Can You Buy a Fixer-Upper With a Conventional Loan?

Yes, you can buy a fixer-upper with a conventional loan, but the condition of the home decides which kind. A standard conventional mortgage works for houses that need cosmetic updates as long as the property is safe, structurally sound, and livable the day you close. For homes that need serious repairs, Fannie Mae’s HomeStyle Renovation and Freddie Mac’s CHOICERenovation combine the purchase price and the renovation costs into one loan, so you can buy properties that would never pass a standard appraisal.

What a Standard Conventional Loan Will Accept

Every standard conventional mortgage backed by Fannie Mae requires the property to be “safe, sound, and structurally secure,” served by utilities that meet community standards, and suitable for year-round use.¹ It also needs road access that meets local standards and must be residential in nature. These rules protect the lender’s collateral and make sure you’re buying something that actually functions as a home.

During the appraisal, the appraiser assigns a condition rating from C1 (newly built) to C6 (major deficiencies). Properties rated C1 through C5 can generally qualify for financing in as-is condition. The appraiser notes wear and age but doesn’t require repairs before closing. A C6 rating signals problems severe enough to threaten safety or structural integrity, and those properties won’t qualify for a standard conventional loan until the issues are fixed.²

In practice, the appraiser looks for a functioning heating system, a roof that isn’t actively leaking, operational plumbing and electrical service, and no hazards that would make the home unsafe to occupy. When they spot something that crosses the safety line but is fixable, they can complete the appraisal “subject to” specific repairs. The lender then requires proof those repairs are done before closing. That’s how milder fixer-uppers squeak through on a standard conventional loan: the seller handles the work, or the buyer negotiates a credit, and the deal closes normally.

Cosmetic Problems vs. Deal-Killing Defects

The line between a fixer-upper that qualifies and one that doesn’t comes down to safety, soundness, and structural integrity. Outdated kitchens, stained carpet, peeling interior paint, worn countertops, and minor drywall cracks from normal settling are cosmetic. They lower the home’s market value, and the appraiser accounts for that, but they don’t block a standard conventional loan.

Foundation problems are different. Horizontal cracks, significant bowing in basement walls, and visible settlement beyond what’s normal all signal structural compromise. Active roof leaks, inadequate electrical service, missing HVAC systems, and non-functional plumbing also cross the line. So do environmental hazards: widespread mold, friable asbestos, and peeling lead-based paint in pre-1978 homes all get flagged by appraisers as conditions requiring attention.³

If you’re shopping somewhere in the middle, pay close attention during the home inspection. A property with one or two repair items that can be completed before closing is a very different situation from one that needs a new roof, new plumbing, and foundation work. The first can often work with a standard loan and a “subject to” appraisal. The second needs a renovation loan.

HomeStyle Renovation: Fannie Mae’s Fixer-Upper Loan

The HomeStyle Renovation mortgage is Fannie Mae’s purpose-built product for buying homes that can’t pass a standard appraisal. It wraps the purchase price and renovation costs into one loan and closes in a single transaction. The property doesn’t even need to be habitable at closing.⁴ That alone opens the door to significantly distressed properties.

There are no restrictions on the types of renovations allowed and no minimum dollar amount for the work.⁵ You can finance structural repairs, full kitchen and bathroom remodels, roof replacement, new HVAC systems, accessibility modifications, or energy upgrades. Improvements should generally be permanently attached to the property, though appliances can be included as part of a broader kitchen or utility room remodel. The one hard limit: HomeStyle cannot be used for a complete tear-down and rebuild.

The flexibility goes well beyond basic repairs. You can build an accessory dwelling unit, add a garage, construct a swimming pool, or build a recreation room, as long as local zoning allows it.⁵ You’re not limited to bringing a home up to minimum standards. You can buy a livable but dated house and finance a complete modernization.

Credit Score, Down Payment, and Loan Limits

For manually underwritten loans, Fannie Mae requires a minimum credit score of 620 for fixed-rate HomeStyle loans and 640 for adjustable-rate products. Loans run through Fannie Mae’s automated Desktop Underwriter system don’t have a stated minimum credit score, though a higher score improves your approval odds and pricing.⁶

The maximum loan-to-value ratio reaches 97% for a one-unit primary residence with a fixed-rate mortgage, meaning you could put as little as 3% down.⁷ Adjustable-rate mortgages cap at 95% LTV. For manually underwritten files, the ceiling is 95% regardless of rate type.⁸ Renovation costs cannot exceed 75% of the lesser of the purchase price plus renovation costs, or the as-completed appraised value.

If the property is uninhabitable during construction, you can finance up to six months of mortgage payments (principal, interest, taxes, and insurance) as part of the renovation costs.⁹ That’s a meaningful benefit: you don’t have to carry two housing payments at once if you can’t move in right away.

How a HomeStyle Loan Actually Works

Plans, Bids, and Your Contractor

Before a HomeStyle loan gets approved, the lender needs detailed renovation plans, contractor bids with material and labor broken out, and any architectural or engineering reports required for structural changes.⁵

Your contractor choice matters to the lender, not just to you. Fannie Mae requires that the contractor be qualified and experienced, hold all credentials required by the state, be financially capable of completing the work on schedule, and agree to indemnify you for any property losses or damage caused by their workers.¹⁰ All work must be performed by a licensed contractor unless your state or local jurisdiction doesn’t require licensing for the type of renovation. Finding someone who meets these requirements and has experience with renovation loan draw processes is one of the harder parts of the transaction.

The As-Completed Appraisal

Instead of valuing the property as it sits today, the lender orders an “as-completed” appraisal based on the renovation plans and specifications.¹⁰ The appraiser reviews your contractor’s scope of work, studies comparable renovated sales in the area, and estimates what the home will be worth once the work is done. Your loan amount is based on that projected future value rather than the home’s current condition. This is the mechanism that makes the program work.

