Renovation Financing
Before you fall in love with the fixer-upper, make sure you understand what it is actually going to take to turn it into the house you are picturing.
The simple version is that you can buy the house and handle the work separately, if your situation allows for that. Or there are financing options where the purchase and certain renovation costs can be part of the same overall loan structure.
That second option is more than here is some extra money for a new kitchen. There is a process behind it, and that is the part people do not always realize.
Most people picture us adding a renovation budget onto the mortgage. The house needs work, so throw the remodeling money in there. It is more structured than that. There can be contractor information. Bids. A scope of work. Property reviews. Inspections or draws as the work moves along. Different programs handle those differently.
Programs worth comparing include FHA 203(k), in its standard and limited versions, Fannie Mae HomeStyle Renovation and Freddie Mac CHOICERenovation. Each sets its own rules for what the money can cover, who does the work and how the work is checked. The official pages: HUD on 203(k), Fannie Mae on HomeStyle and Freddie Mac on CHOICERenovation.
It makes sense when somebody finds the right house but the house is not finished the way they need it to be, and doing the work separately is not the best fit for their situation.
Maybe it is a house in the location they really want. Maybe the layout works but parts of the property need updating. Maybe it needs repairs before it really works for them. Then it is worth looking at whether renovation financing fits.
It does not make sense when the renovation is really small and we would be making the whole purchase more complicated to solve a tiny problem. Or when somebody wants total freedom to change everything halfway through. Or when the idea of contractor paperwork and a more structured process already sounds like a bad time.
There is nothing wrong with saying I would rather buy the house and handle the project another way.
The renovation itself becomes part of the transaction.
The contractor becomes a much bigger part of it. There is still the lender and the real estate agent. There is an appraiser. Depending on the program and the project there may be additional inspections, consultants, or people reviewing the work. It can feel like there are more people at the table, because there are.
Unrealistic expectations, almost every time.
Somebody has a renovation number in their head before they have talked to a contractor. Or they assume the contractor they love will automatically work with whatever financing they are using. Or they start changing the scope halfway through everything.
What people underestimate most is everything that has to happen before anybody swings a hammer, and that takes coordination, so a renovation purchase does not move exactly like a house that needs nothing.
Before you decide the ugly house is your dream house, call us, and talk to somebody who actually understands what the work will involve. Do not look at a fixer-upper and say that probably needs twenty minutes and some paint. Sometimes people watch a renovation show and think every project ends with everybody drinking champagne in the kitchen. There is a whole middle part they skipped.
One that went smoothly, and one that did not
The ones that go best normally start before the mortgage application gets very far. The buyer understands this is not a regular purchase with some extra money attached. The contractor understands that too. There is a real scope of work. There are real bids. Everybody knows what is being done. The contractor is responsive. The buyer is not changing the entire project every three days. And the lender has the information early enough to actually review it.
The renovation itself can still be complicated. You are dealing with construction, and things happen. But when everybody understands the plan going in, those problems are much easier to work through.
The difficult version normally starts with somebody underestimating the renovation. They find the house, they love it, and they are already mentally standing in the finished kitchen. Meanwhile there is no contractor information yet. No complete scope. The estimates are still moving. Or somebody starts adding things once the process is underway. While we are doing that, maybe we should also do this. And then this turns into something else.
That is when it gets frustrating, because the financing has structure around it. You cannot always change the whole project halfway through and expect everything else to stay the same.
The lesson is simple. Do the planning before you picture the finished version of the house.
Loan options
Standard and limited versions. The limited one is built for smaller repairs that are not structural; the standard one uses a HUD consultant.
How FHA worksFannie Mae HomeStyle Renovation and Freddie Mac CHOICERenovation, the conventional programs worth comparing.
How conventional works
Samantha Shelton has been a licensed loan officer since May 2020 and founded Align Lending in August 2020. Before mortgages she was a stay-at-home mom raising three boys.
In her own words: "I own a mortgage brokerage in Michigan and I help people understand their options before they make one of the biggest financial decisions they are ever going to make."
Recognition includes Hall of AIME, NAMB Broker of the Year, and Woman with Vision, along with her leadership work with AIME.
Align Lending LLC, NMLS #2041154. Samantha Shelton, NMLS 1647301. Licensed in Michigan, Ohio, North Carolina, Florida, Louisiana and Texas.
Read Samantha's storySam is an expert helping choose the right financing options for her clients!
Individual experience. Results vary.
Check it yourself
The official pages behind the rules on this page.
If yours is not here, ask it on the call. There are no dumb questions.
That depends on the program, and it is worth asking early. Renovation funds are generally not handed to you at closing to go shopping with. There is usually a structure around how they are released and how the work gets completed, which is part of why the process has more pieces than a normal purchase.
Not automatically. A first-time buyer can absolutely be the kind of person who considers it. You just need to understand that you are taking on the home buying process and a renovation process at the same time. Some people are completely comfortable with that. Somebody else hears the whole thing explained and says absolutely not. Both answers are fine.
Usually not. In most renovation loans the work money is held after closing and paid out in draws as the work is completed and checked, so the contractor’s schedule and the draw schedule have to fit together. It is not a bag of money attached to the mortgage.
That depends on the financing and on the contractor. It is worth asking early rather than assuming, because people sometimes pick a contractor first and find out later that the arrangement does not fit the structure they are using.
Longer than a purchase that needs nothing. What sets the pace is the contractor’s bid and scope, any review the program requires (FHA’s standard 203(k) uses a HUD consultant), an appraisal that values the house as it will be after the work, and, after closing, the draw schedule the work is paid on.
Then compare the simpler routes first. FHA’s limited 203(k) is built for smaller repairs that are not structural, and some buyers pay for small work after closing from savings or a separate loan. A full renovation structure is rarely worth it for a small project.
Yes, the same rule applies to any purchase. The year after a Michigan home sells, its taxable value resets to half of the assessor’s market value, so the seller’s tax bill is not your tax bill. Run the address through the Michigan property tax calculator before you settle on a budget for the work.
Samantha is very professional, organized, and will make the mortgage process as smooth as possible.
Align Lending helped make purchasing my home in Madison Heights a smooth experience. I appreciated the regular updates and clear explanations along the way.
Samantha and her team are amazing! They will help you through the entire process. They care about your loan experience from start to finish!
Working with Samantha and her team was such a breathe of fresh air. They are extremely professional and always go above and beyond every expectation. A true pleasure to work with.
I highly recommend Align Lending to anyone looking for a mortgage broker in Southeast Michigan. The team was knowledgeable, responsive, and easy to work with.
Individual experiences. Results vary.
Then decide whether you still love the house.
Not what product you want. What you are actually trying to accomplish.
Samantha works out what matters most for you specifically.
Your options, the tradeoffs, and your next step. No obligation to go further.
Background from the Align Learn Center, if you want to read before you talk to anybody.
The buying side, for the part of this that is an ordinary purchase.
Align Lending LLC, NMLS #2041154. Samantha Shelton, NMLS 1647301. Equal Housing Opportunity. Licensed in Michigan, Ohio, North Carolina, Florida, Louisiana and Texas. This page is for educational purposes only. It is not a credit decision, a preapproval, a commitment to lend, or an offer of credit, and it does not evaluate your eligibility for any loan program.
Found a fixer-upper? I'll walk you through bids, scope and draws before you commit.
Samantha Shelton · Broker Owner and Senior Loan Originator · NMLS 1647301
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