Homeowners who want to repair their houses can use renovation loans to help fund the costs. These loans are mortgages with specific amounts of money set aside to complete the renovations. The types of loans available vary by lender, and the federal government offers several mortgage renovation loan programs.

Many homeowners turn to specific programs for their renovation loan needs. For example, Fannie Mae and Freddie Mac, which are the two government-sponsored enterprises that help keep the U.S. housing market stable, offer renovation loans. Additionally, the Federal Housing Administration provides renovation-style mortgages. Here are a few of the available loan programs.

Fannie Mae HomeStyle Mortgage Program- This loan program backed by Fannie Mae includes the cost to renovate or repair a house in the loan balance. This loan option is popular because it works as a single loan with one monthly payment and a low, fixed-interest rate. Potential homeowners who want to buy a house in need of repairs can use this program to cover the purchase price and the renovation costs.

FHA (203)k Mortgage Program- The Federal Housing Administration offers this loan program for borrowers with lower credit scores and little down payment money. Homeowners can use this program for single-family, primary residences in need of significant renovations. However, 203(k) loans are typically more expensive than other mortgages because of the lower credit score and down payment requirements. FHA mortgages also require borrowers to pay mortgage insurance.

USDA Home Loan Programs- The United States Department of Agriculture offers renovation loans with lenient guidelines and low-interest rates. The USDA designed these loans for low-income Americans who need safe, secure housing but live in rural locations with limited options. If potential low-income homeowners find a rural house needing significant repairs, they can use the loan to repair siding, foundations, appliances, plumbing, or any other upgrade that improves the condition and safety of the home.

Many traditional banks and mortgage lenders offer their own versions of renovation loans. However, the requirements often vary significantly from Fannie Mae/Freddie Mac and government-backed mortgages. For example, some lenders may restrict the repairs to value-added upgrades only. If replacing siding or buying new appliances does not add value to the home, lenders will not finance those upgrades.