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How to Cover Renovation Expenses on Fixer Uppers Thumbnail

How to Cover Renovation Expenses on Fixer Uppers

Pittsburgh, PA - Say you’ve found the perfect neighborhood, but the home prices are a bit out of budget. An enticing solution for many may be to find a fixer-upper, with hopes of renovating it into a dream home. This can be a cost-effective option - but it requires patience, know-how and extra room in the budget for renovation costs.

If you’re considering purchasing a home that requires some TLC before move-in day, you’ll need to know how to cover your renovation expenses - if you’re not prepared to pay for them out of pocket.

Rolling Renovations Into Your Mortgage

It is possible to roll your renovation costs into your mortgage, but you’ll want to consider the pros and cons carefully before going this route. 

Option #1: FHA 203(k) Loan

The Federal Housing Administration insures certain mortgage loans, and there are two versions of this based on the type of renovations that you will be doing. They can be used in 15-, 20-, 25- and 30-year mortgage rates. Borrowers need to have a minimum credit score of 580 with a minimum of a 3.5 percent down payment.1 

If the home is your primary residence and you will be making major repairs, then you may be looking at a standard 203(k) loan. Repairs or renovations that tend to fall under this category include:

  • Fixing foundational issues to remove safety risks
  • Additions to rooms
  • Floor repairs
  • Elimination of health or safety hazards
  • Fixing roofing and gutters
  • Replacing plumbing or installing a septic system

This loan has a minimum required amount of $5,000, and it can cover up to $625,000.2 

If your renovations and repairs are less extensive, you may be looking at a limited 203(k) loan. 

This type of loan is for changes such as:3

  • Upgrading the kitchen
  • Renovating the bathroom
  • Replacing older appliances
  • Painting your house

To be eligible for a 203(k) loan, these upgrades must be less than $35,000 total.3 

Option #2: Fannie Mae HomeStyle® Renovation Loan

With a Fannie Mae Homestyle® Loan, homebuyers and existing homeowners are able to combine their home purchase, or they can refinance for renovations into a single mortgage. By doing this option, the buyers will not need to get a secondary loan. 

If purchasing a single-family home, buyers can potentially qualify for a three percent down payment. Additionally, these types of loans are available in 15- and 30-year fixed-rate mortgage terms.4   

Option #3: Freddie Mac Renovation Mortgage

If a homebuyer is trying to renovate or repair their home through refinancing or by purchasing it, then this is an option for buyers. They are available for fixed-rate mortgages with 15-, 20- or 30-year terms.

For a single-family home, borrowers must contribute a down payment of:5  

  • Five percent for a single-family home
  • 15 percent for a two-unit home 
  • 20 percent for three and four-unit homes

When it comes to obtaining this type of mortgage, there are some eligibility guidelines that should be followed, such as:5

  • The homebuyer cannot be affiliated with a builder, developer or seller.
  • Manufactured homes do not qualify.
  • Primary homes, investment and secondary homes are eligible.
  • A credit score of at least 660 if putting down less than 25 percent or a credit score of at least 620 if putting down more than 25 percent.

Other Renovation Loan Types

You have other avenues to explore if rolling your renovation costs into your mortgage is not a viable or appealing option. These include personal loans and lines of credit.

Unsecured Personal Loan

Borrowers can take out an unsecured personal loan, which usually ranges from $1,000 to $50,000, but the financing won’t be backed by your home. Keep in mind that these usually come with higher interest rates since they are not secured. 

Unsecured Personal Line of Credit

This type of loan is similar to a credit card, and once it has been approved, the borrower is issued a line of credit that they must pay back with interest. These lines of credit generally range from $1,000 to $100,000 and can be reused once the amount is paid back. 

If you’re considering the purchase of a fixer-upper, you have several options when it comes to financing the renovations needed to make it the home of your dreams. While it can seem like quite the undertaking, with the right types of financing and loans, buying a fixer-upper can really save in the long-run.


To discuss this content further or to ask any financial-life question you may have, we encourage you to reach out to us at 724.942.2639 or schedule a FREE/no-obligation time to chat with an advisor at your convenience.  

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