Renovation loans allow you to finance home improvements into a single mortgage. The main options are: FHA 203(k) (3.5% down, for fixer-uppers), Fannie Mae HomeStyle (5% down, more flexible), and VA Renovation (zero down for veterans). All let you borrow based on the after-renovation value, so you can buy a lower-priced home and finance the repairs without a separate loan.
FHA 203(k) Renovation Loan
The FHA 203(k) loan is the most popular renovation loan. It requires 3.5% down and accepts credit scores as low as 580. You can finance up to $35,000 in repairs with the streamlined version or unlimited repairs with the standard version. The loan amount is based on the projected after-renovation value, allowing you to buy a fixer-upper and build instant equity. The downside is FHA's lifetime mortgage insurance.
Fannie Mae HomeStyle Renovation Loan
The HomeStyle loan requires 5% down and a 620+ credit score. It offers more flexibility than FHA: you can finance luxury improvements, second homes, and even investment properties (25% down). PMI drops off at 80% equity, making it better long-term for buyers with good credit. It covers everything from minor repairs to major additions.
VA Renovation Loan
Eligible veterans and military can use a VA renovation loan with zero down and no monthly mortgage insurance. The VA loan covers the purchase plus renovation costs based on the after-renovation value. This is the best option for veteran buyers who want a fixer-upper.
When to Use Each
FHA 203(k) is best for buyers with lower credit (580-659) or limited savings. HomeStyle is best for buyers with 660+ credit who plan to stay long-term. VA Renovation is best for eligible veterans. The key advantage of all renovation loans is that you borrow based on the home's value after repairs, which means you can buy a lower-priced home in a great neighborhood, fix it up, and gain instant equity.