Should you take a second look at that fixer-upper?
Buying a fixer-upper home that needs repairs could make homeownership more affordable, and there’s even renovation loans available to help with that too, but it’s important to weigh the pros and cons first. Benefits include a lower price, the ability to customize and a possible increase in your home’s value. Drawbacks include the potential for unexpected costs, long renovation timelines and the challenges of managing repairs.
Over half of prospective homebuyers say they’d think about buying a fixer-upper, whether it needs minor cosmetic changes or major repairs. Home renovation loans can help finance both the purchase and repairs, often making these homes a lower-priced option.
Why fix up a fixer-upper? A closer look at the advantages
From a lower upfront cost to customization, there are several reasons to consider renovating a fixer-upper:
- A fixer-upper may be listed at a lower price. Using a renovation loan to buy and renovate a home needing repairs could help to increase its value, growing your investment.
- You could finance the repair costs into your mortgage. Paying renovation costs over your loan term can make it easier to afford minor (appliances, carpeting) to major (a new kitchen) renovations.
- You could get more home for less if you’re willing to renovate. Many homebuyers find that they’re able to afford a bigger or better-located home when they take on needed repairs.
- You can customize your home at a lower price. Instead of spending the time and money to build a new house, you can renovate an existing home and upgrade it with the features/floor plan you’d like.
- You’ll probably have less competition. If affordable homes are hard to find in your area, buying a property needing some TLC could reduce the number of interested buyers.
Finding a fixer-upper
A fixer-upper may be listed as a home needing repairs, a short sale, a foreclosure or a distressed property.
A “home needing repairs” usually requires simple fixes, like cosmetic updates.
A short sale happens when a homeowner owes more than a house is worth, and a lender agrees to let it be sold for less than the remaining loan balance.
In a foreclosure, a lender takes ownership of a house due to missed payments.
A distressed property is in poor condition and may be sold through a short sale or foreclosure.
While not all short sales or foreclosures are fixer-uppers, they often include neglected properties so if you’re looking specifically for something to renovate, include those listings in your search.
We’ve got renovation loans to fit your life.
Contact your local Guild loan officer.
Which renovation loans can you choose from?
Homebuyers and homeowners exploring home renovation loans have several options:
| Feature | Conventional (FNMA HomeStyle Renovation) | FHA 203(k) | FHA 203(k) Limited |
|---|---|---|---|
| Loan type | Conventional | Government-backed (FHA) | Government-backed (FHA) |
| Occupancy types | All occupancy types | Primary residences only | Primary residences only |
| Eligible improvements | Most upgrades, including luxury renovations | Larger, more complex projects, including health and safety improvements | Minor repairs and cosmetic improvements |
| Down payment | Typically around 5% for primary residences | Typically around 3.5% | Typically around 3.5% |
| Project complexity | Wide range, including luxury upgrades | Suited for significant renovations | Ideal for smaller, quicker projects |
| Flexibility | Generally more flexible in terms of contractor selection and project management | More structured process with stricter requirements for contractors and payments | Streamlined process for smaller projects |
If you’re a homebuyer: renovation loans let you finance the purchase and renovation costs in one loan, simplifying the process. FHA 203(k) loans are great for bigger projects, especially if you're a first-time buyer or have a smaller down payment. FHA 203(k) Limited loans work well for cosmetic upgrades. If you're planning major renovations, including luxury upgrades, the FNMA HomeStyle Renovation loan offers more flexibility.
If you’re a homeowner: renovation loans aren't just for buying; they're for improving your current home too. In some cases, a renovation loan may be preferable to a cash-out refinance, allowing you to borrow based on your home's future value after renovations and at a potentially better rate. FHA 203(k) loans can be used for major renovations. For smaller projects, consider the FHA 203(k) Limited or FNMA HomeStyle Renovation.
When using a renovation loan, you’ll need to hire a licensed contractor—the work can’t be DIY. A contractor is required to make sure the project is done right, on time and within budget. Your contractor must be licensed, insured and approved by your lender, with experience in similar projects.
Most renovations also require permits, ensuring the work meets local building codes and safety standards. The type of permit depends on the project—for example, structural changes, electrical updates, plumbing work and major repairs almost always require approval from your local building department. Without the right permits, you could face delays, fines or even issues when selling your home in the future.
Turn a good home into a great one
Interested in buying a fixer-upper home? Want to upgrade your current home? Get in touch. We can help you find out which renovation loan makes sense for your situation.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.