If you’re buying a home on a budget, you may be looking at existing homes that are in need of repairs. Fortunately, government programs exist to make it easier for new homeowners to cover necessary fixes.
Newrez provides government-backed renovation loans so that qualified homeowners have the tools they need to create a home that’s just right for them, even when finances might be tight.
Understanding Home Repair and Improvement Assistance
Government-backed home repair programs are designed to make renovations and essential improvements more affordable for homeowners. These programs typically serve individuals with limited income, Veterans, Active-Duty Military and other eligible groups.
Federal Home Repair Programs
FHA 203(k) Rehabilitation Loan
These loans enable buyers to finance the purchase of a home plus repairs in a single mortgage. This loan is a great option for borrowers purchasing a fixer-upper home. The amount received will depend on an estimate of the cost of the repairs/upgrades.
- Flexible Qualifying Criteria: While our preferred minimum credit score for this loan is 620, borrowers may qualify for these loans with a credit score as low as 580, provided they meet other compensating factors. Additionally, borrowers might only need to put 3.5% down.
- Be Mindful of Mortgage Limits: Loans require that the value of the property in question fall below a certain mortgage limit for the specific geographic area.
Depending on the extent of needed repairs, you can choose between a limited or full FHA 203(k) Rehabilitation Loan.
Limited FHA 203(k)
- Loan Cap: The limited FHA 203(k) covers up to $75,000 for non-structural repairs and minor remodels.
- Covered Repairs Include: Kitchen remodels, new paint, new carpeting and more.
- Closing Time: May close more quickly than a full 203(k).
Full FHA 203(k)
- Major Repairs: The full FHA 203(k) can cover major renovations and structural repairs to a single-family property.
- Minimum Amount: Repairs must cost at least $5,000.
- HUD Consultant: While a consultant is optional for a limited FHA 203(k), it is required for the full FHA 203(k). A HUD consultant visits the property and generates a cost estimate for the work, and if the loan is approved, authorizes the release of funds as each stage of the work is completed.
VA Renovation Loan
Backed by the U.S. Department of Veterans Affairs, the VA Renovation loan helps Active-Duty Military, Veterans and qualified surviving spouses purchase and improve a home with flexible financing.
Key Benefits
- Zero Down Payment Requirement: Available for borrowers with full entitlement, and sometimes available to borrowers with partial entitlement
- Up to $50K for Repairs: Covers minor remodeling and upgrades
Financing Details
Loan amounts are based on the home’s “as-completed value,” meaning the projected market value after renovations. This is determined through itemized project estimates provided by licensed contractors, which are reviewed by a VA appraiser. The final loan amount will be the lesser of the total acquisition cost or the appraised as-completed value.
Renovation Guidelines
- Improvements must enhance livability, safety, or usability—not just aesthetics
- All work must be completed within 120 days of closing
- The property must pass VA appraisal and inspection after renovations
- For VA refinances†, borrowers must have lived in the home for at least 12 months and maintain a loan-to-value ratio of 90% or less
Restrictions
Major structural changes, additions, pools, landscaping and detached garages are not permitted. Projects requiring structural engineering reports are also excluded.
Eligible Improvements
- Windows, doors, siding, roofs, gutters, flooring, insulation and weatherization
- HVAC systems, water heaters, electrical and plumbing repairs
- Mold or lead paint treatment
- Energy efficiency upgrades
- Accessibility enhancements
All updates must be permanent and contribute to the home’s overall value.
Other Renovation Loan Options
If your finances allow, you may be eligible for conventional renovation loan options, as well. Read this article to learn more about Homestyle® or CHOICERenovation® loans.
Reach Your Renovation Goals
Making upgrades or repairs on a budget? Newrez Mortgage Experts can help you find the right loan solution. Reach out today and we’ll be glad to walk you through your options.
