If your investment property or primary residence needs renovations, a home renovation loan allows you as a homeowner to finance the repairs and upgrades. Renovation loans are rolled into your home purchase or refinance, and they are a great option when compared to taking out a separate loan elsewhere. Read on to learn about popular conventional loans and FHA home renovation loan programs.


Two Types of FHA 203(k) Loans

The FHA 203(k) mortgage program has two main versions — standard and limited (also called streamline). The program is only available for a borrower’s primary residence, so this mortgage loan cannot be used for investment property. 

A limited FHA 203(k) is a loan option for minor renovations that don’t impact habitability during work. Eligible projects include installing appliances, flooring, exterior upgrades like deck repair, and painting. Limited FHA 203(k) loans are capped at $35,000 in renovation costs.

A standard FHA 203(k) is a loan option that offers flexibility — it can finance structural repairs like additions, roof replacement, and major remodeling. Standard FHA 203(k) loans allow for more than $35,000 in repairs, which differs from the limited FHA 203(k) loans, which are capped at $35,000. If a project exceeds 3 months, a standard FHA 203(k) is required to pay for renovation costs. 

Your loan officer will give you guidance on which FHA loan program should be used based on your home usage and renovation needs. Your loan officer should provide you with an estimate of any up-front closing costs, your monthly payments, and your loan options.


Fannie Mae Homestyle vs. FHA 203(k) Loans

While FHA 203(k) is an FHA loan option, Fannie Mae Homestyle loans are conventional mortgages. So the first key difference between the programs is their separate borrower eligibility requirements. Beyond borrower eligibility, here are other key differences between Fannie Mae Homestyle and FHA 203(k) loan options: 

Fannie Mae Homestyle requires licensed contractors to perform all renovation work. FHA 203(k) allows homeowners to do some repairs.

Fannie Mae Homestyle permits a wider range of renovations, including second homes and investment properties. The FHA  203(k) is limited to primary residences only. 

FHA 203(k) caps limited loans at $35,000 in renovations. Fannie Mae Homestyle doesn’t limit renovation costs.

Fannie Mae’s Homestyle allows extensive structural changes. Limited FHA 203(k) doesn’t permit structural work.

FHA 203(k) gives six months maximum to complete home renovations. Fannie Mae Homestyle offers more project flexibility.

The different loan programs for borrowers, such as FHA or Fannie Mae Homestyle, need to be discussed with your mortgage lender in order to determine whether an FHA loan or conventional loan is the most desirable option. Your new mortgage payments will also be a key consideration when financing your renovation project.

Remember: an FHA loan can only be used if the property is your primary residence. 


VA Renovation Loan Option

If you’re a veteran or active service member, a VA loan may be your best bet. VA home loans offer benefits like zero down payment and no mortgage insurance requirements from the lender. VA home renovation loans have specific criteria:

  • All home renovation work must be completed within 120 days of closing.
  • Home renovations must improve safety and usability — cosmetic upgrades may not qualify.
  • The home must meet VA minimum property standards upon completion.
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Not all lenders offer VA home renovation loans, so research your lender and find out if they do before submitting your loan application.


So, Are Home Renovation Loans Right for You?

The optimal loan depends on your finances, the scope of your renovation project, and borrower eligibility. I recommend contacting multiple lenders to find the best home renovation program for your needs and home vision.

Loan terms and interest rates vary between lenders, so comparing several is the key to getting the right match for your project. 

people discussing the terms of a home renovation loan
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As a borrower, consider the renovation project and determine which upgrades are must-haves versus those you could potentially save up for and complete later. Look at total renovation costs compared to your available funds and your home equity when deciding if an FHA, Fannie Mae Homestyle, or VA renovation loan makes sense for your situation. 

Home renovation loans can certainly allow for convenient upgrades, but they also add costs to your mortgage and monthly payments. In my experience, these loan programs are a good choice for obtaining renovation financing versus an unsecured loan with higher interest rates and loan costs. 

I recommend discussing your specific home renovation plans with lenders to learn about their available loan programs. Look at options from both local banks and national lenders to find the best rates and terms. Consult multiple loan officers to compare options side-by-side based on your financial situation, credit, required repairs, and timeline. With the right renovation loan, you can begin to enjoy the stylish upgrades and improvements you’ve made to your home. 


FAQs About Home Renovation Loans

What home renovations can an FHA 203(k) finance?

Standard FHA 203(k) provides financing for structural upgrades like additions. Limited FHA 203(k) covers smaller repairs like appliances and flooring.


Can homeowners do their own work?

FHA 203(k) allows homeowners to complete some repairs. Fannie Mae Homestyle requires licensed contractors to perform all work.


How much time do you have to finish repairs?

FHA 203(k) gives you six months. Fannie Mae Homestyle offers more flexibility. VA home renovation loans require completion in 120 days.


What properties qualify for these loans?

FHA 203(k) is limited to primary residences. Fannie Mae Homestyle allows second homes and investment properties, along with primary residences.


Editorial Contributors
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Laurie Engle

Expert Writer & Reviewer

Laurie Engle is a freelance writer who provides insights to homeowners on topics such as the home warranty industry, relocation issues, and real estate trends. As a licensed Realtor since 2001 Laurie has acquired extensive expertise in dealing with home warranty companies and navigating the intricacies of the real estate market. In addition to her commitment to helping clients with their home buying and selling needs, she maintains a sharp awareness of market dynamics, including property values, interest rates, and local regulations.

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Jeff Zoldy

Jeff is a writer, editor, and marketer based in Charlotte, North Carolina. He has been editing on the Home Solutions team for over a year and is passionate about getting homeowners the information they need when they need it most. When he’s not working, Jeff can be found at baseball games, golfing, going to the gym, reading, watching movies, and playing video games.

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