Renovation Loans

We offer both FHA 203k and conventional renovation loans.  These loans allow with one mortgage you to buy and finance renovations.  Or if you already own your home, a renovation loan allows you to get financing for renovations on it.

Here is a summary of how it all works! If you want a longer document with more details – e-mail and ask me.  You’ll hear me recommend utilizing a renovation loan if the condition of the property calls for it, or if the amount of renovation is a dollar amount where this is the best financing possible.  A renovation loan allows you to finance more than the current value of the property (learn more as you read along).  A renovation loan adds complexity and cost, and so in some circumstances if the property is in habitable condition and if the work you intend is something you can handle, you might hear me recommend utilizing standard financing instead.

An FHA 203k is a primary residence only loan, and requires a 3.5% down payment plus closing costs.

A conventional primary residence loan will require 3% or 5% down payment plus closing costs.

The down payment is calculated from the total acquisition cost not the sales price.  The total acquisition cost is the purchase price plus the renovation project and the costs tied to it plus a 10-15% contingency reserve.

A conventional investment property loan will require the same down payment as standard investment property loans.

A renovation loan requires there be an existing dwelling (in almost any condition).  A construction loan is a loan for brand new construction where there is no existing dwelling.

A renovation is one mortgage and one monthly payment – one loan for the purchase and renovation.  But the renovation money is allocated specifically to the renovation and your contractor begins work on the renovation after you settle on your home purchase. In addition to the renovation amount estimated, we’ll finance a 10-15% contingency reserve on top of the renovation amount in case the project cost runs higher than your contractor estimated.

To make an offer utilizing renovation financing, your letter we write will assume a purchase price and renovation amount.  Typically after you go under contract with a seller on the home, you’ll then bring in a HUD consultant you select.  This consultant typically replaces a home inspector.  The consultant helps you plan out the renovation project timeline, budget, and scope of work.

Then, you bring in a licensed contractor you select and they rely on the HUD consultant’s specification of repairs report to write you an estimate.

Then, my team asks an appraiser to come up with a future value of the home based on the HUD consultant’s report and your contractor’s estimate.  They write an appraisal report.  We’ll be looking for that value to be sufficiently high to justify the acquisition cost (purchase price plus renovation and renovation cost and contingency).

Then, we need to make sure all documents match, and our underwriter can review everything. And, that you’re satisfied with the estimate and scope of work and that they are final.


After you settle on your home purchase, your contractor can begin work.  They will work with the HUD consultant as they meet milestones referenced in the scope of work.  The consultant if milestones are met will request draws(money) from us from the funds allotted to the renovation project, to be sent to the contractor. Renovation loans disallow the homeowner from doing the work themselves, and disallow the homeowner to be related to the contractor.


There are lots of things you can do with a renovation loan.

You can perhaps make small repairs, to make the property livable, or make larger repairs like upgrading the interior, or even add-on to the property by bumping up, adding an addition, or digging out a basement.
What ever repairs you do choose to make, our appraiser will make sure that the repairs are justified by what the future value of the property will be after construction is complete.

At First Home Mortgage we take our renovation loans seriously and have a whole department devoted to solely work on these loans so that the process may run incredibly smoothly. Please reach out to me should you be interested in financing for renovation!  You can also request that I e-mail you a document which describes the process in far more detail.

Questions? 240-479-7658

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