6 Fixer-Upper Loans for First-Time Home Buyers | 2025

Your guide fixer-upper mortgage loans

Buying a fixer-upper home can be a smart way to break into the housing market, but it requires the right financing. With a fixer-upper loan, home buyers can cover both the purchase price and renovation costs in one loan.

From FHA 203(k) loans to Fannie Mae HomeStyle loans, there are many renovation loans for first-time home buyers to finance a house that needs work. This guide explores fixer-upper mortgage loans, budgeting, and key steps to transforming your home.

In this article (Skip to...)

• Fixer-upper loans
• Pros and cons
• Financing alternatives
• Buying a fixer-upper
• Your next steps

6 types of fixer-upper loans

Now that you know a fixer-upper loan lets you buy a house that needs work and roll renovation costs into your mortgage, let’s explore which option might fit you best.

Some require a special appraisal to estimate the home’s post-renovation value, and others may need an approved contractor to handle the upgrades.

Below, we’ll break down the most popular renovation loans for first-time home buyers who plan to live in their fixer-upper home. If you’re flipping a property, an investment property loan might be a better fit.

1. Fannie Mae Homestyle Renovation

The Fannie Mae Homestyle Renovation loan is a conventional mortgage that allows you to purchase a fixer-upper and pay for the cost of renovations with a single loan and mortgage payment. Moreover, you’re not required to purchase a primary residence (a home that you live in full-time). Rental and investment properties can also qualify.

To fund home improvements, the loan amount is based on the future value of the property when the work is completed. DIY enthusiasts can even do some of the work themselves, except for safety-critical tasks, which must be done by licensed professionals.

You’ll need a 3% down payment and a minimum 620 credit score. Home buyers with less than 20% down will be required to pay for private mortgage insurance (PMI) until their mortgage balance drops to 80% of their home’s market value.

2. Freddie Mac CHOICERenovation

The Freddie Mac CHOICERenovation loan is a conventional mortgage that is nearly identical to Fannie’s Homestyle. To qualify, you need at least a 3% down payment and a credit score of 620, depending on your mortgage lender.

The primary difference between the two fixer-upper loans is that the CHOICERenovation mortgage can be used to fund home resilience projects — think disaster proofing — while the HomeSyle cannot. Furthermore, work must be completed within 12 months of loan closing.

3. Freddie Mac CHOICEReno eXPress

Freddie Mac’s CHOICEReno eXPress is a streamlined version of the CHOICERenovation loan for when your rehab budget is smaller: up to 15% of the home’s purchase price. Eligibility requirements also include a 3% down payment and a 620 FICO score. But you must complete home improvements within 180 days of purchase, rather than 12 months.

4. FHA 203(k)

Backed by the Federal Housing Administration (FHA), the FHA 203(k) loan lets you buy a fixer-upper home and finance renovations with a single mortgage. It requires just 3.5% down and a credit score of 580.

There are two types of FHA 203(k) loans:

• Limited 203(k): Covers minor home improvements up to $35,000, like flooring, painting, and kitchen updates.
• Standard 203(k): Funds larger renovation projects that involve structural repairs or major upgrades.

Since FHA loans require mortgage insurance premiums (MIP) for the life of the loan, many homeowners later refinance into a conventional mortgage to remove MIP. Also, all home improvements must pass a HUD inspection to meet government standards. Check FHA loan limits in your area, as they may be lower than conventional loan programs.

5. VA renovation loan

If you’re an eligible veteran or active-duty service member, the VA renovation loan is likely to be your best choice. Zero down payment, low mortgage rates, and no continuing mortgage insurance make this fixer-upper loan hard to beat.

A portion of the loan amount will fund the cost of renovations. However, you cannot borrow more than the repaired value of the home, which is established by a VA-approved contractor during the home appraisal process.

To qualify for a VA renovation loan, you’ll need to show proof of your VA entitlement with a certificate of eligibility (COE). You can only finance a primary residence; rental and investment properties are not eligible. And, while there’s no ongoing mortgage insurance, borrowers will need to pay the upfront VA funding fee, which can be rolled into the loan balance.

Lastly, while the VA doesn’t set minimum credit score requirements, mortgage lenders are allowed to establish their own eligibility guidelines. Many want to see a credit score of 620 or higher for a VA loan, though requirements could vary for a VA renovation loan.

6. USDA renovation loan

The USDA renovation loan is a financing option for buyers who want to purchase a single-family home in a location that has been designated a “rural area” by the U.S. Department of Agriculture. Fortunately, the definition is broader than many think — an estimated 97% of the U.S. qualifies. Use the USDA’s property eligibility tool to see which areas in your state are considered rural.

For those who are eligible, the USDA renovation loan requires no down payment and funds home improvement projects, upgrades to accommodate family members with disabilities, and installation of energy-efficient features.

Still, you’ll need to meet household income limits, so check your area median income (AMI) here. In addition, this type of loan cannot be used to finance investment properties — only primary residences are allowed.

