A renovation mortgage allows you to buy a home that would normally not be financeable by a bank because of needed repairs. This type of loan allows you to finance the repair costs. The repair costs are held in escrow and paid out to the contractor as they are completed. The FHA 203k and the Homestyle Renovation loans allow you to refinance your existing home and finance in repairs, upgrades and even additions. There are 3 types of renovation mortgages available.
There are 2 types of FHA 203K loans, Full and Streamlined. In general, a Full 203K loan involves structural changes to a property such as moving load bearing walls, and the cost of repairs exceeds $35,000. A streamlined 203k loan is the opposite and is for smaller projects under $35,000. The streamline 203K is the less expensive of the two as there is no requirement for consultants, plans, engineers and possibly architects as with a Full 203K.
Both types of FHA loans have the same requirements as regular FHA loans in regards to down payment requirements, mortgage insurance, etc.