A renovation loan is a type of financing that allows homeowners and buyers to fund home improvements, repairs, and upgrades by rolling the costs into their mortgage. These loans are especially beneficial for purchasing fixer-uppers, modernizing outdated homes, or making essential repairs without needing immediate out-of-pocket expenses.

Types of Renovation Loans

There are several renovation loan options available, each with unique guidelines and benefits. Below is a breakdown of the most popular renovation loan programs:

Conventional Renovation Loans

Fannie Mae HomeStyle & Freddie Mac CHOICERenovation

  • No minimum FICO score required with Automated Underwriting System (AUS) approval
  • No maximum renovation costs (must remain within conforming loan limits)
  • Allows for health and safety repairs, as well as structural repairs (excluding multifamily properties)
  • Luxury improvements permitted, including accessory dwelling units (ADUs), pools, and even pickleball courts

FHA Renovation Loans

FHA 203(k) – Limited

  • 600 minimum FICO score required; AUS approval required
  • No minimum renovation cost; maximum renovation cost of $35,000 (subject to FHA loan limits)
  • Health and safety repairs allowed, as well as optional improvements
  • Structural repairs and luxury items are not allowed

FHA 203(k) – Standard

  • 600 minimum FICO score required; AUS approval required
  • Minimum renovation cost of $5,000; no maximum (subject to FHA loan limits)
  • Health and safety repairs permitted, including structural repairs (excluding multifamily properties)
  • Structural and luxury items are not allowed

VA Renovation Loan

  • 600 minimum FICO score required; AUS approval required
  • No minimum renovation cost; maximum renovation amount of $100,000 (subject to county loan limits)
  • Allows health and safety repairs, optional repairs, and minor structural repairs
  • Luxury items not allowed

USDA Renovation Loan

  • 600 minimum FICO score required; Guaranteed Underwriting System (GUS) approval required
  • Follows FHA Limited and Standard 203(k) guidelines for minimum and maximum renovation costs
  • Allows health and safety repairs, optional repairs, structural repairs, and additions (excluding multifamily properties)
  • Luxury items not allowed

Which Renovation Loan is Right for You?

Choosing the right renovation loan depends on your financial situation, the scope of your project, and the type of property you’re working with. Conventional loans provide flexibility for luxury additions, while government-backed loans like FHA, VA, and USDA are great for buyers who meet specific eligibility requirements.

If you’re considering a renovation loan, consult with an experienced mortgage professional to explore your options and find the best loan to fit your needs.

At North Star Mortgage Network, we specialize in renovation loans and can guide you through the process to help finance your dream home. Contact us today to learn more!

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