The conventional renovation loan is offered by FNMA, as the HomeStyle Renovation mortgage program, and Freddie Mac, as a CHOICERenovation program.
Whether you are looking at purchasing a home needing repairs or wanting to update your home, the HomeStyle or CHOICERenovation loan allows you to personalize the home to suit your taste.
Unlike other renovation loans, such as FHA 203(k) loans, a conventional renovation loan allows for luxury renovation projects such as installing an in-ground pool or backyard BBQ.
Your down payment could be as low as 3% of the total acquisition cost – perfect for renovation projects big and small.
Find the perfect fixer-upper? You can also use a renovation loan to buy a home below market value and make it your own. You can close on a home you can afford and possibly end up with instant equity, tapping into a market that cash investors typically dominate.
What are the benefits of conventional renovation loans?
Buying a house that needs rehabilitation can often be complicated and costly. Repairs can drain your savings or investments.
Interim acquisition and improvement loans often have:
- Relatively high interest rates
- Short repayment terms
- A balloon payment
Coupling a conventional rehab loan with a lender with industry knowledge, you may benefit from lower interest rates and reduced costs associated with repairs and modernization.
You can customize the home to meet your needs. Improvements may also increase home value and resale marketability.
Unlike traditional home equity loans that base the loan amount on your home's current equity and can limit the available money for home repairs.
In a HomeStyle or CHOICERenovation refinance, the loan amount can be based on the home's future value once the renovations and repairs you have chosen are completed. You are borrowing on future equity to achieve the home of your dreams!
There's no need to worry about post-closing costs like inspections, permit fees, architectural or engineering drawings, and the supplemental origination fee.
These fees can be financed into your renovation loan. You'll also have the security of a contingency reserve. Once you start your project, we know you may uncover additional health or safety repairs that need to be done. We'll build an additional 10 to 20% of your bid cost as a contingency reserve to use as a safety net.
Another benefit of the Fannie Mae HomeStyle or Freddie Mac CHOICERenovation loan options is you can finance up to 6 months of mortgage payments into the loan if it's not possible to live in the home during renovations, to be determined by a HUD Consultant. That way, you can simultaneously avoid paying your mortgage and rent at a temporary residence.
Are you eligible or ineligible for a conventional renovation loan?
Eligible borrowers:
- U.S. Citizens
- Permanent resident aliens
- Qualified non-profit organizations
- Qualified non-permanent resident aliens
- State and local government agencies
Ineligible borrowers:
- Foreign nationals
- Corporations or limited liability companies (LLC)
Eligible vs. Ineligible Properties
Eligible
- 1 to 4-unit attached and detached single-family residences and planned unit developments
- Modular homes
- 1-unit second or investment homes
Ineligible
- Cooperatives
- Manufactured homes
- Properties with non-conforming construction that cannot be remedied
- Leaseholds
What are the requirements for conventional renovation loans?
Homes occupied by the owner can be 1 to 4 units. Second homes and investment properties are eligible, but Single-Family Residences only. The transaction must be a purchase or refinance. Loans are subject to specific appraisal and renovation requirements.
Eligible repairs and renovations include:
- Structural alterations
- Chimneys and skylights
- Construct an ADU
- Additional bathroom installation
- Termite damage repair
- Existing detached garage repair
- New, attached garages
- Bathroom and kitchen modernization
- Health and safety hazard removal
- HVAC repair or replacement
- Electrical and plumbing systems
- Major landscaping improvements
- Grading and drainage improvements
- Swimming pool installation (in-ground only)
- Roofs, gutters, and downspouts
- Existing HVAC systems
- Plumbing and electrical systems
- Flooring and carpeting
- Interior and exterior paint
- Appliances (purchase and installation)
- Accessibility improvements
- Exterior decks, patios, and porches
- Basem*nt finishing
- Basem*nt waterproofing
- Weatherization upgrades
- Window and door replacements
- Wall residing
- Septic and well systems
FAQs
Conventional rehabilitation loans (or simply “conventional rehab loans”) are mortgage products that let homebuyers fund the cost of a home and its renovations in a single loan. This can be a great option for homebuyers who are considering a fixer-upper property to save on their initial purchase price.
