Conventional Renovation Loans: A Smart Choice for Modernizing Your Home

by Chris Hubel

Renovating your home can transform its look, functionality, and value, but funding these projects is often a challenge. Conventional renovation loans offer a flexible and cost-effective solution for homeowners looking to make updates or major repairs. Whether you're planning a modern makeover or structural improvements, these loans can help you turn your vision into reality.

What Are Conventional Renovation Loans?

Conventional renovation loans are financing options that allow borrowers to combine the cost of purchasing or refinancing a home with funds for renovations or repairs. Unlike government-backed loans like FHA 203(k), conventional renovation loans are offered by private lenders and adhere to guidelines set by Fannie Mae and Freddie Mac.

Popular Conventional Renovation Loan Programs

1. Fannie Mae HomeStyle Loan

This loan program is ideal for buyers and homeowners who want to finance a wide range of renovations, including:

Cosmetic upgrades (paint, flooring, fixtures)
Structural repairs (roofing, foundation)
Energy-efficient improvements
Luxury additions (pools, outdoor living spaces)

Key features include:

Can be used for primary residences, second homes, and investment properties.
Borrow up to 75% of the completed property value.
Flexible credit and income requirements compared to other loan types.

2. Freddie Mac CHOICERenovation Loan

This program is designed for homeowners who want to modernize their properties, with a focus on disaster preparedness and energy efficiency. It covers:

Repairs for homes in disaster-prone areas.
Updates to meet local building codes.
Green upgrades like solar panels.

Key features include:

Financing for a wide range of property types, including multi-family homes.
Allows DIY renovations if properly documented.

Benefits of Conventional Renovation Loans

Single Loan Solution: Combines home purchase or refinance and renovation costs into one loan.
Higher Loan Limits: Typically allows for larger renovation budgets than government-backed loans.
Competitive Interest Rates: Often lower than personal loans or credit cards.
Flexible Use: Can be used for various property types and renovation projects.
Streamlined Process: A single loan means fewer fees and less paperwork.

Eligibility Requirements

To qualify for a conventional renovation loan, you’ll typically need:

A credit score of 620 or higher (though higher scores may secure better rates).
A debt-to-income ratio within lender guidelines (usually 45% or lower).
Proof of steady income and employment.
A detailed renovation plan, including cost estimates and contractor bids.

How to Apply for a Conventional Renovation Loan

Choose a Loan Program: Decide between Fannie Mae’s HomeStyle or Freddie Mac’s CHOICERenovation based on your needs.
Find a Lender: Work with a lender familiar with conventional renovation loans.
Prepare Your Application: Provide necessary documentation, including proof of income, credit score, and renovation plans.
Submit Your Plans for Approval: Your lender will review your renovation proposal to ensure it aligns with loan requirements.
Close the Loan: Once approved, funds for renovations will be held in escrow and released as work is completed.

Best Practices for Using a Renovation Loan

Work with Licensed Professionals: Choose contractors experienced with renovation loans to ensure compliance with lender guidelines.
Stick to the Budget: Avoid unnecessary changes to the project scope to prevent delays and extra costs.
Plan for Contingencies: Set aside funds for unexpected expenses that may arise during renovations.
Understand Loan Terms: Familiarize yourself with the repayment terms, interest rates, and penalties to avoid surprises.

Conclusion

Conventional renovation loans offer homeowners a practical and affordable way to modernize their properties without breaking the bank. Whether you're upgrading your kitchen, adding a bathroom, or making structural improvements, these loans can help you achieve your home renovation goals.

Ready to take the first step? Contact History Loves Company to learn more about financing your dream renovation or browse our resources for more tips and advice. Let’s make your home everything you’ve envisioned.