Renovation Loans
Learn about mortgage programs that combine home purchase and renovation costs into a single loan. Connect with lenders who understand renovation projects.
Renovation Loans: Combine Purchase and Improvement Financing
Renovation loans provide mortgage financing that combines home purchase and renovation costs into a single loan.
This specialized program recognizes that many homebuyers find their dream home but it needs work, and traditional lenders cannot accommodate the combined financing needs.
For homebuyers purchasing fixer-uppers, homeowners wanting to update their existing home, and real estate investors renovating properties, renovation loans offer a streamlined path to property improvement when traditional financing requires separate loans.
What is a Renovation Loan?
- Definition
- A renovation loan is a mortgage program that combines home purchase and renovation financing into a single loan. These loans allow you to finance both the property and the cost of improvements, making it easier to transform a fixer-upper into your dream home without the hassle of separate loans.
- How it works
- Instead of requiring separate mortgage and renovation loans, these programs evaluate the after-renovation value of the property and provide financing for both the purchase price and renovation costs in one streamlined process.
- Key advantage
- Renovation loans eliminate the complexity of managing multiple loans and contractors, allowing you to purchase and improve your property with a single financing solution that considers the property's full potential value.
How Renovation Loans Work
A renovation loan combines home purchase and improvement financing into a single loan. You typically need a 680 credit score, 20% down payment, and detailed renovation plans. This program may be suitable for homebuyers who found their dream home but it needs work, or homeowners wanting to update their existing property.
Basic Renovation Loan Eligibility
You may be eligible for a renovation loan if you have:
- Stable income and employment
- 680 credit score
- 20% down payment
- Detailed renovation plans and budget
Common Renovation Loan Eligibility Requirements
- Credit score:
- 680 FICO score
- Down payment:
- 20%
- Renovation plans:
- Detailed plans and specifications required
- Contractor:
- Licensed, experienced contractor approved by lender
- Loan amounts:
- Up to $1,500,000
- Reserves:
- 6 months of reserves
- Income verification:
- Standard W-2, pay stubs, tax returns
- Property condition:
- Must be habitable but in need of improvements
- Renovation timeline:
- As few as 6 months to complete
- After-renovation value:
- Must justify total loan amount
Did you know: Renovation loans consider the after-renovation value when determining loan amounts.
Why You Need Another Lender
If you've been denied financing for a property that needs work, you're not alone. Many traditional banks simply don't offer programs designed for renovation projects. They require properties to be in move-in condition and don't understand the value of renovation potential.
Your first bank just doesn't offer the right program for you.
Think of it like when a customer asks for something your business doesn't offer. Maybe they want delivery but you only do pickup, or they need a service you don't provide. You're not saying no because there's anything wrong with them—you just don't offer that particular service. Same with mortgages. Traditional banks work great for move-in ready homes, but they don't offer the programs that renovation buyers need.
Traditional banks use conventional underwriting that requires properties to meet specific condition standards. Properties that need work often don't qualify for conventional financing, even though they have great potential. Conventional programs see the current condition and can't approve you, even though the after-renovation value would justify the loan.
Renovation loans are perfect for homebuyers who found their dream home but it needs work, homeowners wanting to update their existing property, real estate investors renovating properties for resale or rental, those wanting to customize their home to their specifications, or anyone who wants to avoid the hassle of separate loans.
This isn't about finding loopholes or gaming the system. It's about working with lenders who understand renovation projects and can see the potential value. Renovation loans are offered by lenders who work with renovation buyers every day. They look at the after-renovation value—what the property will be worth when the work is complete—rather than just the current condition.
For a no obligation conversation about your mortgage, contact Coby Matush (#1531494) of Novus Home Mortgage at 724-787-7778.
Example Use Cases and Scenarios
Did you know: Renovation loans can finance up to $1,500,000 including both purchase price and renovation costs.
How Do Renovation Loans Work?
Renovation loans follow a specialized mortgage process that combines purchase and improvement financing. The key difference is property evaluation - these programs consider the after-renovation value rather than just the current condition.
The Renovation Loan Process
- 1. Renovation Planning & Review Process
- The process begins with renovation plan review where lenders examine your detailed plans and specifications, followed by contractor approval to verify credentials and experience. Lenders then complete budget analysis to ensure renovation costs are reasonable, and after-renovation value assessment to determine the property's potential worth. This specialized evaluation allows financing based on future value rather than current condition.
- 2. Combined Financing Structure
- Unlike traditional loans that require separate financing, renovation loans provide one loan that covers both the purchase price and renovation costs. The loan structure includes initial funding for the property purchase, followed by renovation fund releases as work progresses, and final funding upon renovation completion. This eliminates the need for multiple loans and simplifies the financing process.
- 3. Specialized Underwriting
- Experienced underwriters review your complete profile using renovation-specific criteria. They assess your ability to manage renovation projects including contractor relationships and timeline management, property potential through after-renovation value analysis, and renovation feasibility through plan review and budget analysis. The underwriting process includes the same risk assessment as conventional loans, just with renovation-specific considerations.
