What Is a Rehab Loan? How Buyers Renovate Homes With One Mortgage

A rehab loan—also called a renovation mortgage—is a home loan that combines:

• The purchase price (or refinance balance) of a home

• The cost of approved renovations
  
  

…into one single mortgage.

Instead of taking out a traditional loan and then finding separate financing for repairs, buyers use a rehab loan to fund both at once. Renovation costs are built directly into the mortgage and paid out as work is completed

Here’s a simplified look at how home renovation financing works with a rehab loan:

You choose a property that needs repairs or updates

1. Renovation costs are estimated and approved
2. One mortgage covers the home and the renovations
3. Renovation funds are held in escrow

1. 4. Funds are released as work is completed and inspected
   5. The result is one loan, one payment, and a home improved to your needs.

With a buy fixer upper loan, buyers gain access to homes others overlook—often at better prices and in stronger neighborhoods.

Instead of competing for fully renovated homes, buyers can:

• Purchase below market value

• Customize the home to their needs

• Build equity through renovation

• Avoid high-interest personal loans or credit cards
  
  

The focus shifts from perfection to potential.

A rehab loan functions as a construction budget mortgage without requiring buyers to manage complex financing. Renovation funds are planned upfront, monitored through inspections, and released in stages.

This structure protects buyers by ensuring:

• Costs are realistic

• Work is documented
  
  

Funds are used as intended