I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. I’m known as a creative mortgage broker: when a bank says no, I find the lender and the loan structure that can say yes. Call (800) 239-1103.
A renovation loan lets you buy a home (or refinance one) and finance the repairs in the same mortgage, based on what the home will be worth when the work is done. The main options are FHA 203(k), Fannie Mae HomeStyle, and Freddie Mac CHOICERenovation. If you already own with plenty of equity and a low first-mortgage rate, a HELOC is often simpler.
California’s older housing stock — pre-1980 homes needing seismic work, electrical upgrades, new roofs, or just 40 years of deferred updates — is where renovation financing earns its keep. This guide compares the programs, explains how the money flows, and shows when a HELOC or other loan fits better.
How a Renovation Loan Works
- Scope and bid. Before closing, your contractor prepares a detailed, itemized bid, and plans if needed.
- “As-completed” appraisal. The appraiser values the home as if the work were finished, using the plans and bid.
- One closing. The loan pays for the purchase (or refinance), and the renovation funds go into a custodial account.
- Draws. As work is completed and inspected, funds are released to the contractor. A contingency reserve is usually built in for surprises.
- Completion. A final inspection confirms the work, and any leftover contingency is typically applied to the loan balance.
The Three Main Programs
| FHA 203(k) | Fannie Mae HomeStyle | Freddie Mac CHOICERenovation | |
|---|---|---|---|
| Minimum down (purchase) | 3.5% with 580+ credit | As little as 3% (primary, eligible buyers) | As little as 3% (primary, eligible buyers) |
| Occupancy | Primary residence | Primary, second home, investment | Primary (1–4 units), second home, investment (1 unit) |
| Renovation limits | Limited: up to $75,000, no consultant required. Standard: larger/structural projects, 203(k) consultant required | Renovation costs capped at 75% of the lesser of price plus renovation or as-completed value | Renovation costs capped relative to as-completed value; smaller-project version: CHOICEReno eXPress |
| Luxury items (pools, etc.) | Not eligible | Generally eligible if permanently affixed to the property | Generally eligible if permanently affixed to the property |
| Mortgage insurance | FHA MIP (upfront + annual) | PMI below 20% down; removable | PMI below 20% down; removable |
| Loan limits (2026, CA) | County FHA limit: $541,287 to $1,249,125 | Conforming: $832,750 baseline, up to $1,249,125 in high-cost counties | Same as HomeStyle |
FHA 203(k)
Best for buyers with modest down payments or credit in the 580–680 range. HUD updated the program for case numbers assigned on or after November 4, 2024: the Limited 203(k) now allows up to $75,000 in repairs with no required consultant and a completion window of up to nine months; the Standard 203(k) handles bigger and structural projects, requires a HUD-approved 203(k) consultant, and allows up to 12 months. FHA mortgage insurance applies, and the program is for owner-occupants only.
Fannie Mae HomeStyle Renovation
A conventional option with LTVs up to 97% for eligible primary-residence buyers. It can finance a broad range of permanent improvements — kitchens, baths, roofs, systems, landscaping, and additions such as in-law suites or basement apartments. If the home is uninhabitable during the work, up to six months of payments can be financed. Limited do-it-yourself work is allowed on one-unit properties (up to 10% of the as-completed value) with lender approval. It’s also a good fit for second homes and investment properties that need work.
Freddie Mac CHOICERenovation
Freddie Mac’s counterpart to HomeStyle, available for primary residences, second homes, and one-unit investment properties. Freddie has promoted it for disaster-resilience work — for example, fire-resistant roofing and vents, seismic retrofits, and flood mitigation — which is useful in wildfire and earthquake country. For smaller projects, CHOICEReno eXPress offers a streamlined version with lower renovation caps.
Renovation Loan vs. HELOC
| Renovation Loan | HELOC | |
|---|---|---|
| Best for | Buying a fixer-upper, or owners with limited equity | Owners with solid equity who want to keep a low first-mortgage rate |
| Based on | As-completed value | Usually today’s value (some lenders use after-renovation value) |
| Rate type | Fixed or ARM on the whole loan | Usually variable, tied to Prime |
| Paperwork | Contractor bid, plans, inspections, draw schedule | Standard HELOC underwriting; you control how funds are spent |
| Your first mortgage | Replaced (refinance) or new (purchase) | Untouched |
Example — existing owner: your home is worth $900,000 and you owe $400,000. At a 90% combined loan-to-value limit, a HELOC could be as large as $410,000; at 80%, $320,000. If your first mortgage is at 3%, adding a HELOC for a $150,000 remodel usually beats refinancing everything at today’s rates. I also arrange HELOCs up to 95% CLTV for qualified borrowers — see 95% CLTV HELOCs.