- 4. Renovation Management & Closing
- Once approved, the renovation process includes contractor coordination, progress inspections, and fund releases as work is completed. The closing process is similar to conventional mortgages but includes renovation-specific documentation. You'll sign standard mortgage documents plus renovation agreements, pay standard fees plus renovation management fees, and receive the same consumer protections as conventional loans.
Renovation Loans vs Conventional Mortgages
Understanding the key differences between renovation loans and conventional mortgages can help you choose the right financing option for your situation.
| Feature | Renovation Loans | Conventional Loan |
|---|---|---|
| Who Qualifies | Homebuyers purchasing fixer-uppers, homeowners wanting to update existing properties, real estate investors renovating properties, those wanting to customize their home, and borrowers seeking single-loan financing for purchase and renovation | W-2 employees, salaried workers |
| Income Documentation | Standard income verification including W-2s, pay stubs, tax returns, and bank statements for down payment verification | W-2s, pay stubs, tax returns |
| Minimum Credit Score | 680 FICO score | 620 |
| Minimum Down Payment | 20% down payment | 3% |
| Private Mortgage Insurance | Not applicable | Private mortgage insurance (PMI) |
| Occupancy Type | Primary residences only | Primary residences, second homes, investment properties |
| Property Type | Single-family homes, condos, townhouses that need renovation work | Single-family homes, condos, townhouses, 2-4 unit properties |
| Loan Limits | Up to $1,500,000 depending on income, property value, and renovation costs | $766,550 (2024) |
| Interest Rates | Above market rates | Market rates |
| Processing Time | As few as 4 weeks | 30-45 days |
| Closing Costs | Similar to conventional loans, may include renovation plan review fees | 2-5% of loan amount |
| Prepayment Penalty | None | None |
| Reserves Required | 6 months of reserves typically required | 2-6 months of PITI |
| Debt-to-Income Ratio | Up to 45% | Up to 43% |
| Maximum Loan Amount | $1,500,000 | $766,550 |
| Appraisal Requirements | Specialized appraisal considering after-renovation value | Standard appraisal required |
| Occupancy Requirements | Primary residence for 12 months | Primary residence for 12 months |
| Non-Warrantable Condos | Eligible with additional requirements | Not eligible |
| Manufactured Homes | Eligible if on permanent foundation | Eligible if on permanent foundation |
| ADU Properties | Eligible as part of renovation project | Not eligible |
| Barndominiums | Eligible with proper appraisal and renovation plans | Not eligible |
| Tiny Homes | Eligible if meets minimum square footage requirements | Not eligible |
| Mixed-Use Properties | Eligible for residential portion | Not eligible |
| Rural Properties | Eligible | Eligible |
| Feature | Renovation Loans | Conventional Loan |
|---|---|---|
| Who Qualifies | Homebuyers purchasing fixer-uppers, homeowners wanting to update existing properties, real estate investors renovating properties, those wanting to customize their home, and borrowers seeking single-loan financing for purchase and renovation | W-2 employees, salaried workers |
| Income Documentation | Standard income verification including W-2s, pay stubs, tax returns, and bank statements for down payment verification | W-2s, pay stubs, tax returns |
| Minimum Credit Score | 680 FICO score | 620 |
| Minimum Down Payment | 20% down payment | 3% |
| Private Mortgage Insurance | Not applicable | Private mortgage insurance (PMI) |
| Occupancy Type | Primary residences only | Primary residences, second homes, investment properties |
| Property Type | Single-family homes, condos, townhouses that need renovation work | Single-family homes, condos, townhouses, 2-4 unit properties |
| Loan Limits | Up to $1,500,000 depending on income, property value, and renovation costs | $766,550 (2024) |
| Interest Rates | Above market rates | Market rates |
| Processing Time | As few as 4 weeks | 30-45 days |
| Closing Costs | Similar to conventional loans, may include renovation plan review fees | 2-5% of loan amount |
| Prepayment Penalty | None | None |
| Reserves Required | 6 months of reserves typically required | 2-6 months of PITI |
| Debt-to-Income Ratio | Up to 45% | Up to 43% |
| Maximum Loan Amount | $1,500,000 | $766,550 |
| Appraisal Requirements | Specialized appraisal considering after-renovation value | Standard appraisal required |
| Occupancy Requirements | Primary residence for 12 months | Primary residence for 12 months |
| Non-Warrantable Condos | Eligible with additional requirements | Not eligible |
| Manufactured Homes | Eligible if on permanent foundation | Eligible if on permanent foundation |
| ADU Properties | Eligible as part of renovation project | Not eligible |
| Barndominiums | Eligible with proper appraisal and renovation plans | Not eligible |
| Tiny Homes | Eligible if meets minimum square footage requirements | Not eligible |
| Mixed-Use Properties | Eligible for residential portion | Not eligible |
| Rural Properties | Eligible | Eligible |
Real-World Example: Renovation Loans
The Teacher's Journey to Her Dream Home
A dedicated elementary school teacher had been searching for her perfect home for months when she finally found it—a charming 3-bedroom house in her preferred neighborhood. The location was ideal, the layout was perfect, and the price was within her budget. However, there was one significant challenge: the home needed $75,000 in renovations to make it truly livable.
