A renovation loan pays for the home and the repairs or improvements it needs, with a single closing. The loan is based on what the home will be worth when the work is done. Here is how it works, the FHA 203(k) and conventional options, and what to expect.
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Fidelity Residential · NMLS #103098 · Equal Housing Lender
A renovation loan is one mortgage that pays for a home and the work it needs, or refinances the home you own and pays for the work, with a single closing.
The appraiser values the home as it will be when the work is finished, and the loan is sized on that value, not on the house as it stands today.
At closing, the money for the work goes into an account held by the lender. It is paid to your contractor in stages as an inspector confirms each stage is done. A reserve for surprises is built into the budget.
Renovation loans cannot be used to tear a house down and rebuild it, and they do not pay out cash to you.
Renovation loans at a glance
The right one depends on the size of the job, whether the work is structural, and how you will use the home.
For larger projects, including structural repairs and additions. A HUD-approved consultant writes up the work before closing and checks it before each payment to the contractor. For the home you live in, with FHA’s smaller down payment and FHA mortgage insurance.
For smaller, non-structural work up to a limit HUD sets. No consultant is needed, and the home must be livable at closing. For the home you live in, with FHA’s smaller down payment and FHA mortgage insurance.
A conventional renovation loan. The cost of the work can be a large share of the finished value of the home. It can be used for a main home and, in some cases, a one-unit second home or a rental property.
Freddie Mac’s conventional renovation loan, with rules similar to HomeStyle. It can be used for a main home and, in some cases, a one-unit second home or a rental property.
Buying to renovate and sell? Renovation mortgages are for homes people live in or keep. Investors who buy, renovate and sell can look at fix and flip and bridge loans.
Choose a licensed, insured contractor who is not related to you. They give an itemized bid with permits and a payment schedule. For a Standard 203(k), the consultant visits first.
You apply as for any FHA or conventional loan. The appraiser uses the bid and plans to value the home as it will be when the work is done.
The underwriter reviews you, the contractor and the project. At closing, the purchase or payoff is made and the money for the work goes into the held account.
The contractor asks for payment as stages are finished; an inspector checks each stage first. Changes to the plan need the lender’s approval. A final inspection closes out the project.
The usual income and asset documents, plus the paperwork for the project.
An FHA-insured renovation mortgage for the home you live in. The Standard version covers major work, including structural repairs and additions, with a HUD-approved consultant; the Limited version covers smaller, non-structural work up to a limit HUD sets. Both carry FHA’s smaller down payment and FHA mortgage insurance.
Yes. Fidelity Residential offers the FHA 203(k) Standard and Limited loans and the conventional Fannie Mae HomeStyle Renovation and Freddie Mac CHOICERenovation loans. A licensed loan officer helps you choose between them.
In general, no. The programs expect a licensed, insured contractor, so the work can be inspected and paid in stages.
If you cannot live in the home during the work, some programs let a limited number of mortgage payments be included in the loan. Ask your loan officer which applies.
Each budget includes a reserve for surprises. Any change to the plan needs the lender’s approval first. Reserve money that is not used goes to pay down the loan if it was financed, or is returned to you if you paid it yourself.
No. The money is for the home and the work. If you want cash from your home’s value, see cash-out refinances.
It depends on the project, the contractor and the inspections. Renovation loans have more steps than a standard purchase, so start early and share your contract dates with your loan officer.
Fidelity Residential is licensed in many states. The full, current list is on NMLS Consumer Access (opens in a new tab), or call us at 732-686-9999.
Get a quote, apply online, or talk it through with a licensed loan officer.
This page is general information, not a commitment to lend. Programs, terms and eligibility depend on credit, income, property and underwriting review and are subject to change without notice.
Reviewed by Robert Shamie, CEO, NMLS #241428 · Last reviewed:
Fidelity Residential (PFN Lending Group, Inc., NMLS #103098) is a direct mortgage lender licensed in 40 states and the District of Columbia, with 26 years in business.