Fixer-Upper and Renovation Loans in Tennessee

FHA 203(k) renovation loan

The FHA 203(k) loan combines the purchase price and renovation costs into a single FHA-insured mortgage. There are two versions:

Standard 203(k): For major renovations including structural repairs, room additions, and significant rehabilitation. Requires a HUD-approved 203(k) consultant to manage the renovation process. Minimum renovation cost of $5,000. No maximum renovation amount (subject to FHA loan limits).

Limited 203(k) (Streamline): For non-structural repairs and cosmetic improvements. Maximum $35,000 in renovation costs. No consultant required. Faster and simpler than the Standard 203(k).

FHA 203(k) requires the borrower to occupy the property as their primary residence. It is not available for investment properties.

Fannie Mae HomeStyle renovation loan

The HomeStyle Renovation loan is a conventional alternative to the FHA 203(k). Key differences:

• Available for primary residences, second homes, and investment properties (FHA 203(k) is primary residence only)
• No mortgage insurance premium if the loan-to-value is below 80% (FHA always has MIP)
• Renovation costs can be up to 75% of the as-completed appraised value
• Luxury improvements (pools, outdoor kitchens) are eligible (FHA 203(k) excludes luxury items)

HomeStyle requires a licensed contractor and a detailed renovation plan. The lender holds renovation funds in escrow and releases them as work is completed.

When renovation financing makes sense

Renovation loans are most useful when:

• The property can't pass a standard appraisal in its current condition (health/safety issues, structural problems)
• The buyer wants to purchase below market and renovate to build equity
• The buyer wants to customize the property before moving in
• The renovation cost is too large to finance out of pocket after closing