Escrow and Draws

After closing, the renovation funds sit in an escrow account held by the lender or its servicer.¹⁰ The lender can release up to 50% of total planned renovation costs at closing as an initial draw, which can cover permits, architect fees, and other upfront expenses.¹¹ After that, money comes out of escrow only as work is completed.

Each subsequent draw requires a periodic inspection to confirm the work matches the original plans. Disbursements go out either as a check made jointly to you and the contractor, or as a wire transfer to the contractor after you give written consent.¹¹ The process protects you from paying for unfinished work and protects the lender from funding a project that goes sideways.

For two- to four-unit properties, Fannie Mae requires a contingency reserve equal to 10% of total renovation costs, which can increase to 15% at the lender’s discretion for larger-scope projects.¹¹ Single-family borrowers should budget for surprises anyway, because hidden problems almost always surface once walls come down.

The 15-Month Deadline

All renovation work must be finished within 15 months of closing. If the project runs past that deadline, the lender reports the situation to Fannie Mae, and outcomes range from a limited extension (up to 18 months total) to curtailing the remaining work or, in the worst case, the lender being required to repurchase the loan.⁵ The clock is real. Your contractor’s track record with deadlines matters as much as their craftsmanship.

Freddie Mac CHOICERenovation

Freddie Mac’s CHOICERenovation program works on the same basic principle as HomeStyle: one loan, one closing, renovation costs included. It covers one- to four-unit primary residences, one-unit second homes, one-unit investment properties, and manufactured housing.¹² Investment property eligibility is a notable difference from HomeStyle, which focuses on owner-occupied homes.

CHOICERenovation loans must be run through Freddie Mac’s Loan Product Advisor automated underwriting system. If the lender delivers the loan before renovations are complete, Freddie Mac requires prior written approval and the mortgage must be delivered with recourse during the renovation period.¹² From a borrower’s perspective the process feels similar to HomeStyle, and which product you end up with often depends on which investor your lender works with.

HomeStyle vs. FHA 203(k)

The FHA 203(k) is the other major renovation loan option, and it appeals to buyers with lower credit scores or smaller down payments. The Standard 203(k) requires a minimum of $5,000 in renovation costs and allows an LTV up to 96.5% for primary residences. The Limited 203(k) caps renovation costs at $75,000.¹³

HomeStyle has real advantages for buyers who can qualify. There’s no maximum renovation dollar amount, and renovation costs can reach 75% of the as-completed appraised value.¹³ Conventional loans also use private mortgage insurance that can eventually be removed once you reach 20% equity, while FHA loans carry mortgage insurance premiums for the life of the loan in most cases. On a large renovation where the as-completed value well exceeds the loan balance, that difference saves real money over time.

The FHA 203(k) is more forgiving on credit scores and debt-to-income ratios, and the lower down payment helps buyers with limited cash. The Standard 203(k) also requires a HUD consultant to oversee the renovation, which adds cost but provides a layer of protection for borrowers less experienced with construction projects. Your situation decides which program fits, and not all lenders offer both, so shop around early.

Costs You Might Not Expect

Renovation loans come with expenses standard mortgages don’t. Beyond the normal closing costs, you’ll pay for the as-completed appraisal (which takes more time and costs more than a standard appraisal), periodic inspections before each draw, architectural or engineering fees if your project involves structural changes, building permits, and potentially a contingency reserve funded from your loan proceeds. Fannie Mae lists property inspection fees, title update costs, architectural and engineering fees, independent consultant fees, and permit costs as eligible renovation-related expenses that can be rolled into the loan.⁹

The fact that these costs can be financed doesn’t make them free. They increase your loan balance and the interest you pay over the life of the mortgage. On a large project, the added soft costs can run into the thousands. Build them into your budget from the start.

Practical Tips Before You Make an Offer

Get a thorough home inspection before you commit to a property, even if you plan to renovate heavily. The inspection tells you whether the problems are the kind you want to fix or the kind that spiral into budget-killing surprises. A structural engineer’s report costs a few hundred to over a thousand dollars and is worth every penny if there’s any question about the foundation.

Line up your contractor before you make an offer, not after. The lender has to review their qualifications, and the renovation plans and bids are required before loan approval. If your contractor backs out mid-process, you’re starting over with a new bid, a potential re-appraisal, and a reset timeline. Good contractors with renovation loan experience are not always easy to find; the draw process and paperwork requirements deter some from taking these jobs.

Build a realistic buffer into your renovation budget. Older homes consistently produce surprises once demolition starts: outdated wiring hidden behind walls, plumbing that looked fine on the surface but is corroded inside, water damage that went undetected. Even on single-family properties where Fannie Mae doesn’t mandate a formal contingency reserve, an extra 10% to 15% above your contractor’s bid is sensible planning.

1
Fannie Mae. General Property Eligibility
2
Fannie Mae. Property Condition and Quality of Construction of the Improvements
3
Fannie Mae. Appraiser Update September 2024
4
Fannie Mae. FAQs – HomeStyle Renovation
5
Fannie Mae. HomeStyle Renovation Mortgages
6
Fannie Mae. General Requirements for Credit Scores
7
Fannie Mae. HomeStyle Renovation
8
Fannie Mae. Eligibility Matrix
9
Fannie Mae. HomeStyle Renovation Mortgages – Loan and Borrower Eligibility
10
Fannie Mae. HomeStyle Renovation Mortgages – Collateral Considerations
11
Fannie Mae. HomeStyle Renovation Mortgages – Costs and Escrow Accounts
12
Freddie Mac. CHOICERenovation Mortgages
13
U.S. Department of Housing and Urban Development. 203k Program Comparison Fact Sheet