The Differences Between Homestyle & 203(k) Renovation Loans

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This is a guest post from The Wood Group of Fairway, a trusted Texas mortgage lender. In this article, we’re outlining the differences between homestyle and FHA 203(k) renovation loans – what you can use them for, loan limits, qualification requirements, and more.

When you really want to buy a certain house but can’t swing the costs for renovations out of your pocket right away, a renovation may be perfect for you. Renovation loans are rolled into your home purchase or refinance, and they’re usually a better cost-option compared to taking out a separate loan elsewhere.

Two kinds of FHA 203(k) loans

FHA 203(k) loans are split into “standard” and “limited” types. A limited (or sometimes called “streamline”) 203(k) is only to be used for non-structural repairs and improvements. They can be used for purchasing new appliances, replacing flooring, repairing decks, and patios, paintwork, and more. One general rule of thumb with a limited 203(k) is if the renovation work prevents you from inhabiting your home, it won’t be eligible. They’re also capped at $35,000.

A standard 203(k) is much more flexible in what it can accomplish. It can provide funding for structural repairs like removing walls, pool repairs, and much more. If a repair will require more than three months of scheduled work before completion, you’ll need to go with a standard 203(k). Additionally, standard 203(k) loans can provide more than $35,000.

Homestyle vs 203(k)

While a 203(k) loan accompanies the FHA program, Homestyle accompanies a conventional loan. So the first differentiation between the two are the separate qualification requirements for FHA and requirements for a conventional loan.

Homestyle renovation loans open up the possibilities quite a bit. There are no restrictions on what kinds of repairs you can make, and you can use them on second homes and investment properties, unlike a 203(k). However, all your improvements or repairs will need to be carried out by a licensed contractor, and they have to contribute to the property value.

VA renovation loans

If you’re a veteran or active service member, a VA loan may be your best bet. There’s lots of benefits with the VA program, including a zero-down option and no mortgage insurance requirements.

There’s also a renovation loan you can roll into your VA loan. They have a few specific rules set apart from Homestyle and 203(k) loans:

  • The renovations must improve the home’s use and safety. Purely aesthetic improvements won’t usually qualify.
  • All renovations are to be completed within 120 days of closing the loan.
  • After renovations are complete, your home has to meet VA property guidelines for health and safety.

Not all lenders are equipped to provide VA renovation loans, so make sure to check on that before moving forward with an application! 

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