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Fixer-Upper Loans: Best Options

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Content was accurate at the time of publication.

A fixer-upper loan may be a good option to buy a house that needs some TLC and pay for the repairs needed to turn it into your dream home. These loans are designed to give you the money you need to buy and renovate the home at the same time. Understanding how the different fixer-upper loans work will help you decide the best way to finance your fixer-upper.

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6 fixer-upper loans

Fixer-upper loans — also commonly known as renovation loans — are mortgages that typically offer you enough money to buy a new home and roll in the repair costs based on how much it’s expected to be worth after the renovation. Each fixer-upper loan program comes with its own qualification rules.

Fannie Mae HomeStyle renovation loan

The Fannie Mae HomeStyle® Renovation loan allows you to borrow up to 97% of the cost of buying and fixing up your home, which means you may only need a 3% down payment. Your loan amount is based on the cost of the renovation plus your purchase price or the expected value of your home after it’s renovated.

You can use the HomeStyle loan to cover the cost of everything from needed repairs and energy upgrades to luxury items and custom landscaping. An added bonus: You’ll qualify up to the conforming loan limits, giving you more borrowing power than the lower loan limits set on government fix-up products. You can choose a fixed-rate 30-year or 15-year term, or an adjustable-rate mortgage (ARM) option, and need a minimum credit score of 620 to qualify.


You will likely need a contractor for your reno project

You’ll need to choose a general contractor in most cases, and the lender will need to approve your project before closing on the loan. If you have some fix-up skills, you can do some of the work yourself as long as it doesn’t make up more than 10% of the property’s value.

Freddie Mac CHOICERenovation loan

Like the HomeStyle loan program, Freddie Mac’s CHOICERenovation loans allow you to finance both the purchase (or refinance) and renovation cost of a home with a down payment as low as 3%.

The loan amount is based on the home price plus the cost of renovations, or the appraised value of the home after renovations — whichever is lower. Renovations must be completed within a year of closing on the loan. Freddie Mac requires a 620 minimum credit score.

Freddie Mac CHOICEReno eXPress loan

If you’re tackling a smaller fixer-upper project, Freddie Mac’s CHOICEReno eXPress loan streamlines the standard renovation process by allowing lenders to approve you for the mortgage without preapproval from Freddie Mac.

The renovation costs are capped at 10% or 15% of the value of your home, depending on where you live. Down payments may be as low as 3%, and you’ll need at least a 620 credit score to qualify. One caveat: You must finish the work within 180 days, versus the 12 months on the CHOICERenovation loan.

FHA 203(k) loan

The FHA 203(k) loan program insures mortgages made by private lenders approved by the Federal Housing Administration (FHA) to cover the cost of buying the property and fixing it up. You can also refinance with a 203(k) loan to renovate your current home.

Make sure you check the FHA loan limits in your area — you won’t be able to borrow as much as you can with the Fannie Mae and Freddie Mac renovation loans detailed above. The credit score minimum is much lower for the FHA 203(k) program: You’ll need a 580 score with a 3.5% down payment and a minimum 500 if you can make a 10% down payment.


Standard vs. limited FHA loans

There are two types of FHA 203(k) loans: the standard and the limited. The standard 203(k) loan requires you to use an approved 203(k) consultant to help plan the project. These consultants have experience as home inspectors, contractors, architects or engineers and will review or prepare plans for the renovation and estimate the costs.

The limited 203(k) is for smaller renovations — under $35,000 in most places — and doesn’t require a consultant. The FHA 203(k) loan is the only renovation loan program that allows for a tear-down, as long as the foundation remains in place.

VA Renovation loan

Loans backed by the U.S. Department of Veterans Affairs (VA) give military service members and veterans the ability to buy homes with no down payments — and VA renovation loans are no exception. Qualified VA borrowers can buy a home and finance the cost to fix it up, up to 100% of the expected value of the home after renovation.

Just like any other VA loan, you’ll need a certificate of eligibility to verify your VA entitlement for a home loan from the VA. In addition, there is no minimum credit score — instead, lenders consider your entire financial picture to make sure you can pay back the mortgage.

USDA renovation loan

People living in rural areas can purchase a home and finance the cost of renovations and repairs with a U.S. Department of Agriculture (USDA) renovation loan. No down payment is required; the loan can finance up to 100% of the expected value of the home after improvements are made. The USDA backs these loans for lower-income homebuyers, so check the income caps in your area.

USDA renovation loans allow you to make home improvements including kitchen and bathroom upgrades, the addition of amenities for family members with disabilities, structural changes or the installation of energy-efficient features. There are no minimum repair costs, but the maximum is $35,000 if you want to avoid the need for a qualified inspector to oversee the project.

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How to buy a fixer-upper

The process of buying a loan with a fixer-upper loan is similar to financing a traditional home, with a few extra renovation-related steps.

