A renovation loan lets you finance a home and the work it needs in one mortgage. Instead of lending only against the house as it stands, the lender sizes the loan on what the home will be worth after specific, written repairs, then holds the repair money in an escrow account and pays it out as the work is inspected. FHA's version is the 203(k), which comes in a Standard and a Limited type. Fannie Mae has HomeStyle Renovation, Freddie Mac has CHOICERenovation, and VA has rules for loans that include repairs or improvements. FHA 203(k) is available through me. The others have their own rules and lender participation, so I'd confirm availability for your file before you plan around one.
A standard purchase loan funds the purchase. The lender lends against the house as it stands, the seller gets paid at closing, and if the house needs a new roof or rewiring, you pay for that separately afterward. A renovation loan combines the two steps:
A Fort Worth house needs a roof, a rewire and a kitchen that's beyond cosmetic. A renovation loan can work if the after-improved value supports the total and the contractor fits the program. Paint and appliances alone are usually the wrong reason to use one. A price cut or seller credit is simpler when the seller will agree.
Renovation loans fit when:
They're a heavier file than a standard purchase, with more documents, more people and a longer timeline. That's worth it when the work is real and substantial.
HUD's rules for both types are in Handbook 4000.1, and the current limits came from Mortgagee Letter 2024-13 for case numbers assigned on or after Nov 4, 2024. Mortgagee Letter 2026-06, effective June 23, 2026, raised the Limited 203(k) maximum to four draws per contractor (HUD 4000.1 II.A.8.a; ML 2024-13; ML 2026-06).
Luxury and recreational items like new swimming pools, hot tubs, outdoor fireplaces, tennis courts and gazebos aren't eligible, and neither is work for commercial use. Existing in-ground pools can be repaired on a Standard 203(k). All work must meet HUD's Minimum Property Requirements and local codes.
On a 203(k) purchase, the maximum is FHA's loan-to-value limit times the lesser of the as-is value (the price, less any inducements, or the as-is appraisal) plus the financeable repair costs, fees and reserves, or 110 percent of the after-improved value (100 percent for condos), and never more than FHA's county loan limit. FHA's normal credit score and minimum investment rules still apply. With me, FHA starts at a 580 score. See FHA loans.
HomeStyle can be used on one- to four-unit principal residences, one-unit second homes and one-unit investment properties, manufactured homes with nonstructural work, and eligible condos and PUDs. On a purchase, renovation costs can't exceed 75 percent of the lesser of the price plus renovation costs or the as-completed appraised value; on a refinance, 75 percent of the as-completed value; on a manufactured home, 50 percent. Up to six months of payments can be included if a principal residence can't be occupied during the work, and a limited "do it yourself" option exists for one-unit homes (Selling Guide B5-3.2-02).
Freddie Mac's CHOICERenovation finances a purchase or refinance plus renovation in one closing. Its requirements are in Freddie Mac Guide Chapter 4607 (Freddie Mac CHOICERenovation).
Conventional renovation loans follow normal conventional credit and down payment rules. See conventional loans. Whether a conventional renovation option fits your file and is available is something I'd confirm before you write an offer around it.
VA-backed loans can be used to buy, build or improve a home (VA purchase loan), and some lenders offer VA loans that include repairs or renovation. Those programs carry VA's rules plus the lender's, so availability and requirements vary.
Before approval, the work is defined in writing. You choose a contractor, and the contractor prepares a bid that breaks out each item: materials, labor, permits and the cost of each part of the job. On a Standard 203(k), the consultant's Work Write-Up sets the scope, and the lender must check that the contractor is qualified and meets local licensing and bonding requirements. On a Limited 203(k), you submit a work plan and contractor proposals, and the lender reviews the bids and the contractors' credentials.
Most programs build in a contingency reserve above the bid for surprises like rotten subfloor found once flooring comes up. The program sets its size. Unused funds are applied under the program's rules, often to the loan balance.
The appraiser gets the scope and bids, inspects the house as it is, and estimates what it'll be worth when the work is finished, using sales of similar homes in finished condition. That's the after-improved or as-completed value. If it doesn't support the total, the scope shrinks, the price drops or you bring more cash. See what a mortgage appraisal checks.
At closing, the seller is paid as on any purchase, and the repair money goes into escrow. As each phase finishes, the contractor requests a draw, an inspector confirms the work, and the lender releases funds. Lenders commonly require lien waivers and title updates before paying.
Lien waivers matter in Texas, where contractors and suppliers have strong lien rights under Chapter 53 of the Property Code. A waiver and release of a lien claim is only enforceable if it's executed and delivered under that chapter's rules, using the statutory forms (Tex. Prop. Code 53.281). If a subcontractor isn't paid, they may be able to file a lien even if you paid the general contractor, which is exactly what the draw process is built to prevent.
When the home is or will be your homestead, Texas adds formalities. A lien for work and materials to repair or renovate existing improvements on a homestead is only valid if the contract is in writing with the consent of both spouses on a family homestead, the contract isn't signed until at least the fifth day after you apply for the credit, the contract gives you a three-day right to rescind, and it's signed only at the office of a third-party lender, an attorney or a title company. There are exceptions for immediate health and safety repairs (Tex. Const. art. XVI, sec. 50(a)(5)). The title company and lender prepare documents to meet those rules, and the timeline should leave room for them. Taking cash out for anything other than the defined work is a different kind of Texas loan with its own rules.
A small repair escrow on a standard loan is a different tool. Some standard loans allow a short list of minor items found by the appraiser to be finished shortly after closing, using money held at closing, with tight limits. A renovation loan is built for a real project with a scope and a budget. See lender-required repairs, and if you're building from the ground up, construction loans are the better fit.
This example is made up to show the mechanics.
Jordan finds a 1960s house in Fort Worth's Riverside area listed at $210,000. It needs a new roof, updated electrical, and the bathrooms redone. The contractor's bid is $48,000, and the appraiser, working from the bid, estimates an after-improved value of $285,000. Because the roof and electrical are nonstructural and the total is under $75,000, a Limited 203(k) is considered. Then the inspection shows a sagging floor joist system that needs structural repair, which the Limited 203(k) can't cover. The file moves to a Standard 203(k) with a consultant, a written Work Write-Up and a contingency reserve. Jordan can't live in the house during the floor work, so a mortgage payment reserve for those months is included. The work is paid in draws after each inspection, with lien waivers from the contractor and suppliers.
Looking at a Fort Worth house that needs real work? Before you write the offer, let's look at the house, the scope and the likely finished value, and see whether an FHA 203(k) or another path makes more sense. Schedule a call, or when you're ready, start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026