Buying a home that needs some love—or giving your current home a major update—can feel overwhelming when you start thinking about costs. That’s where a renovation loan comes in. Unlike a traditional mortgage or personal loan, renovation loans are designed specifically to help homeowners finance both the purchase (or refinance) of a home and the cost of improvements, all in one package.
What Is a Renovation Loan?
A renovation loan combines the money you need to buy or refinance a home with the funds required to cover repairs, remodels, or upgrades. Instead of taking out multiple loans, you get a single mortgage that rolls everything together.
How It Works
- Start with an appraisal. The lender looks not just at the home’s current value, but at its after-renovation value—what it will be worth once the improvements are complete.
- Loan amount is based on future value. Because the appraisal factors in planned upgrades, you may be able to borrow more than the home’s present worth.
- Funds are set aside for the project. At closing, part of your loan pays off the home (if you’re purchasing or refinancing), and the renovation funds are placed into an escrow account.
- Renovations begin. As the work progresses, contractors are paid in stages, often after inspections confirm the work is completed to standard.
- Enjoy your updated home. Once the project is finished, you’re left with one mortgage payment that covers both the property and the improvements.
Common Uses for Renovation Loans
- Updating kitchens and bathrooms
- Adding new flooring, roofing, or windows
- Expanding living space or finishing a basement
- Modernizing outdated systems (plumbing, electrical, HVAC)
- Making energy-efficient upgrades
Types of Renovation Loans
- FHA 203(k): A government-backed loan ideal for buyers with lower credit scores or smaller down payments.
- Fannie Mae HomeStyle® Renovation Loan: Offers flexibility for a wide range of renovation projects, including luxury updates.
- VA Renovation Loan: For eligible veterans and service members looking to improve a home with VA benefits.
Why Consider a Renovation Loan?
- Turn a fixer-upper into a dream home
- Increase your home’s value
- Avoid juggling multiple loans
- Lock in a single monthly payment at today’s interest rates
A renovation loan can be a powerful tool for buyers who see the potential in a home—or for current homeowners who want to make big upgrades without dipping into savings. Fix-It Mortgage, by Advisors Mortgage Group, has an experienced team ready to guide you through your renovation loan and help you get into your dream home.
By: Jon Iacono