Can I buy a fixer-upper and pay for the renovation with one loan?

How a buy-and-renovate loan works

• One loan, two parts. Part of the loan pays for the house at closing. The rest is held for the work.
• Value after the work. Fannie Mae requires an appraisal that gives “an ‘as completed’ appraised value that estimates the value of the property after completion of the renovation work” (B5-3.2-03). HUD says 203(k) borrowers can get funds “based on the appraised value once the proposed improvement is completed” (HUD 203(k) consumer fact sheet).
• Money released in stages. Renovation funds sit in an escrow account and are paid out as work is completed and inspected, not handed to you at closing.
• A sign-off at the end. The work is inspected and certified complete before the file is closed out.

Fannie Mae HomeStyle Renovation (conventional)

• What it is. The Selling Guide says it “enables a borrower to purchase a property or refinance an existing loan and include funds in the loan amount to cover the costs of repairs, remodeling, renovations, or energy improvements to the property” (B5-3.2-01).
• What work. “There are no required improvements or restrictions on the types of renovations allowed, nor is there a minimum dollar amount for renovations” (B5-3.2-01). It “may not be used for complete tear-down and reconstruction of the dwelling” (B5-3.2-01).
• Which homes. “a one- to four-unit principal residence; a one-unit second home; a one-unit investment property; ... or a unit in an eligible PUD, condo, or co-op project” (B5-3.2-02). Condo and co-op work “must be limited to the interior of the unit” (B5-3.2-02).
• Who does the work. “All renovation work must be performed by a licensed contractor or subcontractor, unless contractor licensing is not applicable under state or local law for the specific trade or type of renovations being performed” (B5-3.2-03). A “Do It Yourself” option exists for one-unit properties, capped at a share of the “as completed” value (B5-3.2-02).
• How long. “Renovation work must be completed no later than 15 months from date the loan is closed” (B5-3.2-01).
• If costs go up. “Should there be an increase in costs during the renovation period, the borrower, or the lender, must fund the amount of the increase. The lender may not increase the loan amount to offset any increase in costs” (B5-3.2-04).

FHA 203(k): Standard and Limited

• What it is. HUD’s consumer fact sheet says it “allows homebuyers to finance the purchase of a home or homeowners to refinance a current mortgage, combining the cost of renovations, repairs, or remodeling into a single loan.”
• Limited 203(k). HUD describes it as a way for homebuyers and homeowners to finance a capped amount into their mortgage to repair, improve or upgrade their home, for “minor remodeling and non-structural repairs”. HUD’s program page sets the cap. A HUD-approved consultant is optional.
• Standard 203(k). HUD says it is for “the major rehabilitation and repair of single-family properties”. HUD sets a minimum cost for the rehabilitation on its program page, and the total value of the property must still fall within the FHA mortgage limit for the area. It “Supports major renovations and structural additions”. A HUD-approved 203(k) consultant is required.
• How long. HUD’s program comparison fact sheet (revised 11/4/2024) says completion time “may not exceed 12 months for Standard and nine months for Limited,” and the borrower may request an extension.
• Permits. HUD’s fact sheet says the program “requires all building permits be obtained prior to commencement of work”.

Standard or Limited, at a glance (from HUD’s fact sheet)

A renovation loan or a HELOC later

• A renovation loan is sized with the value after the work in view, and the work money is controlled through escrow.
• Buying with a regular purchase loan and adding a home equity line later means the line is measured against the home’s value at that time, and the lines I place require 90 days of ownership after the purchase. The page on getting a HELOC soon after buying covers that.
• If you already own the home, the remodel page covers using a HELOC for the work.

What the lender checks

• The house: condition, property type and how you will use it.
• The plans, the contractor’s bid and the contractor’s license.
• The appraisal, including the “as completed” value.
• Your income, credit and funds to close.
• For a condo, whether the HOA allows the work.

Why a bank may say no

• It does not offer renovation mortgages at all.
• The work is a tear-down and rebuild, which is a construction loan instead.
• The contractor is not licensed where a license is required, or the bid is incomplete.
• The finished value does not support the plan.

What I would check first

• The address and the inspection report, if you have one.
• The scope of work: cosmetic, systems or structural.
• Whether you will live there, and when you can move in.
• Whether you have a contractor and a written bid.

Shopping for a fixer? Get pre-approved first, then text me the address and the scope of work so the renovation loan is part of the plan.

When this may not work

• A full tear-down (see the construction and land loans page).
• Structural work under a program that allows only non-structural repairs.
• A timeline that cannot fit the program’s completion window.
• Plans to do most of the work yourself.

Example

Say you find a house in a good location with an old kitchen, tired systems and a roof near the end of its life. Your contractor writes up the work and a bid. The appraiser values the house as it will be once the work is done. At closing, the purchase is paid and the renovation money goes into escrow. As each stage is finished and inspected, a draw pays the contractor. When the work is certified complete, the file is closed out, and you have one loan on a finished house.

State notes

HomeStyle and 203(k) are national programs. Contractor licensing and permits follow state and local rules, which the programs require you to meet.

Questions people ask next

Related questions

• Should I use a HELOC for a remodel?
• Can I get a loan to buy land or build a house?
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• Building an ADU in San Clemente
• How soon after buying a home can I get a HELOC?

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