How Does a Renovation Loan Work in Minnesota?

Published Friday, November 6, 2026

A renovation loan puts the cost of repairs or improvements into your mortgage, and the money is paid out as the work gets done. HUD says its Limited 203(k) lets homebuyers and homeowners finance up to $75,000 into the mortgage to repair, improve or upgrade a home. Fannie Mae lists no minimum dollar amount for its HomeStyle Renovation loan. Either way, the house and the work sit in one mortgage with one monthly payment, so the place to start is seeing that payment with the work included.

Limited 203k vs standard 203k: what does each one cover?

The FHA 203(k) comes in two versions, and HUD separates them by the size of the job.

The Limited 203(k) is for smaller work. HUD's examples: homeowners can make minor remodeling and non-structural repairs or improvements, or get a home ready to sell, and homebuyers can make a new home move-in ready by remodeling the kitchen, painting the interior or putting in new carpet. The repairs can include ones a home inspector or an FHA appraiser points out. It finances up to $75,000.

The Standard 203(k) is for major rehabilitation and repair of single-family homes, including major renovations and structural additions. HUD sets a floor: the cost of the rehabilitation must be at least $5,000, and the total value of the property still has to fall within the FHA mortgage limit for the area.

If you are weighing an FHA 203(k) loan in Minnesota, ask Chad which FHA limit applies to the home you are looking at. Chad's FHA loan guide covers the FHA basics, including the down payment and mortgage insurance.

What can a HomeStyle renovation loan pay for?

Fannie Mae says HomeStyle borrowers can renovate any part of the home, including bathrooms, roofs, or adding an accessory dwelling unit like an in-law suite. Its page groups the examples three ways: repairs and restoration such as roofing, plumbing and painting; accessory dwelling units such as in-law suites and basement apartments; and landscaping such as trees, a retaining wall or a patio.

There is no minimum dollar amount, and you can choose any contractor or subcontractor, subject to the lender's review.

HomeStyle is a conventional loan product. Chad's conventional loan guide explains how conventional loans work. Fannie Mae writes its HomeStyle page for lenders, so ask Chad whether HomeStyle is available for the home you have in mind.

How does the money move once the work starts?

In both programs the repair money is paid out in stages, called draws, as the work is done.

For a 203(k), HUD lays out the steps. You talk to an FHA-approved lender and choose the 203(k) program. The lender picks a HUD-approved consultant from HUD's roster, a step HUD says is optional for the Limited 203(k), and the consultant prepares a work write-up and a cost estimate. Once FHA insures the loan, the improvements can begin. The contractor gets the needed permits before the project starts, and as each draw is released, the lender issues a two-party check made out to you and the contractor.

For HomeStyle, you pick a contractor and submit your renovation plans to the lender. The lender orders an as-completed appraisal, which Fannie Mae says is used to assess the maximum mortgage amount, check the loan-to-value ratio and calculate the loan amount. At closing, the funds go into a custodial account, and the lender manages the draws and oversees the renovation.

Because the project is part of the loan, look at the monthly payment with the project included. Chad's monthly payment guide explains what goes into that number.

If you are buying a fixer-upper in the Twin Cities, or you want to fix up the home you already own, start with a mortgage preapproval. Chad's preapproval guide explains what a preapproval is. Then ask Chad for a monthly-payment picture that includes the work, and bring the inspection notes or contractor estimate if you have them.

Credit score, down payment and loan limit rules for these programs are not covered here. Ask Chad about those, and about whether either program fits your plans. Call 612-382-8792 or email Chad@MinnTrust.com.

This article is general education and is not personalized mortgage advice. Questions about your own qualification go to Chad.

Chad Krueger is a Mortgage Originator with MinnTrust Mortgage, LLC, NMLS #400930, in Lakeville, Minnesota, with more than 28 years of mortgage experience.

All loans subject to approval. Equal Housing Lender.

FAQ

What is a renovation loan?

A mortgage that includes the cost of repairs or improvements, with that money paid out in draws as the work is done. HUD's FHA 203(k) and Fannie Mae's HomeStyle Renovation are two examples.

What is the difference between a Limited 203(k) and a Standard 203(k)?

The size of the job. HUD's Limited 203(k) finances up to $75,000 for minor remodeling and non-structural repairs and improvements. The Standard 203(k) is for major rehabilitation, including structural additions, and the rehabilitation must cost at least $5,000.

How much can a Limited 203(k) finance for repairs?

Up to $75,000, according to HUD's 203(k) program page. That money goes into the mortgage to repair, improve or upgrade the home.

Is there a minimum project size for a HomeStyle Renovation loan?

No. Fannie Mae lists "No minimum dollar amount" for HomeStyle Renovation. By comparison, HUD says the Standard 203(k) needs a rehabilitation cost of at least $5,000.

Can I use a renovation loan on a home I already own?

HUD says both the Limited and the Standard 203(k) are available to homeowners as well as homebuyers, and Fannie Mae's HomeStyle page speaks to people "ready to refinance and remodel." Whether either one fits your home is a conversation to have with Chad. Taking cash out of your equity is a separate question. Chad's refinance guide covers it.

What is the first step if I am looking at a home that needs work?

Ask for a monthly-payment picture that includes the work, and start with a mortgage preapproval. If a home inspector has flagged repairs, bring that list. HUD says the Limited 203(k) can cover repairs like those a home inspector or an FHA appraiser identifies. The mortgage calculator is a quick way to try a price first.