Several home renovation loan programs are available that allow home buyers finance both the purchase and the renovation of a property. The most popular programs are offered by government-backed agencies, as well as some private lenders. Here’s an overview of key renovation loan options:

FHA 203(k) Rehabilitation Mortgage

• Type: Government-backed loan by the Federal Housing Administration (FHA).

• Purpose: Allows homeowners or homebuyers to borrow money for both a home purchase and renovations.

• Key Features:

• Covers structural and cosmetic repairs.

• Two types:

• Limited 203(k): For minor repairs or improvements up to $35,000.

• Standard 203(k): For major renovations, including structural changes with no upper limit except for the FHA loan limits for the area.

• Eligibility: Credit score typically needs to be 580 or higher, but it varies by lender.

Fannie Mae HomeStyle® Renovation Mortgage

• Type: Conventional loan backed by Fannie Mae.

• Purpose: Combines the cost of the home purchase and renovations into a single loan.

• Key Features:

• Can be used for a wide range of renovations, including luxury upgrades.

• Allows financing for up to 75% of the as-completed appraised value of the home.

• Can be used for investment properties, second homes, or primary residences.

• Eligibility: Higher credit score requirement (typically 620 or higher).

Freddie Mac CHOICERenovation® Loan

• Type: Conventional loan by Freddie Mac.

• Purpose: Allows homeowners to finance both the home purchase and renovations.

• Key Features:

• Flexible in terms of property type (primary residences, second homes, and investment properties).

• Borrowers can finance up to 75% of the appraised value after renovations.

• Can also include repairs required for disaster resilience.

• Eligibility: Minimum credit score requirement is generally 620.

VA Renovation Loan

• Type: VA-backed loan for eligible veterans.

• Purpose: Combines home purchase or refinance and renovation costs into one loan.

• Key Features:

• The loan can only be used for repairs that make the home livable and functional.

• Limited to necessary repairs (luxury upgrades usually not covered).

• No down payment required for qualified borrowers.

• Eligibility: For eligible veterans and active-duty service members. Credit score requirements vary by lender.

HUD Title I Property Improvement Loan

• Type: FHA-backed loan.

• Purpose: Provides financing for home improvements, repairs, or upgrades.

• Key Features:

• No equity is required (unlike a home equity loan).

• Maximum loan amount for a single-family home is $25,000.

• Eligibility: Can be used on owner-occupied properties. The borrower’s credit score and ability to repay are considered, though minimum scores may vary.

Personal Home Improvement Loans

• Type: Unsecured personal loan (no government backing).

• Purpose: Provides funding for home improvements without the need to refinance or take out a second mortgage.

• Key Features:

• No need to use home equity.

• Terms and interest rates vary based on the lender and creditworthiness.

• Eligibility: Requires good credit for the best rates.

Home Equity Loan or Home Equity Line of Credit (HELOC)

• Type: Secured loan using home equity.

• Purpose: Allows homeowners to borrow against the equity they’ve built in their homes for renovations.

• Key Features:

• Home equity loans provide a lump sum, while HELOCs offer a revolving credit line.

• Competitive interest rates because they are secured by the property.

• Eligibility: Requires substantial equity in the home (typically at least 15-20%).

Cash-Out Refinance for Renovation

• Type: Refinancing option.

• Purpose: Allows homeowners to refinance their mortgage and take out cash to fund renovations.

• Key Features:

• You’ll replace your current mortgage with a new one.

• You can use the difference between your old mortgage balance and the new loan to fund home improvements.

• Eligibility: Home equity required, and borrower must qualify for refinancing.

Fix and Flip Bank Loans

Fix and flip home loans are short-term loans designed specifically for real estate investors who purchase, renovate, and quickly sell (or "flip") properties for a profit. These loans help investors cover the costs of purchasing the home, the renovation expenses, and sometimes even the associated closing costs. These loans are available at traditional or commercial banks.

Key Features:

• Short-Term Nature: These loans are typically short-term, lasting from 6 months to 2 years, since the goal is to sell the property quickly after renovations.

• Interest Rates: The interest rates on fix and flip loans are usually higher than traditional mortgages because of the increased risk for lenders. Rates can range from 8% to 15%, depending on the borrower’s credit profile, experience, and the lender.

• Funding for Renovations: Lenders often provide funds not only for the purchase of the property but also for the renovation work. The loan amount is based on the projected "after-repair value" (ARV) of the property, which is the expected value of the home after the upgrades.

• Lending Criteria: Borrowers are evaluated based on their experience in flipping homes, creditworthiness, and the quality of the property itself. Some lenders may prioritize the value of the deal over the borrower’s credit score.

• Quick Approval and Funding: Fix and flip loans are typically easier and faster to obtain than traditional mortgages because they're asset-based loans. This means the property itself serves as the primary collateral for the loan.

Each of these programs comes with its own requirements, benefits, and potential limitations, so choosing the right one depends on your financial situation, credit score, and the scope of the renovation project. Call any one of our home loan professionals with questions about anything you read in this blog.