Renovation Loans
Finance the purchase and renovation of a property in a single loan. Whether you are an investor adding value to flip or hold, or a homebuyer upgrading your future home, renovation loans let you roll the rehab costs into the mortgage — based on the property's After-Repair Value.
What is a renovation loan?
A renovation loan wraps the purchase price and the renovation costs into a single mortgage, so you can buy a property that needs work and finance the repairs upfront — rather than paying for them out of pocket after closing.
For investors, the most common path is a DSCR renovation loan: you qualify on the property's stabilized rental income after the rehab is complete (the ARV rents), not your personal income. The lender funds the purchase and disburses rehab funds in draws as work is completed and inspected. Once the renovation is done, the loan converts to a standard DSCR — or you refinance into a long-term rental loan to pull your cash back out.
For homebuyers, government-backed options like the FHA 203(k) and Fannie Mae HomeStyle let you buy a primary residence with as little as 3 to 3.5% down and roll the renovation costs into the same mortgage. These programs use the home's post-renovation appraised value to set the loan amount, so the improvements you fund are reflected in the value the lender sees — not just the purchase price.
Renovation loans at a glance
Things most people don't know about renovation loans
The details that make a fixer-upper work.
The loan is based on the future value, not today's
Renovation loans use the After-Repair Value — the home's appraised value once the work is done — to set the loan amount. That means a $200K house needing $50K of work, with an ARV of $300K, can support a larger loan than its current price suggests. The improvements you fund are built into the value the lender sees.
Rehab funds are protected by draws
The renovation budget is not handed to you at closing. It is held in escrow and released in draws — typically after foundation, framing, drywall, and finishes — each requiring an inspection. This protects you from cost overruns and protects the lender from unfinished work.
Investors can refinance into a rental after rehab
A DSCR renovation loan lets you buy, renovate, and stabilize a rental in one loan. Once the work is done and the property is rented, you refinance into a standard DSCR based on the new appraised value — pulling your cash back out to do the next deal (the BRRRR strategy).
FHA 203(k) works for primary residences too
The FHA 203(k) is not just for investors. A homebuyer buying a primary residence can use it to buy a fixer-upper with 3.5% down and roll up to $35,000 (Streamline) or the full rehab cost (Standard) into the mortgage. It is one of the lowest-down-payment renovation options available.
HomeStyle allows investment properties
Fannie Mae's HomeStyle Renovation is one of the few conventional renovation loans that works for investment properties — with 15 to 25% down. It also allows luxury improvements (pools, high-end finishes) that the FHA 203(k) does not, making it more flexible for higher-end projects.
A licensed contractor and scope of work are required
Every renovation loan requires a detailed scope of work from a licensed contractor before approval. The lender reviews the plan, confirms it matches the ARV, and ties the draw schedule to the milestones in the scope. You cannot DIY the renovation on a renovation loan — the work must be professional and permitted.
Run your renovation numbers
Enter the purchase price, rehab budget, and After-Repair Value. The calculator shows your projected profit, ROI, deal margin, and total carrying cost — so you know if the renovation adds enough value to justify the investment.
Fix & Flip Calculator
Enter your purchase price, rehab budget, and After-Repair Value (ARV). The calculator shows your projected profit, ROI, and deal margin so you know if the numbers work before you commit.
Agent commissions, closing costs, transfer taxes
Projected Profit
$37,150
ROI
13.1%
Margin
11.6%
LTV
76.6%
Margin of 10%+. This is the range where most experienced flippers feel comfortable.
Important Note
Fix & flip loans are short-term, asset-based financing. Rates, LTV, and rehab escrow terms vary by lender. This calculator assumes 100% financing of purchase + rehab; your actual down payment and draw schedule affect real costs.
Who a renovation loan fits best
- Investors buying a property that needs work to flip or hold as a rental.
- Investors executing a BRRRR strategy (rehab then refinance into DSCR).
- Homebuyers buying a fixer-upper as a primary residence (FHA 203k, HomeStyle).
- Investors who want to finance the rehab costs rather than paying out of pocket.
- Anyone buying a property where the post-renovation value justifies the investment.
Frequently asked questions
Yes. That is the whole point of a renovation loan. The purchase price and the renovation budget are combined into a single mortgage, and the rehab funds are held in escrow and disbursed in draws as work is completed. You do not pay for the renovation out of pocket after closing — it is financed from day one.
Educational content only. This page is not financial, legal, or tax advice, a commitment to lend, or an offer of credit. Program requirements and terms vary by lender and change over time; figures cited reflect the sources below as of the dates noted, and eligibility always depends on your full financial profile. Liuver Duran, NMLS #2579601. Sociable Mortgage LLC, NMLS #2498240. Equal Housing Opportunity.
Sources
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