See what a home could become.
A renovation loan lets you buy a home that needs work, or fix up the one you own, and roll the cost of the repairs into a single mortgage. The two most common are the FHA 203(k) and the Fannie Mae HomeStyle Renovation loan.
Who it is for
- Buyers who found the right house in the wrong condition
- Buyers looking at foreclosures and other homes that will not pass a standard appraisal as they sit
- Homeowners who want to renovate and refinance at the same time
What you will need
- Photo ID for each borrower
- Recent pay stubs and the last two years of W-2s, or tax returns if you are self-employed
- Recent statements for the accounts holding your down payment and reserves
- Permission to check your credit
- A written bid from a licensed contractor describing the work
- For larger projects, a consultant who reviews the plan and inspects the work
Good to know
- The loan is based on what the home is expected to be worth after the work is finished.
- Repair money is held back at closing and paid to the contractor in stages as the work is completed and inspected.
- The FHA 203(k) comes in two versions: one for smaller, non-structural projects and one for major work.
- The 203(k) is for a main residence. HomeStyle can also be used on second homes and investment properties.
Common questions
Can I do the work myself?
In most cases the work has to be done by a licensed contractor. This protects you and the lender, since the loan depends on the work being finished properly.
How does the contractor get paid?
The repair funds are set aside at closing. The contractor is paid in draws as stages of the work are completed and inspected.
What kinds of repairs are allowed?
Most repairs and improvements qualify, from roofs and furnaces to kitchens and additions. Some luxury items are not allowed under the 203(k).
Does a renovation loan take longer?
Usually, yes. Gathering contractor bids and getting the plan reviewed adds steps before closing, so it helps to start early.
