Loans Available for Home Improvement

Explore Financing Options Tailored to Your Home Improvement Needs

Discover a variety of loans available specifically for home improvement projects.

FHA 203(k) Loan

Did you know that the Federal Housing Administration (FHA) has a special loan for home improvements? It’s called the FHA 203(k) Loan, a popular choice among homeowners looking to renovate or home buyers purchasing a home they want to renovate. 

How does an FHA 203(k) loan work?

The FHA 203(k) loan combines the cost of your home purchase or the outstanding balance of your home plus the renovation costs into one single mortgage.

This means it’s perfect for those who are buying a fixer-upper or those who want to include the costs of their home improvements in their mortgage.

It may also come with lower interest rates and a more relaxed credit score requirement compared to other loan types, making it a splendid option for those with less-than-perfect credit.

Examples of FHA 203(k) Eligible Projects

The versatility of the FHA 203(k) loan lies in its wide range of eligible home improvement projects. Here are some renovations you can undertake with this loan:

  • Kitchen and Bathroom Remodels
  • HVAC, Plumbing, and Electrical Systems
  • Structural Alterations and Reconstruction
  • Energy Conservation Improvements
  • Major Landscaping
  • Accessibility Improvements

Conforming Loans:
Fannie Mae HomeStyle Renovation Loan and the Freddie Mac CHOICERenovation loan

Fannie Mae and Freddie Mac are both government-sponsored enterprises that provide conventional loans not insured by the government. The Fannie Mae HomeStyle Renovation Loan and the Freddie Mac CHOICERenovation Mortgage are each designed to finance a wide range of home improvements and renovations. These can include everything from necessary structural repairs to aesthetic upgrades, such as kitchen or bathroom remodels.

Unlike the FHA 203(k) loan, which also finances renovations, these Conforming Loans come with an added flexibility. They can be used not only for primary residences but also for second homes and investment properties. Thus, these loans significantly expand the range of properties for which home improvement financing can be obtained.

Fannie Mae HomeStyle Renovation Loan Requirements

  • Credit Score: A minimum credit score of 620 is required for the Fannie Mae HomeStyle Renovation Loan. A higher score of 780 or above is needed to secure the lowest rates​​.
  • Down Payment: The down payment depends on the property type and occupancy. It ranges from 3% for a one-unit primary residence to higher percentages for multi-unit and investment properties​​.
  • Loan Limits: The loan amount is based on the estimated after-improved value of the home. Take the completed value of the project when determining the total loan amount, up to 75% of either the purchase price plus renovation costs or the “as-completed” appraised value, whichever is lower. For manufactured housing, eligible renovation funds cap at the lesser of $50,000 or 50% of the “as-completed” appraised value.

Freddie Mac CHOICERenovation Mortgage Requirements

  • Credit Score: The credit score requirement is determined by the lender but usually ranges from 620 to 660​​.
  • Down Payment: Similar to the HomeStyle loan, the down payment for the Freddie Mac CHOICERenovation Mortgage varies and is based on the lender’s requirements.
  • Loan Limits: The loan limits for the Freddie Mac CHOICERenovation Mortgage are also based on the property’s after-improved value. Borrowers can finance renovations that cost up to 75% of a home’s value after being fixed up, as long as they qualify for the total loan amount. If your house is valued at $300,000 after improvements, you could potentially borrow as much as $225,000 (75% of $300,000) for your home improvement project, provided you qualify for the total loan amount.

Shopping around for lenders who provide Fannie Mae HomeStyle Renovation Loan and Freddie Mac Renovation Mortgage is highly advisable.

Different lenders may offer varying interest rates, fees, and loan terms, so it’s crucial to explore multiple options to find the best fit for your financial situation. Some lenders might also have more stringent criteria or additional features that could impact your loan application. 

FHA 203(k) Loan

Fannie Mae HomeStyle Renovation Loan

Freddie Mac CHOICERenovation Mortgage

Loan Type

FHA 203(k) Loan

Government-backed

Fannie Mae HomeStyle Renovation Loan

Conventional

Freddie Mac CHOICERenovation Mortgage

Conventional

Credit Score Requirement

FHA 203(k) Loan

Minimum typically 500-580

Fannie Mae HomeStyle Renovation Loan

Minimum usually 620

Freddie Mac CHOICERenovation Mortgage

Varies, generally 620-660

Down Payment

FHA 203(k) Loan

As low as 3.5%

Fannie Mae HomeStyle Renovation Loan

Varies (as low as 3% for primary, higher for investment properties)

Freddie Mac CHOICERenovation Mortgage

Varies based on lender requirements

Mortgage Insurance

FHA 203(k) Loan

Required, regardless of down payment

Fannie Mae HomeStyle Renovation Loan

Required if down payment is less than 20%; can be removed once equity reaches 20%

Freddie Mac CHOICERenovation Mortgage

Varies, generally similar to HomeStyle

Property Eligibility

FHA 203(k) Loan

Primary residences only

Fannie Mae HomeStyle Renovation Loan

Primary residences, second homes, investment properties

Freddie Mac CHOICERenovation Mortgage

Primary residences, second homes, investment properties

Renovation Limits

FHA 203(k) Loan

Can include luxury items, no specific cap but subject to loan limits

Fannie Mae HomeStyle Renovation Loan

Limited and Standard options, with caps on renovation costs

Freddie Mac CHOICERenovation Mortgage

Can include luxury items, no specific cap but subject to loan limits

Loan Limits

FHA 203(k) Loan

Subject to FHA limits

Fannie Mae HomeStyle Renovation Loan

Based on the after-renovated value, subject to conforming loan limits

Freddie Mac CHOICERenovation Mortgage

Based on the after-renovated value, subject to conforming loan limits

Eligible Improvements

FHA 203(k) Loan

Structural and non-structural, but no luxury improvements

Fannie Mae HomeStyle Renovation Loan

Broad range including structural, non-structural, and luxury items

Freddie Mac CHOICERenovation Mortgage

Broad range including structural, non-structural, and luxury items

Occupancy

FHA 203(k) Loan

Owner-occupied

Fannie Mae HomeStyle Renovation Loan

Owner-occupied, second homes, investment properties

Freddie Mac CHOICERenovation Mortgage

Owner-occupied, second homes, investment properties

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