Renovation Loan Guide: FHA 203K vs. HomeStyle

March 22, 2026

Why Renovation Loans Exist

In a tight housing market, the perfect home in the perfect neighborhood at the perfect price rarely exists. But the home that needs new kitchens, updated bathrooms, or structural work? That one is often available, priced below market, and sitting without competing offers. Renovation loans let you buy that property and finance the improvements into a single mortgage — one loan, one closing, one monthly payment.

FHA 203(k): Two Versions

FHA 203(k) Standard is for major renovations including structural work. There's no maximum renovation budget (limited only by FHA loan limits), but a HUD-approved consultant must oversee the project. Minimum improvement cost is $5,000. Down payment is 3.5% of the total (purchase + renovation). This is the go-to for significant rehab projects.

FHA 203(k) Limited is for cosmetic improvements under $35,000 — no structural work, no HUD consultant required. Simpler process, faster closing. Perfect for properties that need updated kitchens, bathrooms, flooring, paint, or minor mechanical work.

Conventional HomeStyle

Fannie Mae's HomeStyle renovation loan allows renovation budgets up to 75% of the as-completed value with no structural limitations. Down payment starts at 3-5% for primary residences. Unlike FHA, HomeStyle can be used for investment properties (15-25% down) and doesn't require a HUD consultant. PMI can be removed at 20% equity, which is a significant advantage over FHA's permanent mortgage insurance.

Which One Should You Choose?

Choose FHA 203(k) if: your credit is below 700, you need the most flexible qualification, you're doing major structural work on a primary residence, or you want the lowest down payment possible.

Choose HomeStyle if: your credit is 700+, you want PMI to eventually go away, you're renovating an investment property, or you want a simpler process without a HUD consultant.

The AFC Approach

Renovation loans require specialized processing — draw disbursements, contractor requirements, after-improved-value appraisals. Most lenders don't do enough of them to be efficient at it. At AFC Mortgage Group, we know where deals get derailed and how to prevent it. We can also connect you with contractors experienced in the renovation loan draw process.

Call (203) 452-9899 to explore your renovation financing options.