Renovation Loans
Buy it and fix it with one loan — here is how renovation financing actually works.
Renovation loans let you roll the purchase price and repair costs into a single mortgage, based on what the property will be worth after the work is done. Whether it is a fixer-upper that needs cosmetic updates, a property that will not pass a standard appraisal, or a full gut rehab — there is a program designed for it. We serve buyers across New Jersey and eastern Pennsylvania, and we will help you understand the options, the process, and the real timeline.
Renovation loan programs compared
Each program has different rules, costs, timelines, and project limits. Here is what you actually need to know about each one.
FHA 203(k) Limited
The FHA 203(k) Limited (formerly called the Streamline 203k) is the most accessible renovation loan for homebuyers. It allows up to $35,000 in renovation costs rolled into your FHA mortgage. No HUD consultant required. The work must be non-structural — think kitchens, bathrooms, flooring, paint, appliances, HVAC replacement, roof repair, and similar improvements. You cannot add rooms, move load-bearing walls, or do foundation work with this program.
Best for: First-time buyers purchasing a home that needs $10,000 to $35,000 in cosmetic or mechanical updates. Pairs with NJHMFA down payment assistance just like a standard FHA loan.
FHA 203(k) Standard
The Standard 203(k) handles larger, more complex projects with no cap on renovation costs (as long as the total loan stays within FHA limits). Structural work is allowed — additions, moving walls, new foundations, full gut rehabs. The tradeoff is complexity: a HUD-approved 203(k) consultant must oversee the project, create a detailed work plan and cost estimate, and inspect the work at each draw stage. This adds time and cost but protects you from contractor issues.
Best for: Buyers taking on major renovations over $35,000 — full kitchen and bath remodels, room additions, foundation repairs, or converting a non-habitable property into a livable home.
Fannie Mae HomeStyle Renovation
HomeStyle is the conventional alternative to FHA 203(k). It allows renovations up to 75% of the after-renovation appraised value with no separate cap on renovation costs. The big advantages over FHA: no upfront mortgage insurance premium, PMI drops off at 20% equity, and it works for primary residences, second homes, and investment properties. The tradeoff is stricter credit requirements and the need for a larger down payment if your credit is below 740.
Best for: Buyers with 700+ credit who want to avoid FHA mortgage insurance, or investors who need renovation financing on a rental property (FHA 203k is primary residence only).
Investor rehab and bridge loans
For real estate investors doing fix-and-flip or fix-and-hold (BRRRR strategy), short-term rehab loans provide the acquisition and renovation capital. These are typically 12 to 18 month loans based on the property after-repair value (ARV). Once renovations are complete, you either sell the property or refinance into a long-term DSCR loan. No personal income verification — qualification is based on the deal and your experience.
Best for: Investors executing fix-and-flip or BRRRR strategy who need fast capital and plan to sell or refinance within 12 months.
How the renovation loan process works
Renovation loans have more moving parts than a standard mortgage. Here is the step-by-step so you know what to expect.
We review your credit, income, and savings to determine which renovation loan fits. The program choice affects your contractor requirements, timeline, and how much renovation you can finance.
Once you are under contract on a property, you need detailed contractor bids for the renovation work. For FHA 203(k) Standard, a HUD consultant creates the work write-up. For Limited 203(k) and HomeStyle, your contractor provides itemized bids. Get at least 2 to 3 bids for comparison.
The appraiser values the property based on what it will be worth after the renovation is complete, not its current condition. This is how you can finance a property that would not pass a standard appraisal. The after-renovation value determines your maximum loan amount.
At closing, the renovation funds are placed in an escrow account. You (or the seller) get the purchase price, and the renovation money is held separately. Your contractor cannot start work until after closing.
As work progresses, the contractor requests draws from the escrow account. An inspector verifies the work is complete before funds are released. For FHA 203(k) Limited, there is typically one draw at completion. For Standard 203(k) and HomeStyle, there can be up to 5 draws during the project.
Renovation loans in New Jersey
Older housing stock creates opportunity
New Jersey has one of the oldest housing stocks in the country. Many homes built in the 1950s through 1970s have not been significantly updated. This creates a sweet spot for renovation buyers: you can purchase a well-located home at a lower price because it needs work, then finance the renovation into the mortgage and end up with a home worth significantly more than your total investment. Towns like Collingswood, Haddon Township, Westfield, and Montclair have seen this strategy work especially well.
Permits and NJ building codes
New Jersey requires permits for most renovation work beyond cosmetic updates. Electrical, plumbing, HVAC, structural changes, and additions all need permits from the local building department. Your contractor should be pulling permits — if they suggest skipping this step, that is a red flag. Renovation loan programs require permitted work, and the draw inspection process verifies permits are in order. NJ municipalities vary widely in how quickly they process permits, so factor this into your renovation timeline.
