Obtain Detailed Contractor Bids
Presenting clear, specific, and firm bids from reliable contractors minimizes the perceived project risk.
Renovation Loan: Finance Your Dream Home Transformation
Secure the ideal Renovation Loan to fund repairs, upgrades, or complete remodeling—all within one convenient mortgage package.
What is a Renovation Loan?
A Renovation Loan (Renovation Home Loan) is a specialized mortgage that allows a borrower to combine the purchase price (or current payoff) of a home and the total cost of the planned renovations into a single loan with one monthly payment. The loan amount is determined by the home's After-Renovated Value (ARV), not its current condition.
Specifically designed for properties that need significant work to become usable and modernized.
This type of loan for home renovation eliminates the need for a separate construction loan.
This loan helps turn fixer-uppers into dream homes by basing the loan in the future, improved value.
Benefits of a Renovation Loan
Choosing a dedicated Renovation Loan provides a streamlined, cost-effective way to manage home improvements, whether you are buying a repair-upper or fixing up your current residence.
Single Closing Process
Combine the home purchase/refinance and the renovation costs into one loan with a single closing and one set of fees.
Based on Future Value (ARV)
Your loan is based on your home value after renovations, so you can borrow more from the start.
Immediate Equity Creation
Fixing up a neglected home with a renovation loan can quickly build equity and increase your net worth.
Lower Interest Rates
Secured by the property, these loans usually have much lower interest rates than credit cards or personal loans.
Finance Major Structural Work
Unlike regular home equity loans, renovation loans cover major repairs, not just cosmetic updates.
Types of Renovation Loans
The Renovation Loan offers solutions tailored to the scope of your project, your borrower profile, and the property type, providing flexible options for any home renovation loan.
FHA 203k Loan
A government-backed loan for primary residences, ideal for modest repairs or major structural work.
Fannie Mae Homestyle Renovation Loan
A flexible conventional loan that works for primary homes, second homes, and investment properties.
VA Renovation Loan
For eligible veterans, this loan lets you add minor repairs and upgrades to your primary mortgage.
Construction-to-Permanent Loan
This loan finances teardowns or new buildings, then automatically turns into a permanent mortgage.
Home Equity Loan (HEL) or HELOC
Utilizes existing equity for renovations, often best for smaller, non-structural projects on homes you already own.
Renovation Loan Requirements
While renovation loan programs are flexible in the sense that they accept properties in need of repair, they have strict rules regarding the borrower's financial stability and the project management.
Licensed Contractor Required
Most major programs require licensed contractors and have set schedules for payments and inspections.
Contingency Reserve
A 10–20% reserve fund of the renovation cost is added to the loan to cover unexpected construction costs.
Project Timelines
Work must be completed within a defined period, typically 6 to 12 months from the renovation loan closing date.
Appraisal of ARV
A special appraisal is needed to determine the After-Renovation Value, which sets the maximum loan amount.
Strong Credit Profile
A FICO score above 620 is mandatory to secure favorable terms for a loan for home renovation.
Owner Occupancy Rules
FHA 203(k) loans require the home to be your primary residence, while conventional loans offer more flexibility.
How to Get a Renovation Loan with Rize Mortgage
Rize Mortgage specializes in matching your project’s scope with the right renovation home loan, managing the complex requirements to ensure a successful closing and renovation.
Define Your Project Scope
Consult with a Rize loan specialist to see if your financial goals are met.
Select a Qualified Contractor
Get detailed bids and contracts from licensed contractors familiar with renovation loan draws.
Pre-Qualification and Review
We quickly review your financial profile and the project's ARV estimate to pre-qualify you.
Underwriting and Project Documentation
We work with your contractor and appraiser to finalize the project details and cost estimate.
Closing and Construction Draws
You close the loan, and funds are released to the contractor in draws after each phase is inspected.
Tips to Secure the Best Renovation Loan Terms
To secure the most competitive rates and streamline the process for your loan for home renovation, focus on detailed planning and strengthening your borrower profile
1
Increase Your Down Payment
Putting down more than the minimum required percentage improves your loan-to-value (LTV) ratio.
2
Boost Your Credit Score
Ensure your credit score is in the excellent range to qualify for the best rates available for you.
3
Maintain Ample Cash Reserves
We prefer borrowers with enough cash to cover unexpected costs beyond the loan’s contingency fund.
4
Understand the Draw Process
We explain your draw and inspection schedule in advance to make sure your contractor can keep up.
5
FAQ (Frequently Asked Questions)
What is the loan-to-value (LTV) ratio for renovation loans?
Most renovation loans use the “after-improved” value of your home to calculate LTV, meaning the lender looks at what your home will be worth after the upgrades, not what it’s worth today. Depending on the program, you can usually finance up to 80%–95% of the after-renovation value, which gives you more borrowing power for bigger projects.
Who is eligible to apply for a renovation loan?
Eligibility is pretty straightforward. You may qualify if you have:
- A stable income
- A decent credit score
- Manageable debt levels
- A property that qualifies for renovation financing
Both homeowners and homebuyers can apply, so whether you’re fixing your current space or buying a fixer-upper, you can use a renovation loan to fund the improvements.
Can the loan be used for all types of renovations?
In most cases, yes. Renovation loans cover a wide range of upgrades, including structural repairs, room additions, flooring, electrical updates, energy-efficient improvements, kitchen remodels, and more. Some luxury upgrades (like pools or outdoor kitchens) may depend on the specific loan program, but generally, anything that adds value or improves safety is allowed.
Does a renovation loan have any tax benefits?
Possibly. If the renovation loan is secured by your home (which most are), the interest may be tax-deductible, especially when the funds are used to “buy, build, or substantially improve” your primary residence. Since tax rules can vary, it’s always best to check with your tax advisor for specific guidance.
Can I apply for a renovation loan if I already have a home loan?
Yes, you can. Many borrowers with existing mortgages take out a renovation loan to upgrade their home. Depending on the type of renovation financing, the lender may combine your current mortgage and renovation costs into one new loan or offer the renovation funds as a separate loan or line of credit. Either way, it’s a common and totally acceptable scenario.
Ready to Fund Your Home Transformation?
A single, consolidated Renovation Loan is the smartest way to finance your vision. Don't let the condition of a property stop you from creating the home you deserve.
