Key Takeaways
- Renovation loans cover both the home purchase and repair costs under one mortgage.
- Loan options include FHA 203(k), HomeStyle, VA, and USDA, depending on your qualifications.
- You can borrow based on the home’s expected value after renovations.
Whether you’re updating a dated kitchen, converting the garage into a home office, or making essential repairs, home renovations can quickly add up in cost.
The good news? You don’t have to pay for it all upfront. From personal loans to tapping into your home equity, there are several financing options that can help you tackle your project without draining your savings.
In this article (Skip to...)
- What is a home renovation loan?
- How does a home renovation loan work?
- Home renovation financing options
- What type of remodel projects qualify?
- FAQ
What is a home renovation loan?
Typically, a home renovation loan is a single mortgage that lets you both finance a home and renovate it. Renovation loans can be used either when buying a home or refinancing one you already own. By financing the home and the renovations together, you can consolidate your renovation costs into one low-rate mortgage rather than taking out separate loans to buy the property and pay for repairs.
How does a home renovation loan work?
Renovation loans are unique because they let you borrow more than the home’s current value. Typically, the maximum loan amount is your home’s estimated future value after renovations are complete.
You’ll need detailed construction plans and cost estimates to qualify for a renovation loan. Having inspected the property and reviewed your plans and contractor quotes, the home appraiser will give an “as improved” valuation. Assuming the project is viable, you get the mortgage portion of your loan right away so you can complete the purchase or refinance.
Renovation funds are then released in stages (“draws”) as your project reaches pre-agreed milestones. You’ll need a contractor that’s happy working on that basis. It typically helps to find a contractor who has worked with renovation loan programs in the past and understands how the process should go.
Check your renovation loan options. Start here
Home renovation financing options
There’s no one-size-fits-all way to fund a renovation. Depending on your goals, budget, and how much equity you have in your home, you can choose from a range of financing options.
Common home renovation loan options
- Fannie Mae HomeStyle® Renovation Loan: A conventional loan that allows borrowers with a credit score of 620+ to finance nearly any non-luxury upgrade with as little as 3% down.
- Freddie Mac CHOICERenovation® Loan: Similar to HomeStyle but includes disaster-resilient improvements. Also requires a 620+ credit score and a minimum 3% down payment.
- FHA 203(k) Renovation Loan: A government-backed loan with two versions: Limited (up to $35K) and Standard (larger projects). Great for borrowers with lower credit (580+), but mortgage insurance is required for the life of the loan.
- VA Renovation Loan: Offers eligible veterans and service members a zero-down option with no monthly mortgage insurance.
- USDA Renovation Loan: For low- to moderate-income buyers in eligible rural areas. Finance both home and repairs with no down payment.
For a deeper comparison of these and other renovation financing choices, check out this in‑depth breakdown of home improvement loans and how to choose the right one.
What types of remodel projects qualify?
Most lenders allow financing for improvements that add value, improve livability, or address health and safety issues. While guidelines can vary by loan type, here are common renovation projects that typically qualify:
Check your renovation loan options. Start here-
Kitchen remodels: Includes cabinet upgrades, new countertops, appliances, lighting, flooring, and layout changes that improve functionality.
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Bathroom renovations: Covers everything from cosmetic updates to full remodels involving plumbing, fixtures, tilework, and accessibility upgrades.
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Roof replacement or repair: Essential structural improvements like new roofing or addressing leaks usually qualify under most loan programs.
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HVAC, electrical, and plumbing updates: Upgrading major systems for safety, efficiency, or code compliance is generally eligible.
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Room additions or conversions: Adding square footage (like a new bedroom or home office) or converting an attic, basement, or garage into livable space.
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Flooring replacement: Replacing old carpet, tile, or hardwood, especially when tied to other updates that enhance home value.
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Energy-efficient upgrades: Projects like solar panels, insulation, new windows, or smart thermostats often qualify, especially under government-backed loan programs.
Home renovation loan FAQ
Check your renovation loan options. Start hereYes! There are a variety of loan options that can be used for home renovations. Those buying a fixer-upper home might consider the Fannie Mae HomeStyle loan, Freddie Mac CHOICERenovation loan, or FHA 203k rehabilitation loan. Current homeowners often finance renovations using a cash-out refinance, home equity loan, or HELOC. And if you don’t want to touch your home’s equity (or don’t qualify for the mortgage), a personal loan could be an option.
Yes, most renovation loans have slightly higher rates. From a lender’s point of view, these loans carry a little more risk. However, rates for these tend to be only slightly higher than those for purchase-only mortgages. You’ll see the difference when you start to comparison shop for your loan.
The FHA 203k rehab loan is a government-backed renovation loan. It allows you to buy or refinance a property and include the cost of renovations in your loan amount. The FHA 203k program can be a great choice for those with credit scores of 580-620. But you may find other alternatives more attractive if you have a strong credit score.
Renovation loans involve more documentation than purchase-only mortgages In addition to the standard application paperwork (like bank statements and income documentation), expect to provide construction plans, contractor quotes and specifications, work schedules, local authority permits, and anything else the appraiser needs to ensure your project is viable.
That varies between programs, lenders, and projects. If you’re using a renovation loan to buy and fix up a property, you can often borrow up to the home’s future value — its estimated cost after renovations are completed. But your loan amount will have to fall with local conforming or FHA loan limits. Those using a cash-out refinance, home equity loan, or HELOC can often borrow up to 80 or 85 percent of their property value, minus their current mortgage amount.
Most renovation loans are offered through mortgage lenders, just like standard home buying and refinance loans. But the process is different. To apply, you’ll need detailed renovation plans and cost estimates in addition to the usual financial documentation. Once you decide on a loan program, reach out to a mortgage lender to find out exactly how the process works and what documentation you should prepare.
Which home renovation loan is best for you?
As you can see, there’s a wide variety of renovation loans available. The best program for you depends on a number of factors, like whether you’re buying a fixer-upper or renovating a home you currently own, and what kind of shape your finances are in.
Your best bet is to connect with a lender and discuss options. Your mortgage loan officer can help evaluate your plans and financial situation to determine which renovation loan is best. Ready to get started?
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