Renovation HELOCs based on after-renovation value: some lenders offer HELOCs sized on the home’s projected value after the project. Example terms: up to 95% of the after-renovation value or 125% of today’s value, whichever is less. On an $800,000 home that will be worth $1,050,000 with a $500,000 first mortgage, that’s up to about $497,500 — versus $220,000 on a standard 90% HELOC based on today’s value. These programs require plans, a contractor estimate, and a “subject-to” appraisal, and terms vary by lender.
Other Ways to Fund Renovations
- Cash-out refinance — makes sense mainly if your current rate is near or above today’s rates.
- Construction loans — for tear-downs, major additions, and ground-up builds.
- Fix-and-flip and hard money loans — for investors who need speed or are buying properties conventional lenders won’t touch.
- ADU financing — several of the options above can fund an ADU.
California Considerations
- Seismic and systems upgrades: foundation bolting, cripple-wall bracing, electrical panel upgrades, and sewer laterals are common line items in older California homes.
- Permits: lenders need permitted work, and permitting can add weeks or months. Build that into your timeline.
- Unpermitted existing work can complicate the appraisal — sometimes the renovation loan is the way to legalize it.
- Insurance: in wildfire areas, insurers may require or reward hardening. Get quotes before you commit to a property.
- Contingency: older homes surprise people. Budget a cushion beyond the contractor’s bid.
When the Bank Says No
Renovation files get declined for incomplete bids, contractors a lender won’t approve, properties in too rough a shape for agency programs, or after-renovation values that don’t support the budget. As a broker I can move a file to a lender with a better renovation desk, restructure the scope, or switch to a HELOC, construction, or private-money solution when the agency programs don’t fit.
Frequently Asked Questions
What is a renovation loan?
A renovation loan combines the purchase price (or your existing balance on a refinance) with the cost of improvements into one mortgage, based on the home’s projected value after the work. Renovation funds are held in an account and released to your contractor as work is completed.
What’s the difference between FHA 203(k), HomeStyle, and CHOICERenovation?
FHA 203(k) is for owner-occupants, allows 3.5% down with a 580 score, and doesn’t allow luxury items. HomeStyle (Fannie Mae) and CHOICERenovation (Freddie Mac) are conventional, allow as little as 3% down for eligible primary-home buyers, also work for second homes and investment properties, and use removable PMI instead of FHA mortgage insurance.
How much can I spend with a Limited 203(k)?
For FHA case numbers assigned on or after November 4, 2024, Limited 203(k) repairs can total up to $75,000, no consultant is required, and work must be completed within nine months. Larger or structural projects use the Standard 203(k), which requires a HUD-approved consultant.
Can I use a renovation loan on an investment property?
Yes, with Fannie Mae HomeStyle or Freddie Mac CHOICERenovation. FHA 203(k) is for owner-occupied homes only. Investment properties require larger down payments.
Can I do some of the work myself?
FHA 203(k) generally requires contractors. Fannie Mae HomeStyle allows limited do-it-yourself work on one-unit properties, up to 10% of the as-completed value, with lender approval. Most major work still requires licensed contractors.
Should I use a renovation loan or a HELOC?
If you’re buying a fixer-upper or have little equity, a renovation loan is usually the answer. If you already own with substantial equity and a low first-mortgage rate, a HELOC lets you keep that rate and draw funds as needed, though HELOC rates are usually variable.
Related Resources
- HELOCs in California
- HELOC vs. Cash-Out Refinance
- Construction Loans in California
- ADU Financing in California
- FHA Loans in California
- Fix-and-Flip Loans
- California FAIR Plan and Your Mortgage
Official Sources & References
Talk to Michael Directly
DiVita Home Finance | Tiburon, CA | In lending since 2000, founded DiVita Home Finance in 2007. Michael DiVita DRE #01372066 | NMLS #241655. Company DRE #01818285 | NMLS #323700.
💬 Text: (310) 849-9124