1. Research your options

Review the different types of renovation loans available to determine which one(s) might work best in your situation. Make sure you know the basic requirements including:

  • Minimum down payments
  • Minimum credit scores
  • The types of renovations the program allows
  • Limits on the cost of the improvements

Not all lenders offer or specialize in fixer-upper loans, so shop around at least three to five to get an idea of which mortgage companies have experience with renovation financing.

2. Get preapproved for a loan

Most lenders allow you to fill out an online form to be preapproved for a loan. You’ll need to have a rough idea of the fix-up projects and costs you’re willing to take on to get an accurate loan estimate with details about your rate and loan amount.

3. Check your budget

You may not be able to move into your home right away, so make sure you have extra room in your budget for unexpected expenses. This includes setting aside money for a temporary rental or higher-than-expected repair costs. Make sure you budget for closing costs and reserves — you may need to have extra cash in the bank to cover payments while the home is being built, as well as a reserve to cover higher-than-expected renovation costs.

4. Shop for a home

Once you know your price range and have a rough budget for planned improvements, you can start house hunting. Pick a real estate agent that specializes in fixer-upper homes — they can help you estimate how much the home will be worth after the improvements are finished. They may also work with contractors and fixer-upper professionals to help keep your renovation costs as low as possible.

5. Get a home inspection

You should always get a home inspection if you’re buying a home, and it’s even more crucial if you’re buying a fixer-upper. Depending on the shape the house is in, the inspector may recommend more in-depth inspections by roof, septic, plumbing or foundation experts to understand how much work is really needed.

6. Put together a renovation plan

Many renovation loan programs require you to provide a construction plan for mortgage approval. This will usually include a construction cost breakdown and a contract between you and a licensed contractor to supervise the work until it’s finished. Programs like the FHA 203(k) may also require an inspection from the Department of Housing and Urban Development (HUD) to make sure the project meets government guidelines.

7. Apply for your fixer-upper loan

Once your purchase contract is accepted and you’ve gathered the info about your renovation project, you’ll need to apply for the final approval of both the loan and the renovations. The loan officer will guide you through the process and request additional documents needed to clear your loan for closing.

8. Pay for a home appraisal

The home appraisal in a renovation loan is especially important since renovation lenders determine your maximum loan amount based on your home’s price plus the repair costs, or the appraised value, whichever is lower.

9. Close on the loan

Although you’ll only have one closing for a renovation loan, you won’t receive all of the funds for your fix-up project at once. The construction money is typically paid based on a schedule that matches the expected completion of each stage of your renovations.

10. Manage construction

In most cases, the contractor works with your lender to keep them up to date on the progress of the renovations. They may send an inspector out to confirm the work has been completed according to the plans that were approved with your loan paperwork.

11. Move in!

Once the lender verifies the work is finished and meets local building codes and laws, the remaining funds are paid to the contractors and you can move into your home.

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Pros and cons of buying a fixer-upper


  You can customize your renovation. As you plan your project, you can choose the upgrades and improvements you want.

  You can finance repairs in one loan. You can roll the cost of buying the home and renovating it into a one-closing fixer-upper loan. You won’t need to apply for a home equity loan or another type of loan to pay for your renovation.

  You may build equity more quickly. Fixer-upper homes are usually priced below move-in ready homes. After you fix it up, you may find yourself with extra equity if your improvements have boosted the home’s value.


  Your costs could go up after closing. Renovation projects often come in over budget. As such, you may end up paying more out of pocket than you planned because of rising labor and material costs or difficulties with a particular part of the project.

   You might not be able to move in right away. If you’re completing an extensive renovation, you might not be able to live in the home while work is underway. Some renovation loans allow you to finance some or all of your mortgage payments, so check with your lender if you think you might need this flexibility.

  You’ll have to deal with contractors and inspectors. Most renovation loan programs require you to work with a licensed contractor, and some require a government inspector. This may add to the complexity of getting your project done in a timely manner.

Is buying a fixer-upper a good investment?

Taking on a major renovation project is not for the faint of heart. Ask yourself these questions before following before making your decision about a fixer-upper mortgage.

Do I know what I want? Renovations involve a lot of choices. Think about whether you’re ready to work on a design for your new home or you’d rather pick one that’s move-in ready.

 Do I qualify for the loan? Check your credit report, which you can request for free on and make sure your credit score is within the minimum threshold for the loan program you’re considering. If it’s not, try boosting it by paying off revolving card balances and paying all of your credit accounts on time.

Will I have somewhere to live during construction? If you’re making major renovations, you may need a place to stay while your fixer-upper is under construction. This adds to your costs and makes the process of moving into your new home more challenging.

Do I have wiggle room in my budget? Construction projects don’t always go according to plan. Make sure there’s a little flexibility in your financial picture to cover cost overruns, should they occur.

What other financing options do I have? Renovation loans can be a convenient option for fixer-uppers, but they’re not the only one. If your renovation plans fall under the category of a want versus a need, consider options like home equity lines of credit (HELOCs), contractor financing or simply saving enough money to complete your project with cash.