Renovation Financing: HomeStyle & FHA 203(k)

Buyers or owners who want to finance renovation costs with the mortgage, rather than paying cash or using a separate loan after closing. The project, contractor, and budget are part of the approval.

• FHA 203(k): you must live in the home as your primary residence and meet FHA credit and income standards (HUD).
• Fannie Mae HomeStyle Renovation: available for primary residences, second homes, and one-unit investment properties, under conventional credit standards (Fannie Mae).

FHA 203(k): the FHA minimums apply: 3.5% with a 580+ credit score.

HomeStyle: Fannie Mae’s matrix allows up to 97% LTV on a one-unit primary residence with a fixed rate, 95% for 2–4 units, 90% for second homes, and 85% for one-unit investment properties (Eligibility Matrix).

How big can the renovation be?

• Limited 203(k): up to $75,000 in total rehabilitation costs for minor, nonstructural work; a 203(k) consultant is optional (HUD ML 2024-13). HUD now allows up to four draws per contractor (ML 2026-06).
• Standard 203(k): for larger or structural projects, with a minimum of $5,000 in repairs and a required 203(k) consultant (HUD). The total loan must still fit within FHA’s county limit.
• HomeStyle: for a purchase, renovation costs can’t exceed 75% of the lesser of the purchase price plus renovation costs, or the “as completed” appraised value (50% for manufactured homes). A limited do-it-yourself option exists for one-unit homes (B5-3.2-02).

Credit and income standards follow the underlying FHA or conventional loan. On top of that, lenders review the renovation plan: contractor bids, scope of work, timeline, and how funds will be released.

Lenders may require a contingency reserve for unexpected costs, and you may need to make payments on the full loan while work is underway; ask Shane how this would work for your project.

FHA 203(k) loans carry FHA’s upfront and annual MIP (HUD ML 2023-05).

HomeStyle loans with less than 20% equity generally carry private mortgage insurance, which can be cancelled under the same rules as other conventional loans (CFPB).

1. Does my project fit Limited 203(k), Standard 203(k), or HomeStyle?
2. Who approves the contractor, and how will draws and inspections work?
3. Is a contingency reserve required, and how much?
4. Will I make payments during construction, and where will I live?
5. What happens if the project runs over budget or past the deadline?