If you want to buy a house that needs work and finance the repairs in the same loan, you have more than one option. The FHA 203(k) is the best known, but conventional renovation loans can be a better fit for some buyers. The right choice depends on your credit, your down payment and the size of the project.
The FHA 203(k)
- A government-backed loan that rolls the purchase and repairs into one mortgage
- Often more flexible on credit and down payment than conventional loans
- Limited and standard versions, with the standard version used for larger projects and requiring more oversight
- Repair funds are held in escrow and released as work is completed
- For owner-occupants, not for investment properties
Conventional renovation loans
- Products from Fannie Mae and Freddie Mac, such as HomeStyle and CHOICERenovation, offered through participating lenders
- May suit buyers with stronger credit and a larger down payment
- Can have different rules on what work is allowed and how it is paid for
What to compare
- Interest rate and mortgage insurance, which can differ a lot between the two
- Down payment and credit requirements
- The scope of repairs each program allows
- The timeline, paperwork and contractor requirements
- Whether the property and your situation qualify
Ask a lender to give you full cost estimates for both options, not just the monthly payment. Talk to Nil about approved lenders. Programs and limits change, so always confirm the current rules.
Our guide to FHA 203(k) renovation loans explains how the process works from offer to completion.
Nil Patel is a licensed Georgia real estate salesperson with Keller Williams Realty Atlanta Partners. This post is general information, not legal, tax or financial advice, and nothing here is a commitment to lend.