Renovation Financing Options

Whether you're buying a fixer-upper or upgrading your current home, understanding your renovation financing options can save you tens of thousands. Here are the main ways to pay.

FHA 203(k) Renovation Loan

The go-to for buying and renovating in one loan:

• ▸Combines the purchase price + renovation costs into a single mortgage.
• ▸Standard 203(k): major renovations over $35,000. Requires a HUD consultant. Covers structural work.
• ▸Limited 203(k): cosmetic repairs up to $35,000. Simpler, no consultant.
• ▸Only 3.5% down on the total (purchase + reno).

Fannie Mae HomeStyle

A conventional renovation loan:

• ▸Available for purchase or refinance.
• ▸Can be used on second homes and investment properties (203(k) cannot).
• ▸5% down minimum.
• ▸Renovation funds held in escrow and released after inspections.

HELOC and home equity loans

If you already own the home:

• ▸HELOC: revolving line, flexible draws, variable rate. Best for staged projects.
• ▸Home equity loan: lump sum, fixed rate, fixed term. Best for a defined one-time cost.
• ▸You need sufficient equity — typically can borrow up to 80–85% LTV combined.

Cash-out refinance

Replace your current mortgage with a larger one and take the difference in cash. Makes sense only if you can also improve your rate — otherwise you're raising your cost to access your own equity.

Cash

The cheapest money if you have it. Avoid financing low-cost cosmetic upgrades — pay cash and keep your mortgage lean.

The decision framework

Match the financing to the project:

1. Buying a fixer → 203(k) or HomeStyle.
2. Improving a home you own, staged → HELOC.
3. Improving a home you own, one big project → home equity loan.
4. Refinancing anyway + need cash → cash-out refinance.
5. Small upgrades → save and pay cash.