Pros and cons of fixer-upper loans

A mortgage for a fixer-upper home can make homeownership more affordable, but it also comes with trade-offs. Before you get a loan for a house that needs work, it’s important to understand both the benefits and potential drawbacks of fixer-upper mortgages.

Pros:

• Lower purchase price: Fixer-upper homes often cost less than move-in-ready properties.
• All-in-one financing: A loan for a fixer-upper home covers both the purchase price and renovation costs in a single mortgage.
• Less competition: There’s typically less demand for homes that need work, which gives DIY buyers an advantage.
• Home equity growth: Strategic renovation projects can improve the value of the home over time.

Cons:

• Strict fixer-upper loan requirements: Many fixer-upper mortgages require licensed contractors, detailed plans, and limit “sweat equity” renovations.
• Higher upfront costs: Some mortgage loans for fixer uppers have larger down payment and closing cost requirements.
• Longer approval process: Home loans for houses that need work often involve extra paperwork and inspections.
• Surprise repair costs: Even with a home inspection, unexpected repair costs may arise.

A fixer-upper loan can help you create your dream home, but it’s important to fully understand renovation costs, loan restrictions, and potential risks before starting the process.

Another option for financing a fixer-upper home

If you’re a DIYer looking to finance a fixer-upper house without the hassle of a renovation loan program, this strategy offers a flexible alternative:

1. Buy the home with a conventional loan. Renovation loans have strict requirements and longer approval times. A conventional loan lets you close faster and with fewer hurdles.
2. Use a personal loan for repairs. Since personal loans don’t require home equity, you can access funds quickly to start renovations.
3. Refinance with a home equity loan or HELOC. Once your improvements increase the home’s value, refinance with a home equity loan or line of credit (HELOC) to secure a lower interest rate or longer repayment terms.

This strategy for financing a fixer-upper home gives you faster access to funding and more flexibility in managing repairs. But personal loans typically have higher interest rates, and home equity loans come with closing costs. If your total mortgage debt stays below 80-90% of your home’s value, you’ll have more refinancing options—so it’s worth shopping around for the right lender.

“If you can get enough cash this way, it tends to be the simplest way to finance repairs,” says Jon Meyer, loan expert and licensed MLO. “But you need to ensure you can get enough cash for the projects.”

How to buy a fixer-upper home

Getting a loan to buy a house and fix it up will follow a similar process as purchasing a move-in-ready home, but it requires extra planning. To avoid costly mistakes, follow these key steps to secure the best fixer-upper loan, find the right property, and set yourself up for a successful home renovation.

Step 1: Work with a real estate agent who knows fixer-uppers

Let your real estate agent know you’re searching for a fixer-upper home so they can alert you to new listings. Agents experienced in homes that need work can help you find the best deals and avoid major red flags.

Step 2: Get preapproved for a fixer-upper mortgage

Before house hunting, connect with a mortgage lender to get preapproved. Many mortgages for fixer uppers, such as an FHA 203(k) loan, a Fannie Mae HomeStyle loan, or a VA renovation loan, require a renovation plan. A mortgage preapproval letter shows sellers and agents that you’re a serious buyer.

Step 3: Schedule a home inspection

Fixer-upper homes often have hidden issues. Never skip a home inspection, even in a competitive market. A professional home inspector can identify structural or safety problems that could derail your new home purchase.

Step 4: Get repair estimates from a contractor

If you’re using a home renovation loan, your lender will require a licensed contractor to estimate repair costs before loan approval. Even if paying out of pocket, an estimate helps prevent budget overruns.

Step 5: Choose the right fixer-upper loan

Different fixer-upper loans are available depending on your needs:

• FHA 203(k) loan: Ideal for first-time buyers needing a low down payment.
• Fannie Mae HomeStyle loan: Great for major home improvements.
• VA renovation loan: Available to veterans for purchasing and renovating a fixer-upper home.

Step 6: Set a realistic renovation budget

Once you’ve chosen a loan for a fixer-upper home, build a detailed renovation budget covering materials, labor, permits, and unexpected repairs. A spreadsheet can help track expenses and adjust spending as needed. Some homeowners also use financing options like a cash-out refinance or a home equity line of credit (HELOC) to fund additional home improvements after purchase.

Step 7: Close on your home and begin renovations

Once your fixer-upper mortgage is finalized, work closely with your contractor to stay on budget. Be mindful of loan restrictions on sweat equity if you are overseeing some DIY renovations. With proper planning, you’ll soon turn your fixer-upper home into a new home that fits your vision.

FAQs about fixer-upper loans

Find your best fixer-upper loan option

So, where should you begin? The first thing to do is to decide on the type of mortgage you want. For many first-time home buyers purchasing a fixer-upper, an all-in-one rehabilitation loan is a great option.

Once you’ve settled on the loan you want, get preapproved. Preapproval letters are only valid for a limited period (often 30-90 days), but you can renew them as often as necessary. Always keep yours up to date while house hunting.

Now, with your letter in your pocket, you can start having fun. Start searching and viewing fixer-upper homes. Try to find a buyer’s agent who specializes in those.

Ready to go? Let us help you find lenders who can help you.