Myth #1: Renovation loans are hard to qualify for.
When weighing your eligibility for a loan, a lender will look at your credit score, your debt-to-income ratio, your income and other factors. If you meet the guidelines for a conventional loan, you could very well be eligible for a renovation loan.
Yes, this includes first-time homebuyers – even those combining their mortgage with down payment assistance. For example, a FHA 203(k) Rehabilitation Loan may enable buyers with less-than-perfect credit to roll their repairs into their mortgage. Learn more here.
With a renovation loan, you’ll get professional estimates for the renovations you’d like to have done, and then an appraiser will provide your lender with an estimate of your home’s post-renovation value. This will help determine your loan amount, if you qualify.
Myth #2: Renovation loans are only for investors or experienced flippers.
You do not need to be an investor to get a renovation loan. Renovation loans could be a great option for a buyer who has found a home in their ideal neighborhood, but the home itself needs a bit of remodeling, for example. These loans may be especially useful in markets with limited housing supply.
Myth #3: Renovation loans are only for purchases.
If you’re not looking to move, but you want to make repairs or upgrades to your home, you may be able to refinance† your existing mortgage into a renovation loan. This would allow you to roll your renovation costs into your regular monthly mortgage payment, which could simplify your reno project financing.
Myth #4: The home has to be in poor condition.
While some may think the home in question needs to be in near-teardown condition in order to qualify for a renovation loan, this is not the case. Renovation loans can be used to address many needs, including:
- Small cosmetic upgrades like painting, updating cabinetry or replacing flooring
- Increasing a home’s energy efficiency
- Creating access for people with disabilities
- Getting rid of hazards like lead-based paint or mold
- Major projects like adding a second story or expanding the footprint of a house
Myth #5: Renovation loans can’t be used for ‘luxury’ upgrades.
Certain renovation loans, such as the Homestyle Renovation mortgage and the CHOICERenovation® mortgage, can be used for luxury home upgrades such as a pool installation.
Myth #6: Renovation loans carry high interest rates.
Generally, renovation loan rates are about 0.5% higher than standard mortgage loan rates.1 Reno loan rates are still lower than average credit card rates, which may make renovation loans a more enticing option for borrowers looking to upgrade their home.2
Myth #7: The process is overwhelming.
When you get a loan with Newrez, you’ll have support every step of the way. Our mortgage experts are glad to talk you through the process of getting a contractor bid and having an appraisal. With enough guidance, the experience could be smooth – and worth it.
Want to know more? Interested in talking with a Newrez loan expert? Reach out to us today.
CHOICERenovation® is a registered trademark of the Federal Home Loan Mortgage Corporation and is not affiliated with Newrez LLC.
References:
1 Renovation loan interest rates – What to expect in 2025? | Finance FT
