Ideal location, beautiful neighborhood, terrific price—and significant visible damage and who-knows-what hiding under the damp floorboards. A fixer-upper can be a lot of effort, but it can also be a dream come true when all goes right, especially if you have some familiarity with construction familiarity and a willingness to get your hands dirty.
Either as a next home, an investment to flip for profit, or a rental property to help build your family’s wealth, if your heart is set on buying a fixer-upper, there are ways to make it happen even if you’re not sitting on the cash needed for up-front costs.
With that, let’s take a look at options for how to buy a fixer upper house with no money.
How Do People Afford a Fixer-Upper?
If you’ve ever heard the term “money pit,” you can probably intuit that expecting everything to come up roses on a dilapidated house redo is unrealistic.
Homes categorized as “fixer-uppers” often have underlying construction problems behind any cosmetic issues or outdated facades you may see on the surface. Even with the best of intentions to strap your hard hat and use some elbow grease, buyers need to plan for both expected work and unexpected problems for a house that’s in disrepair.
If you don’t have a way to secure financing to correct structural problems, HVAC issues, and faulty plumbing or electrical systems, you may end up losing all the initial money you invested—not to mention loan collateral if you borrowed against your property.
What Type of Loan Do You Need to Buy a Fixer-Upper?
Most potential buyers will approach a fixer-upper with a renovation loan or traditional mortgage. These take care of:
- The money needed to purchase the property
- Funds estimated to pay for renovations and repairs
But buying a property typically means fronting downpayment and closing costs—so, if you don’t have 15% to 25% of the purchase price at hand, how can you proceed?
11 Ways to Finance a Fixer-Upper House Without Any Money
There are a few ways to finance a fixer-upper house without the funds to cover up-front and ongoing costs. Let’s take a look at some avenues you can take to cover both, as well as coverage via renovation-specific loan products.
#1 Home Equity Loan or HELOC
If you already own a home with at least 15% to 20% equity built up, you can take out a traditional home equity loan or a home equity line of credit. You’ll be standing up your home as collateral, which means you’ll incur a lower interest rate than an unsecured loan. However, this also increases your risk of foreclosure if you can’t make repayments. Using a HELOC for home improvement is an effective strategy to put your home equity to good use.
A few things to note:
- A home equity loan is usually a fixed-rate loan for a set amount
- A HELOC acts like a short-term credit card during a draw period, with slightly higher rates
- You can borrow up to 80%, or sometimes up to 90%, of equity depending on the lender
Learn more about a home improvement loan vs home equity loan for more information about which is right for you.
#2 Cash-Out Refinance
With a cash-out refinance for home improvements, you’ll refinance your primary mortgage and, at the same time, borrow an additional amount taken as cash against your home equity.
This can be a good deal if you’re able to negotiate a better interest rate or lower payments than your current mortgage. However, cash-out refinances typically come with higher rates than traditional mortgages.
#3 Credit Cards
Credit card debt is typically a high-interest option, but it can be a solution for some fixer-upper plans. Consider this method if:
- You can take advantage of a 0% or low introductory offer
- You want to DIY the work or use unlicensed labor
- Your renovation plan, schedule, and budget are limited in scope
Be sure to avoid applying for a new card before closing on the house, which could negatively impact your credit score or chance of mortgage approval, and don’t apply for multiple cards within a short period.1
#4 Personal Loan
If home equity isn’t available, you could take out an unsecured personal loan, but this is another potentially high-interest debt (similar to credit cards). It may be a better deal if you belong to a credit union with better-than-average rates and terms.
#5 VA Home Renovation Loan
If you qualify for VA loans, the waiver of both down payments and private mortgage insurance (PMI) are excellent incentives. So what is a home renovation loan for VAs exactly? The VA home renovation loan packages two loans, which cover the purchase price plus repairs. However, its restrictions and requirements tend to make it a slower process than some other government-backed renovation loans.2
There is no minimum credit score set by the Department of Veterans Affairs for VA loans, but most lenders that offer them look for a minimum score between 580 to 620.3
Some notable regulations around this option include:
- Renovations are usually capped at $50,000 – $75,000 depending on the lender
- You provide a renovation plan to VA standards for the loan underwriting process
- A repair bid must be submitted by a local, licensed contractor prior to closing
- You must use registered contractors with valid VA builder IDs for all repairs (no DIY)
- Renovation must be completed within 120 days of the loan’s closing4
- A VA inspector will assess the renovated home to ensure it meets VA standards
Unlike some other renovation loans, the VA’s program is intended to be used to repair properties that aren’t habitable at the time of closing. You cannot use it to add luxury features, build additions, or upgrade a functional bathroom or kitchen.
