Best Home Loans for Fixer-Uppers

Buying a fixer-upper can be a great opportunity to get into the housing market and renovate the property to your taste. While a fixer-upper might not look like much when you buy it, with some work, it could become your dream home. Many excellent lenders offer home renovation loans to give you the funds needed to transform the fixer-upper into something exceptional. Read on to find home loans for fixer-uppers with simplified applications, low interest rates and more to help you on your home renovation journey. 

Best Home Loans for Fixer-Uppers

Here are the best home renovation loans that allow you to purchase and renovate a home this year. 

1. Fannie Mae HomeStyle Renovation Loan

The Fannie Mae HomeStyle Renovation loan allows you to combine the mortgage to purchase a fixer-upper with renovation expenses into a single loan. You can also roll closing costs into the loan, reducing upfront expenses. With the Fannie Mae HomeStyle mortgage, you’ll get the features of a regular 30-year mortgage with a construction loan, allowing you to pay for work as it’s completed.

2. Freddie Mac CHOICEReno eXPress Loan

Another option to roll your mortgage and repair loan into a single payment is Freddie Mac’s CHOICERenovation loan. It allows you to buy a home and pay for renovations with a single home loan. In addition to general upgrades, you could use this loan to upgrade your home against natural disasters. You might be able to put just 3% down through the Home Possible program and borrow enough to finance renovations. 

3. Freddie Mac CHOICERenovation Loan

Freddie Mac CHOICERenovation loan is a fixer-upper home loan with flexible options. You can finance renovations that cost up to 75% of the home’s value after the improvements. Like other options, you can roll your mortgage and renovation loan into a single closing and monthly payment. 

What stands out about the Freddie Mac CHOICERenovation loan? Competitive interest rates based on credit score and loan terms. You can finance up to six months’ worth of mortgage payments, property taxes, homeowners insurance and the costs of permits, plans and inspections to cover the construction time. 

4. FHA 203(k) Loan

FHA 203(k) loan is a fixer-upper home loan offered by the Federal Housing Administration. This is a government-backed mortgage combining a construction loan with the mortgage to finance a home’s purchase and repairs. Like other FHA loans, FHA 203(k) loans support homeownership among lower-income families by helping them purchase and update older properties.

5. USDA Renovation Loan

A USDA Renovation Loan is a fixer-upper home loan designed to help make rural housing more affordable. It blends a traditional mortgage with a construction loan, allowing you to obtain financing to purchase and renovate a home. The major advantage of this loan option? You could get it with a 0% down payment, reducing upfront costs. 

6. VA Renovation Loan

A VA renovation loan is another fixer-upper home loan, this one backed by the U.S. Department of Veterans Affairs. A VA renovation loan finances both the home mortgage and the cost of fixing up or renovating the home. VA loans are available to those serving in the military, veterans and spouses. VA loans require no down payment or mortgage insurance and are widely available, making them an attractive option if you qualify.  

What Are Fixer-Upper Homes?

A fixer-upper home is a home that requires repairs. This can range from cosmetic updates like new interior and exterior paint or flooring to major repairs like roof replacements, HVAC replacements or foundation damage. Officially, a fixer-upper home is any property that requires repair or renovation to become livable. 

Often, you’ll find fixer-upper homes in older neighborhoods, although they can be available in many neighborhoods. Real estate investors often actively seek out fixer-upper homes as renovation costs can be less than the gain in equity on the home’s value after renovations. 

You can also ask a real estate agent to help you search for fixer-uppers. In the multiple listing service (MLS), they can search for property listings labeled as short sale or real estate owned (REO) to find potential fixer-uppers. 

How Do Fixer-Upper Home Loans Work?

A fixer-upper home loan allows you to renovate or repair an older home with deferred maintenance to make it into a home you can live in comfortably. These loans are often aimed at lower-income families or first-time homebuyers who can’t yet afford their dream homes. 

A fixer-upper home loan works like a traditional mortgage. You’ll need to provide similar documentation, including proof of income, total debt, debt-to-income ratio and down payment amount. You’ll get approval for the mortgage plus renovation costs when approved for a fixer-upper home loan. You might receive a lump sum, but usually, you’ll receive the renovation loan in disbursements as the work is completed. 