Lead paint, asbestos, and environmental concerns
Homes built before 1978 may contain lead paint, which triggers specific HUD requirements on renovation loans. Asbestos in floor tiles, insulation, and siding is common in NJ homes from the 1940s through 1970s. Environmental remediation can add $2,000 to $10,000 or more to your renovation budget. FHA 203(k) requires lead paint testing on pre-1978 homes, and any lead hazards must be addressed as part of the renovation plan.
Renovation ROI in NJ markets
Kitchen remodels in NJ typically return 60% to 80% of cost in added home value. Bathroom remodels return 55% to 70%. Adding a bedroom or finishing a basement can return 50% to 65%. The best ROI comes from bringing a home up to neighborhood standards — if every house on the street has an updated kitchen and yours does not, the renovation pays for itself faster than adding luxury finishes to a home that already meets the standard.
Renovation loans in Pennsylvania
PHFA Purchase and Improvement program
Pennsylvania has its own renovation loan option through PHFA: the Keystone Flex Purchase and Improvement with K-FIT program. It provides a PHFA first mortgage with up to $30,000 for eligible repairs and improvements, paired with K-FIT down payment assistance (5% of purchase price, forgivable over 10 years). This is a strong alternative to FHA 203(k) Limited for PA buyers who qualify for PHFA programs.
Permit processes vary by municipality
Pennsylvania permit timelines and requirements vary significantly by township and borough. Some municipalities process permits in days while others take weeks. Philadelphia has its own Licenses and Inspections department with specific requirements. Your contractor should know the local process, but factor in permit timeline when planning your renovation schedule — it directly affects your loan closing and construction start date.
Lower carrying costs during renovation
During the renovation period, you are making mortgage payments on a home you may not be living in yet. Pennsylvania lower property taxes (1.5% vs NJ 2.2%) mean lower monthly carrying costs during construction. On a $350,000 project, that saves roughly $200 per month compared to a similar NJ property — meaningful over a 3 to 6 month renovation timeline.
Older housing stock across the Philadelphia suburbs
Bucks, Montgomery, Delaware, and Chester counties have substantial inventory of homes from the 1940s through 1970s that are well-located but need updating. Towns like Doylestown, Lansdale, Media, and West Chester have strong demand for renovated homes. The buy-renovate strategy works particularly well in these markets where updated homes sell at significant premiums over unrenovated ones.
Common renovation scenarios
If the total renovation cost is under $35,000, FHA 203(k) Limited is the simplest path — no HUD consultant, faster closing, and pairs with NJHMFA down payment assistance. If costs exceed $35,000, HomeStyle or Standard 203(k) handles larger scopes.
This is exactly what renovation loans are designed for. The appraiser values the property based on what it will be worth after repairs. Health and safety issues like a bad roof, outdated electrical, or plumbing problems are addressed in the renovation plan and funded through the loan.
HomeStyle allows investment property renovations with 15% down. For investors who want to skip income documentation, short-term rehab loans fund acquisition plus renovation, and you refinance into a DSCR loan once the work is complete and tenants are in place (the BRRRR strategy).
If you have equity, a cash-out refinance is the simplest way to fund renovations. If you need more than your equity allows, a refinance renovation loan (HomeStyle or 203k as a refinance) can finance the project based on the after-renovation value of your home.
Roof and HVAC replacement typically costs $15,000 to $30,000 combined — well within 203(k) Limited range. This is one of the most common renovation loan uses we see. The seller often cannot afford the repairs, so the home sits on the market at a discount. You get the discount price plus financed repairs.
Frequently asked questions
Not for pre-approval, but you will need licensed contractor bids before closing. Start getting bids as soon as you are under contract. For FHA 203(k) Standard, the HUD consultant creates the work write-up and coordinates with your contractor.
FHA 203(k) Limited: 45 to 60 days. Standard 203(k): 60 to 90 days due to the HUD consultant and detailed work plan. HomeStyle: 45 to 60 days. The extra time versus a standard mortgage is mostly for contractor bids and the renovation plan approval.
Most renovation loan programs require licensed contractors for the work. Some programs allow limited DIY for non-structural, non-mechanical items (painting, minor cosmetic work), but the bulk of the renovation must be done by a licensed professional. This protects the lender and ensures the work meets building codes.
Renovation loans include a contingency reserve (typically 10% to 20% of the renovation budget) to cover unexpected costs. If costs exceed the contingency, you may need to cover the difference out of pocket or reduce the scope of work. Getting accurate bids upfront is critical.
Yes. FHA 203(k) loans pair with NJHMFA down payment assistance just like a standard FHA loan — up to $22,000 in forgivable assistance for eligible first-time buyers. Your 3.5% down payment is calculated on the total loan amount (purchase plus renovation).
Thinking about a renovation project?
Renovation loans have more moving parts than a standard mortgage. The earlier you plan, the smoother it goes. Start with the quiz or reach out directly.