The Federal Housing Administration offers a government-backed renovation loan called the FHA 203(k). The financial institution that offers the loan also issues it, but the FHA insures it in the event that a borrower defaults on the loan. This allows lenders to have a higher risk tolerance and be willing to work with people who have credit profiles or income that are not generally ideal for a conventional mortgage loan.
This mortgage loan option is available as a standard and streamlined option and covers renovations that are cosmetic in scope, or structural. Luxury renovations are not supported by this loan, although the definition of luxury may be dependent on the lender that you’re working with and whether you have the same things in mind when you think about luxury products. A streamlined FHA 203(k) is for renovations that will total $35,000 or less.
These renovations must not include structural work. The advantage of the streamlined loan is that it’s great for getting a renovation mortgage loan quickly that can cover many cosmetic concerns. A standard loan requires more documentation, but it allows you to add in major structural work and is for projects that will exceed the $35,000 limit. The minimum amount of rehabilitation is $5,000 and the house has to be at least a year old. So you need to keep all this in mind when you look at mortgage loan options.