Uses conventional loan pricing and terms.
PMI is eligible for removal once equity thresholds are met.
Eligibility requirements
Minimum 3% down payment required.
Minimum credit score of 620.
Renovation costs are limited to 15% of the purchase price.
Renovations must be completed within 180 days.
Contractor estimates required for approval.
4. FHA 203(k)
Program benefits
The FHA 203(k) loan allows buyers to purchase and renovate a fixer-upper with a single government-backed mortgage. The program offers two versions:
Limited 203(k): Covers minor home improvements up to $35,000, like flooring, painting, and kitchen updates.
Standard 203(k): Funds larger renovation projects that involve structural repairs or major upgrades.
Both options allow buyers to finance improvements without needing separate construction loans.
Requires a down payment as low as 3.5%.
Accepts credit scores starting at 580.
Combines the home purchase price and renovation costs into one loan.
Bases the loan amount on the home’s value after renovations.
Allows a wide range of repairs, from cosmetic updates to major structural work.
Offers competitive FHA interest rates rather than higher renovation loan pricing.
Eligibility requirements
Minimum credit score of 580 for 3.5% down.
Property must serve as the borrower’s primary residence.
Limited 203(k) repairs capped at $35,000 and limited to non-structural work.
Standard 203(k) required for structural repairs or major renovations.
The VA renovation loan lets eligible service members and veterans buy a fixer-upper and finance renovation costs with a single VA-backed mortgage. It combines the main benefits of VA loans—such as no down payment and competitive interest rates—with funding for approved home improvements, making it one of the most affordable ways to buy and fix up a home.
Requires no down payment for eligible borrowers.
Offers VA interest rates, which are often lower than conventional renovation loan rates.
Does not require mortgage insurance.
Finances both the purchase price and renovation costs in one loan.
Bases the loan amount on the home’s after-repair value, as determined by a VA appraisal.
Allows renovation funds to cover repairs, upgrades, and necessary home improvements.
Lets borrowers roll the VA funding fee into the loan balance, if applicable.
Eligibility requirements
Borrower must be an eligible veteran, active-duty service member, or qualifying surviving spouse.
Investment properties and second homes do not qualify.
Renovation costs cannot exceed the home’s appraised after-repair value.
Repairs must be completed by VA-approved contractors.
Lenders set credit score requirements, with many requiring scores of 620 or higher.
VA funding fee applies unless the borrower qualifies for an exemption.
6. USDA renovation loan
Program benefits
The USDA renovation loan allows eligible buyers to purchase a home in a USDA-approved rural area and finance renovation costs with a single, government-backed mortgage. Designed for low- to moderate-income households, the program combines no-down-payment financing with funds for repairs, upgrades, and accessibility improvements.
Requires no down payment for eligible borrowers.
Combines the home purchase price and renovation costs into one mortgage.
Offers competitive interest rates backed by the U.S. Department of Agriculture.
Allows financing for repairs, safety upgrades, accessibility improvements, and energy-efficient features.
Bases eligibility on household income instead of just the borrower’s income.
Renovations must improve safety, livability, accessibility, or energy efficiency.
Investment properties and second homes do not qualify.
Lenders typically require a minimum credit score, often around 640, though standards vary.
Pros and cons of fixer-upper loans
A mortgage for a fixer-upper home can make homeownership more affordable, but it also comes with trade-offs. Before you get a loan for a house that needs work, it’s important to understand both the benefits and potential drawbacks of fixer-upper mortgages.
Lower purchase price: Fixer-upper homes often cost less than move-in-ready properties.
All-in-one financing: A loan for a fixer-upper home covers both the purchase price and renovation costs in a single mortgage.
Less competition: There’s typically less demand for homes that need work, which gives DIY buyers an advantage.
Home equity growth: Strategic renovation projects can improve the value of the home over time.
Cons:
Strict fixer-upper loan requirements: Many fixer-upper mortgages require licensed contractors, detailed plans, and limit “sweat equity” renovations.
Higher upfront costs: Some mortgage loans for fixer uppers have larger down payment and closing cost requirements.
Longer approval process: Home loans for houses that need work often involve extra paperwork and inspections.
Surprise repair costs: Even with a home inspection, unexpected repair costs may arise.
A fixer-upper loan can help you create your dream home, but it’s important to fully understand renovation costs, loan restrictions, and potential risks before starting the process.
Another option for financing a fixer-upper home
If you’re a DIYer looking to finance a fixer-upper house without the hassle of a renovation loan program, this strategy offers a flexible alternative:
Buy the home with a conventional loan. Renovation loans have strict requirements and longer approval times. A conventional loan lets you close faster and with fewer hurdles.
Use a personal loan for repairs. Since personal loans don’t require home equity, you can access funds quickly to start renovations.
Refinance with a home equity loan or HELOC. Once your improvements increase the home’s value, refinance with a home equity loan or line of credit (HELOC) to secure a lower interest rate or longer repayment terms.
This strategy for financing a fixer-upper home gives you faster access to funding and more flexibility in managing repairs. But personal loans typically have higher interest rates, and home equity loans come with closing costs. If your total mortgage debt stays below 80-90% of your home’s value, you’ll have more refinancing options—so it’s worth shopping around for the right lender.
“If you can get enough cash this way, it tends to be the simplest way to finance repairs,” says Jon Meyer, loan expert and licensed MLO. “But you need to ensure you can get enough cash for the projects.”
How to buy a fixer-upper home
Getting a loan to buy a house and fix it up will follow a similar process as purchasing a move-in-ready home, but it requires extra planning. To avoid costly mistakes, follow these key steps to secure the best fixer-upper loan, find the right property, and set yourself up for a successful home renovation.
