What is a Renovation Loan?
A renovation loan is a type of financing that combines the cost of purchasing (or refinancing) a home with the funds needed to repair, upgrade, or remodel it—all in one mortgage. Instead of taking out separate loans for buying and renovating, a renovation loan lets you finance both in a single package, often with one monthly payment and one closing.
Purpose of a Renovation Loan
- •Homebuyers purchasing a property that needs repairs or upgrades.
- •Homeowners who want to refinance and roll renovation costs into their existing mortgage.
- •Investors or owner-occupants seeking to improve property value through remodeling, energy-efficient upgrades, or structural repairs.
Type of Renovation Loans
- •FHA 203K Limited — for owner-occupied
- •FHA 203K Standard — for owner-occupied
- •VA Renovation — for owner-occupied
- •Conventional Renovation — for owner-occupied, 2nd homes, and Investment properties.
What is a 203K Loan?
HUD backs an FHA 203k Loan, providing a way for home buyers and homeowners to borrow sufficient funds to buy/refinance a home in almost any condition, incorporating all renovation funds into a single purchase/refinance loan. The repairs are completed after you close on your loan, and the funds are escrowed and paid in draws to the contractor you choose to work with.
The 203K Limited
The 203K Limited is designed for smaller, non-structural renovation projects. Key features include:
- ✓Maximum repair amount: $75,000
- ✓No structural work allowed
- ✓No HUD consultant required
Interior Improvements
- •Kitchen and bathroom remodels (non-structural)
- •Flooring replacement (hardwood, tile, carpet, etc.)
- •Interior painting
- •Drywall repair and replacement
- •Window and door replacement (interior)
- •Basement finishing (non-structural)
Exterior & Curb Appeal
- •Roofing repair or replacement
- •Siding repair or replacement
- •Exterior painting
- •Deck, porch, or patio construction or repair
- •Landscaping improvements
- •Driveway and walkway repair
Systems & Safety
- •HVAC system repair or replacement
- •Plumbing repair or upgrade
- •Electrical system repair or upgrade
- •Water heater replacement
- •Mold and lead paint remediation
- •Septic system repair
Accessibility Improvements
- •Wheelchair ramps
- •Grab bars and handrails
- •Widening doorways
Appliances
- •Built-in appliances (stoves, dishwashers, etc.)
The 203K Standard
The 203K Standard is the full-featured version of the FHA 203k loan, designed for major renovations and structural repairs. Unlike the Limited version, there is no cap on repair costs (beyond FHA loan limits), and it allows for a much broader range of work.
Structural & Major Repairs
- •Foundation repair or replacement
- •Structural wall removal or addition
- •Room additions
- •Garage additions or conversions
- •Major roof work, including structural repairs
Additions & Expansions
- •Adding new rooms or living space
- •Second-story additions
- •Attached or detached garage construction
Systems & Mechanical
- •Complete HVAC system overhaul
- •Full plumbing system replacement
- •Complete electrical rewiring
- •Solar panel installation
Interior Renovations
- •Full kitchen remodel (including structural changes)
- •Full bathroom remodel (including structural changes)
- •Flooring, painting, and finishes
- •Basement conversion or finishing
Accessibility
- •Elevator installation
- •Full ADA-compliant modifications
Exterior & Site Improvements
- •Landscaping and grading
- •Driveway and walkway construction
- •Fencing
- •Swimming pool repair (not new construction)
Luxury/Nonessential Items
Note: Luxury items such as new swimming pools, outdoor kitchens, or tennis courts are generally not eligible.
Additional Notes
- ✓A HUD-approved 203k Consultant is required for the Standard loan.
- ✓The consultant helps prepare the work write-up, cost estimates, and inspects the work during construction.
- ✓Borrowers must work with licensed contractors.
- ✓The loan can be used for purchase or refinance of owner-occupied 1-4 unit properties.
The VA Renovation Program
The VA Renovation Loan is a special financing option available to eligible veterans, active-duty service members, and surviving spouses. It combines the purchase or refinance of a home with funds for repairs and improvements—all in a single VA-backed loan.
Eligibility
- •Must meet standard VA loan eligibility requirements (veteran, active-duty, or eligible surviving spouse)
- •Must be for a primary, owner-occupied residence
- •Property must meet VA Minimum Property Requirements (MPRs) after renovation
Maximum improvement amount: $50,000 (including a contingency reserve)
Eligible Repairs & Improvements
- •Roof repair or replacement
- •HVAC, plumbing, and electrical updates
- •Kitchen and bathroom remodels
- •Flooring, windows, and doors
- •Accessibility modifications
- •Energy-efficiency improvements
- •General cosmetic updates
Luxury improvements (pools, outdoor kitchens, etc.) are not eligible.
The Conventional Renovation Program
The Conventional Renovation Loan (often based on Fannie Mae's HomeStyle® or Freddie Mac's CHOICERenovation® programs) allows borrowers to finance the purchase or refinance of a home along with renovation costs—without the restrictions of a government-backed loan.
Who Can Use It
- •Owner-occupied primary residences
- •Second homes / vacation properties
- •Investment properties (1–4 units)
Eligible Repairs & Improvements
- •Structural repairs and additions
- •Kitchen and bathroom remodels
- •Roof, HVAC, plumbing, and electrical
- •Luxury upgrades (pools, outdoor kitchens, etc.) — allowed!
- •Energy-efficiency improvements
- •Landscaping and site improvements
- •ADU (Accessory Dwelling Unit) construction
Contractor Requirements
- •Must use licensed, insured contractors
- •Borrower-selected contractors (no HUD consultant required)
- •Self-help/DIY work is generally not allowed
Renovation funds are held in escrow and disbursed as work is completed.
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