The kitchen was outdated with appliances from the 1980s, the bathrooms needed complete remodels, and the HVAC system was on its last legs. While the home was structurally sound and habitable, it clearly needed work. When she applied for a conventional mortgage through her local bank, the lender could only finance the purchase price of $350,000, leaving her $75,000 short for the necessary renovations.
Frustrated but determined, she began researching alternative financing options and discovered that another lender offered renovation loans. This specialized program would allow her to finance both the purchase price and renovation costs in a single loan. The lender would evaluate the property based on its after-renovation value rather than its current condition.
The process was straightforward: she provided detailed renovation plans from a licensed contractor, a comprehensive budget breakdown, and standard mortgage documentation. The lender approved her for a $425,000 renovation loan that included both the $350,000 purchase price and the $75,000 renovation costs.
Within six weeks, she closed on her dream home and began the renovation process. The contractor completed the work on schedule, and she now enjoys a beautifully updated home that perfectly suits her needs and lifestyle.
This story illustrates how renovation loans can bridge the gap between finding your dream home and making it truly yours, even when the property needs significant work.
Did you know: Renovation loans require only 20% down payment.
Benefits & Considerations
Renovation loans offer significant advantages for buyers of fixer-uppers, but they also come with important considerations to weigh.
Key Benefits: Single loan, after-renovation value, streamlined process
- Single loan for purchase and renovation
- Eliminate the complexity of managing multiple loans and contractors. One application, one closing, one payment.
- Consider after-renovation value
- Lenders evaluate the property's potential worth after renovations, often allowing higher loan amounts than conventional programs.
- Competitive financing
- Interest rates are typically only slightly higher than conventional loans, making renovation financing affordable.
- Flexible renovation options
- Most types of renovations are allowed, from cosmetic updates to structural improvements, giving you flexibility in your project.
- Professional contractor network
- Lenders work with experienced contractors who understand renovation loan requirements and timelines.
- Proven solution
- Thousands of homebuyers have used renovation loans successfully to transform fixer-uppers into their dream homes.
Important Considerations: Higher down payment, complex process, contractor requirements
- Higher down payment
- Minimum 20% down payment required, which is higher than some conventional loan options.
- More complex underwriting
- Renovation loans require additional documentation and review, making the process more complex than conventional loans.
- Contractor approval required
- You must work with a licensed, experienced contractor approved by the lender, which may limit your contractor choices.
- Renovation timeline management
- You must complete renovations within the specified timeline, which requires careful project management.
- Lender availability
- Not all lenders offer renovation loans, so you'll need to work with specialized lenders who understand renovation projects.
Frequently Asked Questions About Renovation Loans
Get answers to the most common questions about renovation loans. Whether you're wondering about qualification requirements, renovation options, or how the process works, we've covered the essential information below.
What is a renovation loan?
How do renovation loans work?
Who qualifies for renovation loans?
What documents do I need for a renovation loan?
What are the pros and cons of renovation loans?
How much can I borrow with a renovation loan?
I found a fixer-upper that needs work. Can a renovation loan help?
What types of renovations are allowed?
Do I need a contractor for a renovation loan?
How long does the approval process take?
What is the minimum down payment for renovation loans?
Can I use renovation loans for investment properties?
How do lenders evaluate renovation projects?
Next Steps: Continue With Your Mortgage
Renovation loans may provide a path to homeownership for buyers of fixer-uppers who need combined financing. Our listed loan officers understand renovation projects and can help determine if this program might fit your situation. They'll review your renovation plans, assess eligibility, and guide you through the process.
For a no obligation conversation about your mortgage, contact Coby Matush (#1531494) of Novus Home Mortgage at 724-787-7778.
Coby Matush Customer Reviews
Read verified customer reviews for Coby Matush at Novus Home Mortgage. This is real feedback from real borrowers who used Coby Matush and their colleagues for a mortgage loan.
"Michelle helped us for several months before we chose a home during the preapproval process and she was extremely great and responsive. Then we worked with Kevin and he was also really responsive and easy to contact by email and by phone. I felt like he was available when I had a question and I appreciated being able to tie off a lot of things by email since I'm usually working at my PC. He also explained things in a way that made sense and kept us updated on every step of the process along with videos that explained it. I appreciate all the help in purchasing our first home."
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Important Compliance Information
Disclaimer: This information is for educational purposes only. AnotherLender.com is not a lender and does not make loans. We connect borrowers with licensed mortgage professionals. All loan approvals are subject to lender underwriting guidelines and individual qualification. Rates and terms may vary. Consult with a qualified mortgage professional for personalized advice.