What is a Renovation Loan?
A Renovation Loan is a mortgage option that allows homeowners or buyers to finance both the purchase (or refinance) of a home and the cost of repairs or improvements into one loan. These programs can cover basic cosmetic updates, structural work, additions, detached structures, disaster-area repairs, and more. Several products exist, such as FHA 203(k), HomeStyle, and VA Renovation, each designed for different project scopes and borrower needs.
Who is Eligible for a Renovation Loan?
Eligibility depends on the specific renovation program and includes factors like:
• Credit score and available down payment
• Whether the property is a primary residence, second home, or investment property
• Type of repairs or improvements needed
• Whether the borrower will be displaced during repairs
Some products allow ADUs or detached structure repairs, while others are limited to non-structural work. VA Renovation permits zero down, FHA 203(k) requires at least 3.5% down, and HomeStyle allows certain second homes and non-owner-occupied properties.
What are the Benefits of a Renovation Loan?
• Ability to finance home purchase/refinance and renovation in one loan
• Options for both basic and major structural renovations
• Programs available for disaster-area repairs
• Potential to add ADUs, garages, or detached structures (depending on program)
• Some programs allow borrowers to include up to six months of PITI so they don’t have to live in a construction zone
• Low down payment options such as FHA 203(k) and VA Renovation
• Flexibility for luxury items like pools or outdoor living spaces under certain programs
• Contingency reserves help protect against unexpected issues such as mold, water, or fire damage
What Are the Requirements for Obtaining a Renovation Loan?
Requirements vary by program but generally include:
• Down payment based on loan type:
– 0% for VA Renovation
– 3.5% minimum for FHA 203(k)
– 3% minimum for first-time buyers or HomeReady-eligible borrowers using HomeStyle
• Contingency reserves of 15–20%, especially if utilities are off or damage is present
• Some programs require a HUD Consultant (always for FHA Standard 203(k); sometimes for HomeStyle)
• Borrowers completing work themselves is not allowed, except FHA Limited 203(k) for painting and appliance purchases
• Renovation must be “common and typical for the area”
• All renovation work must be completed within:
– Six months for all programs except VA
– Four months for VA Renovation
• Borrowers may need to remain in the home or limit displacement depending on program rules (e.g., FHA Limited 203(k) limits displacement to 15 days)