#6 USDA Renovation Loan
Buying a fixer-upper in the 97% of American land defined as rural? If you have a low-to-average income, you may qualify for a U.S. Department of Agriculture renovation loan (no intent to farm the land required).1
There aren’t a lot of lenders who offer USDA reno loans, but if you find one, advantages include:
- No down payment required
- Below-market mortgage rates
- Reduced mortgage insurance rates
#7 Fannie Mae Homestyle Renovation Mortgage
A homestyle renovation mortgage can be used for either a primary residence or a second or investment property.
Some basic loan requirements include:
- Minimum credit score of 620, but it’s easier to be approved at 650 or above5
- The renovations must be completed within 12 months of the loan date
- Total loan max is 75% of the after-repair value (ARV) of the property
There are also some stipulations around renovation, such as:
- You can plan any renovation including additions and luxury features
- You must use approved licensed contractors and may need to use an architect
- Renovation reimbursements are paid to you from an escrow account in stages
- Lender must send an appraiser to approve each stage of renovation before paying you
Down payment minimums for a single-family home are:
- 3% to 5% for a primary residence
- 10% for a second home
- 15% for an investment property
#8 Freddie Mac CHOICERenovation Loan
CHOICERenovation loans are almost exactly the same as the Fannie Mae HomeStyle loan, with one key difference. Unlike Fannie Mae, the Freddie Mac option allows you to finance disaster-proofing and other home resilience improvements.1
#9 FHA 203k Rehabilitation Mortgage
FHA 203k mortgages cover the cost of repairs to an existing structure (so long as it’s at least 1 year old) in addition to the price of the property for a primary residence.6
Loan basics include:
- Minimum credit score of 620 – 640 depending on the lender7
- Down payment of 3.5% or more
- Total loan max is 106.5% of the after-repair value (ARV) of the property8
There are also some renovation restrictions, such as:
- You must choose contractors and vendors for the repairs
- Lender must review and approve bids
- Renovation bills are paid to contractors directly from an escrow account
- Repairs can be structural or cosmetic only but must cost at least $5,000
- Limits on some luxury features such as hot tub or swimming pool
- A HUD-approved consultant must inspect and evaluate your renovation
#11 Grant and Loan Programs
Look for programs that offer grants or low-interest loans to fund neighborhood revitalization, low-income home repairs, and rescuing distressed properties. These may be available at a state, county, or more localized level, either from a government agency or nonprofit foundation.
It may be easier to build wealth when you have stacks of cash on hand, but that doesn’t mean investing in a house flip for profit is unavailable for the rest of us.
With creativity and determination, you can tap into the resources you have to help build a secure future and decide the best path for your house-flipping adventure.
- The Mortgage Reports. Renovation loan options for 2022. https://themortgagereports.com/95019/renovation-loan-options
- MilitaryVALoan.com. VA Renovation Loan 2022 | How it works and where to get one. https://www.militaryvaloan.com/blog/what-is-the-va-renovation-loan/
- VALoans.com. VA Loan Credit Score Requirements. https://www.valoans.com/eligibility/credit/
- VALoans.com. VA Renovation and Rehab Loans: Can You Purchase a Fixer-Upper? https://www.valoans.com/articles/va-loans-for-home-improvements/
- Money Crashers. What Is a HomeStyle Renovation Loan? https://www.moneycrashers.com/homestyle-renovation-loan/
- U.S. Department of Housing and Urban Development. 203(K) REHAB MORTGAGE INSURANCE. https://www.hud.gov/program_offices/housing/sfh/203k/203k–df
- Money Crashers. What Is an FHA 203k Mortgage Loan – Requirements for Home Renovations. https://www.moneycrashers.com/fha-203k-mortgage-loan-requirements/
- Mymortgageinsider.com. FHA 203k Loans: How Does It Work? | Requirements 2022. https://mymortgageinsider.com/fha-streamline-203k-rehab-loan/
- Forbes Advisor. Best Peer-To-Peer Personal Loans Of 2022. https://www.forbes.com/advisor/personal-loans/best-peer-to-peer-lending/