Renovation and Construction Loans

A renovation loan finances the purchase or refinance of a home plus the cost of improvements, often based on the home’s after improved value. Instead of paying for repairs out of pocket, funds are typically held and released in stages as the work is completed.

A construction loan finances building a new home, usually with funds released in draws as construction progresses and inspections confirm completed work.Some construction loans are construction only with a refinance later, while others are construction to permanent, meaning one loan that converts to a long term mortgage after the build.

Renovation loans improve an existing home, while construction to permanent loans finance building a new home and then convert into a long term mortgage. The documentation and timelines differ, and the best option depends on whether you are buying an existing home to remodel or starting with land and building.

Renovation funds are usually not paid to you directly, they are held in an escrow account and released to the contractor in draws after inspections. This protects you and the lender. It also means you need a clear contract, a detailed scope of work, and a contractor who is comfortable with draw based payments.

Many renovation programs prefer licensed contractors and may not allow DIY or sweat equity, though rules vary by program and lender. Even when it is allowed, it can complicate approvals and draw schedules. If you want to do some work yourself, we confirm what is allowed before you write an offer.

These loans usually take longer to close than a standard purchase because they require bids, plan review, and additional appraisal steps, so timelines often run longer than 30 days. The easiest way to avoid delays is to select the program early, choose a contractor quickly, and submit a complete scope of work and documentation up front.

The appraisal often considers the current value and the after improved value based on plans, bids, and specs, not just the home’s current condition. This is why detailed plans matter. If the scope is unclear, the appraiser may not be able to support the future value, which can affect loan approval.

Common renovation programs include FHA 203k, Fannie Mae HomeStyle, and Freddie Mac CHOICERenovation, each with different guidelines and flexibility. Some programs allow only smaller repairs and others support major renovations. We match the scope of work to the right program so you do not get stuck with rules that do not fit the project.

Lenders typically require a licensed and insured contractor, a written bid, a detailed scope of work, and a timeline, and they may require additional contractor documentation depending on the program. The project goes smoother when the contractor has renovation loan experience and provides complete paperwork quickly.