Step 1: Work with a real estate agent who knows fixer-uppers
Let your real estate agent know you’re searching for a fixer-upper home so they can alert you to new listings. Agents experienced in homes that need work can help you find the best deals and avoid major red flags.
Step 2: Get preapproved for a fixer-upper mortgage
Before house hunting, connect with a mortgage lender to get preapproved. Many mortgages for fixer uppers, such as an FHA 203(k) loan, a Fannie Mae HomeStyle loan, or a VA renovation loan, require a renovation plan. A mortgage preapproval letter shows sellers and agents that you’re a serious buyer.
Step 3: Schedule a home inspection
Fixer-upper homes often have hidden issues. Never skip a home inspection, even in a competitive market. A professional home inspector can identify structural or safety problems that could derail your new home purchase.
Step 4: Get repair estimates from a contractor
If you’re using a home renovation loan, your lender will require a licensed contractor to estimate repair costs before loan approval. Even if paying out of pocket, an estimate helps prevent budget overruns.
Step 5: Choose the right fixer-upper loan
Different fixer-upper loans are available depending on your needs:
FHA 203(k) loan: Ideal for first-time buyers needing a low down payment.
Fannie Mae HomeStyle loan: Great for major home improvements.
VA renovation loan: Available to veterans for purchasing and renovating a fixer-upper home.
Step 6: Set a realistic renovation budget
Once you’ve chosen a loan for a fixer-upper home, build a detailed renovation budget covering materials, labor, permits, and unexpected repairs. A spreadsheet can help track expenses and adjust spending as needed. Some homeowners also use financing options like a cash-out refinance or a home equity line of credit (HELOC) to fund additional home improvements after purchase.
Step 7: Close on your home and begin renovations
Once your fixer-upper mortgage is finalized, work closely with your contractor to stay on budget. Be mindful of loan restrictions on sweat equity if you are overseeing some DIY renovations. With proper planning, you’ll soon turn your fixer-upper home into a new home that fits your vision.
FAQs about fixer-upper loans
Fixer-upper loans let home buyers finance both the purchase price and renovation costs with a single loan. In the past, you needed multiple loans—one for the home, one for renovations, and a refinance to wrap it all up once the work was done. This meant paying closing costs multiple times and paying higher rates for home renovation loans. Now, lenders offer fixer-upper mortgage options that cover both the home and renovation, making it easier to finance everything with a single loan. With these all-in-one home loans for fixer uppers, home buyers save both time and money.
Yes, but some fixer-upper loans only allow DIY renovations if you’re a licensed contractor. Many loans for houses that need work also limit the type or amount of work you can do yourself, so check your loan options first. Regardless, all work must pass inspection. Even if you handle some upgrades, hire a home inspector and construction expert to avoid costly mistakes. A real estate agent can help if you’re flipping, and specialists should install or inspect electrical and plumbing to ensure code compliance.
Yes, a conventional loan like the Fannie Mae HomeStyle loan or Freddie Mac ChoiceRenovation loan allows you to finance both the purchase price and home improvements in one mortgage. These loans typically require a higher credit score and down payment than government-backed renovation loans but offer more flexibility.
The credit score needed for fixer-upper mortgages depends on the loan program. The FHA 203(k) loan requires a 580 score with a 3.5% down payment, while the Fannie Mae HomeStyle loan and Freddie Mac ChoiceRenovation loan typically require 620 or higher. VA renovation loans and USDA renovation loans have lender-specific requirements, but many lenders prefer 640+ scores.
The down payment depends on the loan program. The FHA 203(k) loan requires 3.5% down, while the Fannie Mae HomeStyle loan allows 3% for a first-time home buyer fixer-upper loan. VA renovation loans and USDA renovation loans often require no down payment, while conventional loans usually need 5% or more.
Start by getting a home inspection and contractor estimates. If using a loan to buy and fix up a house, your lender may require a detailed renovation plan. Always set aside a 10-20% buffer for unexpected repairs. If additional funds are needed, a HELOC or cash-out refinance can provide extra financing. A renovation loan for first-time home buyers simplifies the process by covering both the home purchase and repair costs in one mortgage.
Find your best fixer-upper loan option
So, where should you begin? The first thing to do is to decide on the type of mortgage you want. For many first-time home buyers purchasing a fixer-upper, an all-in-one rehabilitation loan is a great option.
Once you’ve settled on the loan you want, get preapproved. Preapproval letters are only valid for a limited period (often 30-90 days), but you can renew them as often as necessary. Always keep yours up to date while house hunting.
Now, with your letter in your pocket, you can start having fun. Start searching and viewing fixer-upper homes. Try to find a buyer’s agent who specializes in those.
Ready to go? Let us help you find lenders who can help you.
Peter Warden has been writing for a decade about mortgages, personal finance, credit cards, and insurance. His work has appeared across a wide range of media. He lives in a small town with his partner of 25 years.
Ryan Tronier is a financial writer and mortgage lending expert. His work is published on NBC, ABC, USATODAY, Yahoo Finance, MSN Money, and more. Ryan is the former managing editor of the finance website Sapling and the former personal finance editor at Slickdeals.
Aleksandra is an editor, finance writer, and licensed Realtor with deep roots in the mortgage and real estate world. Based in Arizona, she brings over a decade of experience helping consumers navigate their financial journeys with confidence.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
By refinancing an existing loan, the total finance charges incurred may be higher over the life of the loan.