Pros of Buying a Fixer-Upper Home

Whether looking for a larger home to create a multigeneration living situation or living alone and ready to buy your first home, a fixer-upper home can give you greater value for less. Here’s why you might consider a fixer-upper home loan. 

Financial Flexibility

Fixer-upper home loans provide financial flexibility for renovation projects. They can finance both purchase price and renovation costs with a single loan. At the same time, you can customize your new home to ensure its safety and beauty, potentially for less than purchasing an already renovated home. 

Customization Options

Fixer-upper home loans allow buyers to customize and personalize the home to their preferences. Whether that’s a specific wall color, flooring type or energy-efficient upgrades that will pay off in the long run, a fixer-upper loan can be the first step to creating your dream home. 

Increased Home Value

Getting fixer-upper home loans can provide you potential for increased home value after renovations. Many renovations increase home value more than the cost of renovations, adding equity to the home in a short time. 

Cons of Buying a Fixer-Upper Home 

Fixer-upper home loans also come with major disadvantages. Here are the cons you’ll want to weigh before plunging ahead. 

Limited Loan Options

The limited options available for fixer-upper loans may make it harder to find the right financing option. For example, many lenders that offer USDA or VA loans don’t offer USDA or VA renovation loans. With limited options, you might pay more interest or fees for the loan. 

High Renovation Costs

Between labor and supplies, renovating a fixer-upper can be significantly more costly than purchasing a move-in ready home. That’s before accounting for construction delays or unexpected expenses that take your project over budget, potentially creating financial strain. 

Longer Renovation Timelines

Renovating a fixer-upper can take longer than expected, delaying moving into the home. For many families, waiting six months to a year to move into their new home is too long. 

How to Obtain Home Loans for Fixer-Uppers

If you’re ready to get a fixer-upper home loan, you have many options to overcome the challenges above. Here are the steps to find the right lender to work with.

1. Research Lenders Specializing in Fixer-Upper Loans

Look for lenders or financial institutions offering loans for purchasing and renovating fixer-upper properties. You can start your research with online lenders and also speak with local lenders. If you have friends who’ve done a renovation, you can also ask them for lender recommendations or referrals. 

2. Determine the Extent of Repairs Needed 

A thorough assessment of the renovation work required for the fixer-upper property is perhaps the most important step to avoid higher costs and longer renovation times. This will prevent unwelcome surprises during renovation. Work with qualified professionals, including an inspector and general contractor, to create a realistic budget and timeline. 

3. Create a Budget

Create a detailed budget to determine the amount of loan needed. This should include a 10% margin of error but needs to be as thorough as possible. It’s worth getting more than one opinion on the budget so you have a realistic idea of what to expect. 

4. Get Preapproved for a Fixer-Upper Loan

Submit your income statements, credit score and other required financial documents to the lender to get preapproved for a fixer-upper loan. This is a simple process you can do online, in person, or, in some cases, over the phone. 

5. Find a Qualified Contractor and Get Estimates

If you haven’t already started working with a contractor in step two above, it’s time to research and choose a reputable contractor that specializes in renovation work. Obtain detailed estimates for the repairs and updates required for the fixer-upper property. Ideally, get quotes from at least three contractors, and don’t choose the lowest quote for your estimated expenses.

6. Complete the Loan Application Process

Finally, you’ll need to work closely with the lender to complete the loan application process, including providing necessary documentation, verifying your financial information and conducting property appraisals. Depending on the property condition and the lender, this process can take one to two months. 

Once approved, you can use the loan to purchase the fixer-upper property, and renovation work can begin. For many fixer-upper loans, you may use additional financing to cover housing or mortgage payments for up to six months of renovation. 

Fix Up Your Home with Benzinga’s Top Mortgage Lenders

Benzinga’s top mortgage lenders can help you secure a fixer-upper loan with favorable terms to start renovating your new home. 

Should You Buy a Fixer-Upper Home?

Buying a fixer-upper home can allow you to purchase a more valuable home for less. You could perform all necessary renovations with a fixer-upper loan or perform some renovations over time. A fixer-upper home gives you the chance to breathe new life into an older, run-down property while creating a home that reflects your style and family needs. It’s an opportunity to increase the property’s value if you’re prepared for the time and attention it takes to complete the renovation. 

Frequently Asked Questions