In today’s competitive housing market, finding a home that checks every box can feel like winning the lottery. That’s why more buyers, and even current homeowners, are turning to renovation loans to transform a “maybe” property into their dream home. A renovation loan allows you to roll the cost of improvements into your mortgage and build equity faster with updates that fit your lifestyle.
Here’s a breakdown of the most common renovation loan options and how they work.
FHA 203(k): A Flexible Choice for Primary Residences
The FHA 203(k) renovation loan is one of the most well-known options, and for good reason. Backed by the Federal Housing Administration, it’s designed for buyers who want to purchase or refinance a primary residence in need of repairs or upgrades.
- Limited 203(k): Ideal for smaller projects like new flooring, paint, minor kitchen updates, or replacing appliances. It allows up to $75,000 in repairs without structural changes.
- Standard 203(k): Best for larger renovations, including structural work, room additions, or major remodels. This version requires working with a HUD consultant to guide the process.
Borrowers appreciate the lower down payment requirements and more lenient credit guidelines, making the FHA 203(k) a great solution when a home has solid potential but needs some TLC.
Fannie Mae HomeStyle: Renovation With More Freedom
For buyers with strong credit or those looking for more flexibility in their projects, the Fannie Mae HomeStyle Renovation Loan is a powerful alternative. Unlike the 203(k), HomeStyle allows renovations on primary residences, second homes, and investment properties, giving borrowers wider possibilities.
You can use HomeStyle for virtually any improvement that adds value, from a full kitchen remodel to adding a deck, finishing a basement, or updating landscaping. Luxury upgrades like outdoor kitchens, spas, or high-end finishes may also be allowed as long as they contribute to the property’s value. This program typically offers competitive interest rates and higher allowable loan amounts, which is attractive for borrowers planning more ambitious transformations.
Other Renovation Loan Options
Depending on your needs, there are also additional pathways:
- Freddie Mac CHOICERenovation: Similar to HomeStyle but offers flexibility for aging-in-place improvements, resiliency upgrades, and accessibility features.
- VA Renovation Loans: For eligible veterans and service members looking to repair or upgrade a primary residence using a VA-backed mortgage.
- Cash-Out Refinance: If you have significant equity, this can be a straightforward way to fund renovation projects without the structure of a renovation-specific program.
Which Renovation Loan Is Right for You?
Choosing the right renovation loan comes down to your goals, budget, property type, and long-term plans. Whether you’re imagining a full transformation or just need a few updates to make a home yours, renovation financing can open doors that traditional mortgages simply can’t.
If you’re considering a renovation loan or want help comparing your options, I’m here to guide you every step of the way.
