Mortgage  Question?
»
»
Mortgage based on after renovation property value

Do lenders provide mortgages based on the after renovation property value?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Although standard loan programs use the pre-renovation property value, home renovation mortgage programs, also known as fixer upper programs, determine your LTV ratio and the mortgage amount you qualify for based on the after renovation property value. These programs enable you to obtain a higher mortgage amount to pay for property upgrades and improvements.

Home renovation mortgage programs can be used for significant home improvement projects or total tear-downs, making them applicable for borrowers looking to buy or refinance fixer-uppers. We provide a summary of some of the most common home renovation mortgage programs below:

HomeStyle Renovation Program. The Fannie Mae HomeStyle Renovation Mortgage Program enables borrowers to purchase a home that needs renovations or refinance the mortgage on their existing home and include funds for renovating the property in the loan amount. The program only requires a down payment of 3% for single unit, owner occupied properties financed with a fixed rate mortgage. The HomeStyle Renovation Mortgage program does not charge an upfront mortgage insurance fee although you may be required to pay PMI if your LTV ratio is greater than 80%.

Review our HomeStyle Renovation Mortgage Guide

CHOICERenovation Program.  The Freddie Mac CHOICERenovation Mortgage Program enables you to buy a home or refinance an existing mortgage and include the cost of significant property renovations in the mortgage amount instead of using multiple loans.  The program applies to multifamily properties with up to four units and single family investment properties.  A CHOICERenovation mortgage requires a down payment of only 3% for a one unit primary residence, which makes it great for fixer uppers.

Review our CHOICERenovation Mortgage Guide

Conventional renovation mortgage programs such as the HomeStyle and CHOICERenovation programs are offered by traditional lenders such as banks, mortgage brokers and credit unions. Given the additional amount of work required to process these types of loans, not all lenders offer these programs.   We recommend that you contact multiple lenders in the table below to determine program availability and to compare mortgage terms.

%
Current Mortgage Rates as of July 16, 2019
  • Lender
  • APR
  • Loan Type
  • Rate
  • Payment
  • Fees
  • Contact
View All Lenders

%

Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

FHA 203(k) Program. The FHA 203(k) Loan Program enables home owners to finance both the purchase of a home as well as the cost of significant rehabilitation, remodeling and repairs to the home with a single FHA mortgage. The FHA 203(k) program requires a down payment of 3.5% for a purchase mortgage and 2.25% in homeowners equity for a refinance. The program requires borrowers to pay an upfront and ongoing FHA mortgage insurance premium (MIP) which is an extra closing cost and monthly fee.

Review our FHA 203(k) Mortgage Guide

Similar to conventional renovation programs, the FHA 203(k) Program is offered by approved lenders.  The table below show leading FHA lenders in your area.  We advise you to contact several lenders to understand program eligibility requirements.  Comparing an FHA 203(k) loan to conventional renovation programs enables you to find the program that is right for you.  

%
Current FHA Mortgage Rates as of July 16, 2019
  • Lender
  • APR
  • Loan Type
  • Rate
  • Payment
  • Fees
  • Contact
View All Lenders

%

Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

Construction to Permanent (C2P). A construction to permanent mortgage, or C2P loan, enables you to finance the cost of building a new home or significant renovations, including for a fixer upper, with a single mortgage. A C2P loan usually requires a larger down payment than the FHA 203(k) and HomeStyle Renovation Mortgage Programs outlined above. C2P loans may enable you to qualify for a higher mortgage amount than the FHA 203(k) or HomeStyle Renovation programs, which both apply loan limits.

Review our Construction to Permanent Loan Guide

If you already own your home, you could consider a home equity loan or home improvement loan to finance property renovations. While home equity loan qualification is typically based on the pre-renovation property value, home improvement loans use the post-renovation value which enables you to qualify for a higher loan amount.

Home equity and home improvement loans typically have lower closing costs than a mortgage but you need to make sure you can borrow enough to finance your property renovations as the maximum loan amount is smaller.   We recommend that you contact multiple lenders in the table below to confirm the terms for a home renovation loan. 

%
Current Home Equity Loan Rates as of July 16, 2019
View All Lenders

%

Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click for more information on rates and product details.

You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by loan program. For example, you can find to-rated lenders in your state that offer HomeStyle Renovation, FHA 203(k) and Construction-to-Permanent (C2P) mortgages.

MORTGAGE LENDER DIRECTORY
MORTGAGE LENDER DIRECTORY
3,900+ LENDERS ● 25 LOAN PROGRAMS ● RATINGS & REVIEWS
$
FIND LENDERS NOW

It is important to highlight that most standard mortgage programs use the before renovation property value to determine your loan-to-value (LTV) ratio and the mortgage amount you are eligible for.  This means that lenders use a lower property value so you qualify for a smaller loan amount. 

The example below demonstrates the difference in the mortgage amount you qualify for if the LTV ratio is based on the pre-renovation property value as compared to the after renovation property value. This example assumes the property owner makes $100,000 in property renovations and the lender uses an 80% LTV ratio. 

As the example shows, you can qualify for a much higher mortgage amount if the lender uses the post-renovation property value.  This example also reinforces why it is important to find the right renovation mortgage program -- because in many cases you need a larger loan amount to complete your planned property improvements.

Mortgage Amount Based on Before Renovation Property Value

Pre-Renovation Property Value: $400,000

Maximum Mortgage Amount: $320,000 ($400,000 * 80% LTV = $320,000)

Mortgage Amount Based on After Renovation Property Value

Post Renovation Property Value: $500,000

Maximum Mortgage Amount: $400,000 ($500,000 * 80% LTV = $400,000)

Sources

HomeStyle Renovation Mortgage:  https://www.fanniemae.com/content/fact_sheet/homestyle-renovation-overview.pdf

CHOICERenovation Mortgage: https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheets/cs-272_choicerenovation_fact_sheet_final2.pdf

FHA 203(k) Mortgage: https://www.hud.gov/program_offices/housing/sfh/203k/203k--df

C2P Loan: http://www.freddiemac.com/learn/pdfs/uw/construction.pdf

« Return to Q&A Home

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

Harry Jensen LinkedInLinkedIn | Email Harry JensenEmail