You’ve found a house with great bones—solid structure, a desirable location, and plenty of potential—but it needs some work. For many buyers, the idea of taking on renovation costs can feel overwhelming. The good news? It doesn’t have to be.
Today’s homebuyers have access to financing options that allow them to roll renovation costs directly into their mortgage. That means you can purchase a home and fund improvements with a single loan—making it easier to compete in a low-inventory market, personalize your space, and build equity faster.
As always, a knowledgeable NCJAR real estate professional can help guide you through these options and connect you with trusted lenders.
What Is Renovation Financing?
Renovation financing allows buyers to include the cost of repairs, upgrades, or even structural changes in their home loan. Instead of purchasing a home and then taking out a separate loan for improvements, everything is bundled into one mortgage.
This approach offers several advantages:
- One monthly payment instead of multiple loans
- Potentially lower interest rates compared to personal or home improvement loans
- The ability to customize your home immediately
- Faster equity growth by increasing the home’s value
Mortgage Options That Include Renovation Costs
Several government-backed and conventional loan programs make this possible:
FHA 203(k) Loan
This popular option is designed for buyers who want to finance both the purchase and renovation of a home.
- Minimum repair cost: $5,000
- Requires working with an FHA-approved 203(k) consultant
- Renovations must be completed within 12 months
There are two versions:
- Standard 203(k): For major renovations and structural work
- Limited 203(k): Allows up to $75,000 for minor, non-structural repairs, typically completed within nine months
Fannie Mae HomeStyle® & Freddie Mac CHOICE Renovation® Loans
These conventional loan options offer flexibility for a wide range of improvements.
- Borrow up to 75% of the purchase price plus renovation costs (or the “as-completed” appraised value, whichever is lower)
- Suitable for both minor upgrades and larger renovation projects
VA Renovation Loan
Available to eligible veterans, active-duty service members, and surviving spouses.
- Must be used for a primary residence
- Focuses on improvements related to safety or accessibility (e.g., HVAC systems, mold remediation)
- Not intended for cosmetic upgrades
What Types of Properties Qualify?
Depending on the program, eligible properties may include:
- Single-family homes
- Two- to four-family homes
- Townhomes
- Certain condominium units (interior improvements only for FHA 203(k))
- Manufactured homes titled as real estate
- HUD-owned properties
- Mixed-use properties (must be at least 51% residential)
What Renovations Are Allowed?
FHA Standard 203(k) (Major Renovations)
- Structural repairs or changes
- Foundation repair or reconstruction
- Converting property types (e.g., single-family to multi-unit)
- Moving an existing structure to a new site
FHA Limited 203(k) (Minor Improvements)
- Plumbing, HVAC, and electrical updates
- Kitchen and bathroom remodels
- Finishing basements or attics
- Roofing, siding, and gutter repairs
- Garage construction or renovation
- Accessibility improvements
Why Not Just Get a Home Improvement Loan Later?
While that may seem like a simpler route, it often comes with drawbacks:
- Higher interest rates
- Shorter repayment terms
- Multiple loans to manage
Renovation mortgages streamline the process by combining everything into one long-term loan, often with more favorable terms.
The Bottom Line
A home that needs work doesn’t have to be a dealbreaker—it could be your biggest opportunity.
With the right financing, you can turn a fixer-upper into your dream home while building value from day one. If you’re considering a property that needs renovations, connect with an NCJAR real estate professional. They can help you explore your options, navigate the process, and find the right solution for your goals.
Source: NAR Consumer Guide
