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Published by Contour Mortgage on April 04 2018

Can You Add Renovation Costs to Your Mortgage?

Topics: Home Buyers, 203k Loan

Some home buyers are only interested in move-in ready properties, but others are open to looking at fixer uppers. While it does require more elbow grease, purchasing a home that needs some work could help you get into your ideal neighborhood and/or give you the opportunity to customize the space to match your style and meet your needs. However, even with these advantages, some people may still be hesitant to take on such a project because they’re not sure they can afford a new home plus renovations.

This may lead you to wonder if there is a way to add the renovation costs of your new place to your mortgage.

The answer is yes.

There are a couple ways to do this. There are a host of renovation loans available. One is an FHA 203(k) loan. Fannie Mae also offers a renovation loan called HomeStyle®.

Let’s take a closer look at both options:


FHA 203(k) Loan

The U.S. government agency Federal Housing Administration, or simply FHA, insures certain mortgage loans. This includes a 203(k) loan. There are actually two versions of this loan categorized by renovation type.

The standard 203(k) loan is for major repairs to a property, which must be your primary residence. For example, addressing fire or flood damage would likely be covered by a standard 203(k) loan. Fixing any foundation issues may also fall under this category since these renovations require structural improvements and must be done to rid the home of any safety risks. Room additions and floor repairs would also be eligible for coverage. Including both the purchase price and renovation costs of a home, the standard 203(k) loan can cover up to $625,000. The minimum requirement for renovations is $5,000. 

The limited 203(k) loan—sometimes referred to as streamline—covers less extensive repairs, which is why changes must be less than $35,000. This can include upgrading the kitchen or bathroom, painting the home, and replacing old appliances.


HomeStyle Renovation Mortgage

The Federal National Mortgage Association, also known as Fannie Mae, offers another mortgage that lets home buyers incorporate renovation costs: the HomeStyle Renovation Mortgage.

As Fannie Mae points out, “A HomeStyle Renovation mortgage may be either a fixed-rate mortgage or an ARM loan. The original principal amount of the mortgage may not exceed Fannie Mae’s maximum allowable mortgage amount for a conventional first mortgage.”

Further, the “type of transaction” plays a role in how much is covered. If you were purchasing a home, for instance, rehab costs should not go over “75% of the lesser of the sum of the purchase price of the property plus renovation costs, or the ‘as completed’ appraised value of the property.” However, if you were looking to refinance, costs would not be allowed to exceed “75% of the 'as completed' appraised value of the property.

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