What is a conventional rehab mortgage? ›
Conventional rehab loans provide funds for both purchase and repairs with one loan. Generally, borrowers must have a minimum credit score of 500 to qualify for rehab financing but may qualify for a reduced down payment with a score of 620 or higher.
What is a conventional mortgage? ›
A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs). Conventional loans can be conforming or non-conforming.
What is a renovation mortgage? ›
A renovation mortgage is a type of mortgage that includes funds for home repairs and improvements. Maybe you want to move into a neighborhood with stellar schools, but the only way you can afford that is by getting a property in less-than-ideal shape.
What is a home renovation loan? ›
What is a home improvement loan? A home improvement loan is a type of home loan you can avail of to renovate your house and fund its repairs. The loan can be used for internal and external home renovation such as painting and whitewashing, tiling and flooring, waterproofing, plumbing and sanitary work, and more.
What is the difference between a conventional loan and a renovation loan? ›
Unlike other renovation loans, such as FHA 203(k) loans, a conventional renovation loan allows for luxury renovation projects such as installing an in-ground pool or backyard BBQ. Your down payment could be as low as 3% of the total acquisition cost – perfect for renovation projects big and small.
What is a rehab loan and how does it work? ›
An FHA 203(k) loan allows you to buy or refinance a fixer-upper while financing the necessary repairs with a single loan and one monthly mortgage payment. This type of mortgage, also known as a “rehab loan,” addresses a common issue when purchasing a fixer-upper home.
What is the downside of a conventional loan? ›
There are drawbacks to conventional loans, the main one being that you'll typically need stronger finances to qualify. Conventional loans usually have larger down payment requirements and you'll need a higher credit score compared to government-backed mortgages.
What is the most common conventional mortgage? ›
Conforming conventional loans (the most common conventional loan type) have guidelines set by the Federal Housing Finance Agency (FHFA). Conventional loans are available as fixed-rate, adjustable-rate, conforming, jumbo and non-qualifying mortgages.
What is the minimum down payment for a conventional mortgage? ›
While you can qualify for a conforming conventional mortgage with a down payment of 5% or even 3%, you can expect a lender to want at least 20% down with a jumbo loan. Another difference between conforming and non-conforming conventional home loans is the interest rate.
An FHA 203(k) Renovation Loan is a government-backed mortgage that combines the costs of a home purchase (or refinance) with the costs of home renovations. The FHA 203(k) Renovation Loan offers homeowners and home buyers an easier way to pay for home remodeling costs.
Is a construction loan the same as a renovation loan? ›
Typically, Home Renovation Loans cover updates to your existing home, whereas Home Construction Loans fund a new home build.
Are renovation loans a good idea? ›
A renovation loan can be worth it if it will help you improve the value and livability of your home without costing too much. If you want a loan with quick funding that doesn't require you to use your home as collateral, getting a personal loan for renovations could be a good decision.
What are conventional loans? ›
“Conventional” just means that the loan is not part of a specific government program. Conventional loans typically cost less than FHA loans but can be more difficult to get.
Can renovations be loans? ›
Renovation loans, on the other hand, are secured loans that can offer larger financing amounts to cover your renovation costs. Do remember that you will need to provide documentation as proof to the bank that the loan will be used for renovation purposes.
What is the collateral on a renovation loan? ›
You must use your home as collateral. You must have at least 20 percent equity in your home to be eligible. Closing costs can be high — similar to any refinance or new mortgage.
What is the difference between a conventional and conforming mortgage? ›
A conforming loan is one that meets specific criteria set by the FHFA, including conforming loan limits. A conventional loan is any loan that isn't guaranteed or insured by the government (FHA, VA and USDA loans). Conventional loans can be either conforming or non-conforming.
Do rehab loans have higher interest rates? ›
A rehab mortgage loan is a bit different from the conventional mortgage loan. With a rehab loan you will have a higher interest rate, but you are able to use a portion of the loan on the home purchase and the other portion on repairs.
Which type of mortgage allows for the purchase of a rehab home? ›
An FHA 203(k) loan – also known as a mortgage rehab loan, renovation loan, or Section 203(k) loan – can be used to fund both a home's purchase and renovations under a single mortgage.
Is conventional better than FHA? ›
FHA loans allow lower credit scores and require less elapsed time for major credit problems. Conventional loans, however, may require less paperwork and offer better options to avoid costly mortgage insurance premiums.
