In our previous blog, we introduced renovation loans as a powerful solution for homebuyers looking to purchase and customize a fixer-upper, which you can read here. Now, let’s take a closer look at the two main renovation loan options: FHA 203(k) and HomeStyle loans. Each offers unique benefits, and choosing the right one depends on your specific situation.

Now that you understand how renovation loans can help in today’s housing market, let’s take a deeper dive into the two main options: FHA 203(k) loans and HomeStyle loans. Each offers unique benefits, and choosing the right one depends on your specific situation.

FHA 203(k) Loan

The FHA 203(k) loan is backed by the Federal Housing Administration and is ideal for buyers looking for a low down payment option and more flexible credit requirements.

Pros:

Low Down Payment – As little as 3.5% down, making it accessible to first-time homebuyers.
Credit-Friendly – More lenient credit score requirements than conventional renovation loans.
Covers Major Repairs – Can be used for extensive renovations, including structural changes and foundation repairs.
Refinancing Option – Homeowners can refinance their current mortgage into a 203(k) loan to fund renovations.

Cons:

Mortgage Insurance Required – FHA loans require mortgage insurance for the life of the loan.
FHA-Approved Contractors Only – Borrowers must work with licensed professionals who meet FHA guidelines.
Primary Residences Only – Cannot be used for second homes or investment properties.

HomeStyle Loan

The HomeStyle loan is a conventional renovation loan that offers more flexibility in terms of eligible properties and renovations.

Pros:

Higher Loan Limits – Can finance more expensive renovations than an FHA 203(k) loan.Eligible for All Property Types – Available for primary residences, second homes, and investment properties.
No Mortgage Insurance (with 20% Down) – Unlike FHA loans, HomeStyle loans don’t require ongoing mortgage insurance if you put down at least 20%.
Allows Luxury Improvements – Can be used for high-end upgrades like swimming pools, outdoor kitchens, and smart home technology.

Cons:

Stricter Credit Requirements – Requires a higher credit score and stronger financial profile.
Higher Down Payment – Typically requires at least 5% down for primary residences.
More Documentation Needed – Requires a detailed renovation plan and contractor approval.

Which Loan is Right for You?

• If you need a low down payment and flexible credit requirements → FHA 203(k) Loan
• If you want more renovation flexibility and own multiple properties → HomeStyle Loan

Take the Next Step

Still unsure? Let Ross Mortgage help! Complete this form and one of our mortgage professionals will reach out to discuss your best financing options.