Renovation loans: HomeStyle, CHOICERenovation and FHA 203(k) compared
A house that needs $60,000 of work is a financing problem before it is a construction problem. You cannot take a home equity line on a house you do not own yet, and a lender will not fund a property whose condition the appraiser flags. Renovation mortgages solve that by lending against what the house will be worth after the work, and escrowing the money until it is done.
The three programs, side by side
| HomeStyle Renovation (Fannie Mae) | CHOICERenovation (Freddie Mac) | FHA 203(k) | |
|---|---|---|---|
| Loan type | Conventional | Conventional | FHA-insured |
| Minimum down payment | From 3% on a one-unit primary residence | From 3% on a one-unit primary residence | 3.5% |
| Renovation funds capped at | 75% of the as-completed value (lesser of price + work, or as-completed) | 75% of the as-completed value | Standard: within FHA county limits. Limited: $75,000 of work |
| Minimum work | None stated | None stated | $5,000 on Standard |
| Consultant | Not required | Not required | Required on Standard; optional on Limited |
| Structural work | Allowed | Allowed | Standard only, not Limited |
| Investment property | One unit, lower LTV | One unit, lower LTV | No — owner-occupants only |
| Mortgage insurance | PMI, cancellable | PMI, cancellable | MIP, often for the life of the loan |
Freddie Mac also runs a streamlined version, CHOICEReno eXPress, for small cosmetic projects, where financed renovation costs are held to roughly 10% of value — around 15% in designated high-needs areas. Figures in this table come from the agencies’ own product pages and move from time to time; confirm the current numbers with a lender in writing before you write an offer.
The as-completed appraisal is the whole mechanism
An ordinary appraisal values the house as it stands. A renovation appraisal values it twice: as-is, and as-completed on the assumption that a specific list of work is finished to a specific specification. That second number sets your borrowing capacity, which is why the contractor’s bid and the plans have to exist before the appraiser goes out. Vague scope produces a conservative as-completed value, and a conservative value produces a smaller loan.
An illustrative purchase makes it concrete. A house listed at $260,000 needs $60,000 of work; the appraiser puts the as-completed value at $340,000. On a HomeStyle loan the base figure is the lesser of purchase price plus renovation ($320,000) or the as-completed value ($340,000) — so $320,000. At 95% that is a $304,000 loan and about $16,000 down, with the $60,000 of work sitting well inside the 75% cap. Change one input — an as-completed value of $300,000, say — and the whole structure has to shrink or the buyer has to bring the difference in cash. Illustrative arithmetic, not an offer.
How the money actually moves
- Bids first. A licensed, insured contractor produces an itemized bid. Lenders review the contractor as well as the price: license, insurance, references, sometimes a resume of comparable jobs.
- Renovation escrow at closing. The work money is funded but held. You close on the house; the contractor has not been paid.
- Draws against inspections. The contractor completes a stage, an inspector confirms it, and the servicer releases that draw — often with a retainage of around 10% held back until the end. Most programs allow an initial disbursement for materials at closing.
- A contingency reserve. Typically 10% to 15% of the bid, set aside for what the walls turn out to be hiding. Unused reserve normally goes to principal or is refunded at completion.
- A completion deadline. Fannie Mae allows up to 15 months from closing on HomeStyle; FHA expects work to begin promptly and finish inside the window written into the rehabilitation agreement. Miss it and the loan is in technical default.
You are paying a mortgage on the full balance while the house is a construction site, so budget for rent or a double housing payment during the work. That line is missing from more renovation budgets than any other.
What each program will and will not pay for
The conventional programs are permissive: HomeStyle and CHOICERenovation cover essentially any permanent improvement to the property, including pools and detached structures, and CHOICERenovation was extended to resilience work such as storm and wildfire mitigation. Fannie Mae permits do-it-yourself work only on a one-unit owner-occupied home, capped at roughly 10% of as-completed value, with inspections on larger items.
The FHA Limited 203(k) is the narrow one by design: cosmetic and system repairs up to $75,000 of work, no structural alterations, no work that stops you occupying the home for long. The Standard 203(k) handles foundations, additions and full gut jobs, but requires a HUD-approved consultant drawn from HUD’s roster to write the work write-up and sign off on draws — a real cost and a real discipline. Neither version finances what HUD treats as luxury items.
Renovation mortgage or hard money?
The programs above are built for people who intend to live in the house. An investor buying a distressed property to resell in six months is usually better served by a short-term rehab loan, which prices for speed rather than for a 30-year hold — the trade-off is set out in our guide to fix-and-flip financing, and the hard money hub covers the wider product. The reverse mistake is also common: an owner-occupant paying 10% and two points for a bridge loan when a HomeStyle at conventional pricing would have done the same job. If the house needs work and you are moving in, start with the renovation mortgage and use short-term money only when the timeline makes it impossible.
The other alternatives are worth pricing: a cash-out refinance once you own the home outright, described in our cash-out refinance guide, or a home equity line for a homeowner who already has equity and does not want to disturb a low first-mortgage rate.
Costs and frictions to expect
- A rate premium. Renovation loans commonly price modestly above the standard equivalent, and lenders may add a renovation administration fee.
- Consultant and inspection fees. HUD publishes a fee schedule for 203(k) consultants; draw inspections are billed per visit on all programs.
- Title updates. Each draw can require a title endorsement to confirm no mechanic’s liens have been recorded against the property.
- A thinner lender market. Not every lender that offers conventional loans offers HomeStyle, and renovation departments are small. Ask directly how many the loan officer closed last year.
- A longer close. Bids, plans and the as-completed appraisal add weeks, as our guide to closing timelines notes. Write the contract accordingly.
Frequently asked questions
Can a first-time buyer use a renovation loan?
Yes. HomeStyle and CHOICERenovation may be combined with the 3%-down programs on a one-unit primary residence, and FHA 203(k) starts at 3.5% down. Down payment assistance is sometimes compatible as well; the programs available where you are buying are listed on our first-time buyer hub.
Can I do the work myself?
Only in narrow circumstances. Fannie Mae allows self-help on a one-unit owner-occupied property within a cap on the share of value, with inspections; FHA is restrictive and requires the borrower to demonstrate the ability and the time. Sweat equity almost never counts toward the down payment.
What happens if the contractor abandons the job?
The escrow is the protection: unreleased funds stay with the servicer, so the money for unfinished work has not been paid out. You will still need to bring in a replacement contractor, get the change approved and absorb the delay against the completion deadline. Vet the contractor as carefully as you compare lenders.
Is a renovation loan available on an investment property?
HomeStyle and CHOICERenovation permit one-unit investment properties at reduced leverage. FHA 203(k) does not — it is limited to owner-occupants. Questions about a specific file can be sent to mail@noreply.claude-loan.com; we answer within 24 to 48 hours and we do not sell loans.
Your state: conventional loans and mortgage law
The federal rules above apply everywhere; the rest depends on where the home is. For each state, one page gives the 2026 conforming limit of every county and the monthly cost of a conventional loan on the state median; the other gives the state layer: who closes the loan, recording taxes, prepayment, licensing, first-time buyer programs, hard money rules and foreclosure.
Sources
Related: Conventional loan requirements in 2026: what Fannie Mae’s guide actually says, FHA vs conventional for a first-time buyer: which loan wins, and when, Cash-out refinance: limits, costs and when it is the wrong tool, Fix-and-flip financing: structuring the loan around the project. Hub: Conventional loan.