How Do Home Renovation Loans Work?

Before you head out to buy that property, you should really sit back and ask, how do home renovation loans work?

A home renovation loan is very essential particularly if you are interested in buying a home at a lower price point to bear the cost of fixing it up.How Do Home Renovation Loans Work

What is a Home Renovation Loan?

This is a type of loan, that is often factored into a mortgage loan, which includes the costs of renovating a “fixer-upper”.

What Does Home Renovation Loan Cover?

Home-renovation loans may cover costs like installing or updating heating and cooling systems, energy improvements, roofing, waterproofing, mold remediation and much more. Additionally, it covers desired renovations like a new kitchen or bathroom which could add value to the house.

In most cases, an appraisal for a home-renovation loan will include up to 110% of the home’s after-improved value. This comes in handy if the home is in need of deferred maintenance.

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Home Renovation Options

There are multiple loan options if you are purchasing a home that needs repairs. The workability of the renovation loan will largely depend on the type of financing you decide to apply for. Here are some popular home renovation options to choose from:

FHA 203(k)

This loan type has government backing and is aimed at buyers with lower credit scores. FHA 203 (k) is usually the more expensive option of the two as FHA mortgages have higher mortgage insurance premiums for borrowers who apply with smaller down payments. These mortgages have an upfront fee which is included in the overall principal of the loan.

FHA 203 (k) loans come in full and streamline options. The type you opt for will depend on the state of your property. While the FHA 203 (k) Full Loan is designed for primary residence who needs serious or significant repairs, the Streamline Loan, is used to cover minor repairs totaling less than $35,000.

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EZ “C” conventional

This is a loan type, that can be used with conventional mortgages for non-structural home repairs that add value to the property. It covers both appraiser-required and borrower-selected renovations.

Fannie Mae HomeStyle®

This is a single close loan which includes the cost of home repairs in the overall loan amount. Fannie Mae HomeStyle® can be used for repairs that an appraiser needs, or for charges the homeowner wants to make, and can as well be used to pay for both structural and cosmetic repairs.

Jumbo Renovation

A jumbo renovation loan type is used for higher-priced homes that are not covered by other home repair loans. These loans can be used for projects needed by an appraiser or repairs the borrower intends to make. Note that, repairs must be non-structural and add value to the home.


With a home renovation loan, you have access to funds you need to fix up your home. You can have it in the form of mortgages with built-in fixer-upper funding or personal loans. At the end of the day, it all depends on the type of loan you receive, and you may need to prove that the money was spent on the house or paid to a contractor.

About Chris Git

I am an SEO person with over five years of experience. I am mostly into product lunch and review. I feed on tech, Dring Tech, and Dream tech. My hobby is knowing how everything works. You are welcome to my world of content development and product review at I am also a financial analyst with an organization. It has been my sincere interest to help people solve their issues on credit cards. There are lots of questions in the mind of many credit card users. These range from which credit card is best? How many credit cards should I have?

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