Financing an Old House: Mortgage & Loan Options

Buying or restoring a historic home isn’t quite the same as purchasing new construction. Older properties may need repairs, careful appraisals, and lenders who understand “as-is” vs. “as-completed” value. Here’s a comprehensive guide—written for buyers of 75–100+ year-old homes—to help you choose the right financing.

Quick-Look Menu

Conventional fixed/ARM mortgages

Renovation mortgages: FHA 203(k), Fannie Mae HomeStyle, VA Renovation (lender specific)

Government-backed purchase loans: FHA 203(b), VA, USDA

Construction & construction-to-permanent (C2P) loans

Bridge loans & repair escrows (holdbacks)

Portfolio/Jumbo & Non-QM options

Equity products: HELOC & cash-out refi

Incentives: Historic tax credits, grants, and easements

> Tip: Many lenders have “overlays” (their own internal rules). Two lenders can give two very different answers on the same house. If you need introductions to old-house-friendly lenders, I can help.

Conventional Mortgages (Fixed or ARM)

Best for: Sound structures with modest cosmetic needs.

Why they work: Lowest friction if the home meets standard appraisal and safety criteria.

What underwriters focus on with old houses

Safety & livability: Functional heat, water, electric; no significant active roof leaks; no broken glass at egress windows; secure railings.

Peeling paint/lead: Flaking exterior paint on pre-1978 houses is often called out; may need scraping/painting before close or via repair escrow.

Roof & structure: Appraisers may require a roof certification or structural letter if there’s visible sagging/deflection.

Pros

Competitive rates, broad lender choice, PMI drops once you reach ~20% equity (if applicable).

Watch-outs

Appraisers must find comparable sales. Unique historic properties sometimes appraise conservatively—choose a lender comfortable with “bracketed” comps and narrative adjustments.

Renovation Mortgages (Finance Purchase + Repairs)

A) FHA 203(k)

Best for: Primary residences needing significant repair or code updates.

Two flavors

Limited 203(k): For non-structural work (kitchens, baths, roofs, HVAC, paint, windows). Lender-set caps apply; historically used for projects up to the mid-$30k range of improvements. No major structural changes.

Standard 203(k): Allows structural work (additions, moving walls, foundation/joist repair). Requires a HUD-approved 203(k) consultant, detailed work write-up, and draw inspections.

How it works

One loan, one closing.

Appraisal is on the as-completed value.

Repair funds are held in escrow and released in draws as the contractor completes work.

A contingency reserve (often 10–20%) is typical for surprises—useful in old houses.

Pros: Low down payment; flexible credit guidelines compared to conventional.

Consider: FHA loan limits vary by county; mortgage insurance applies.

B) Fannie Mae HomeStyle® Renovation

Best for: Primary, second homes, and investments with broad project flexibility.

Finance almost any permanent improvement, from plaster repair to structural work and additions, subject to code and appraisal.

Borrowing based on a percentage of the as-completed appraised value (lender caps apply).

Licensed contractor required; limited DIY may be possible with strict documentation and lender approval.

Pros: Conventional underwriting, can be used for second homes/investments, PMI can eventually be removed.

Consider: Tighter debt-to-income and credit standards than FHA; detailed paperwork.

C) VA Renovation (Lender-Offered)

Best for: Eligible veterans buying a home needing non-structural updates.

Not all lenders offer this; where available, it can roll smaller repairs into a VA purchase loan (e.g., roof, HVAC, accessibility updates).

Pros: VA benefits (no down payment for many borrowers, no monthly PMI).

Consider: Project scope and contractor approvals are narrower than 203(k)/HomeStyle.

Government-Backed Purchase Loans (Minimal Repairs)

FHA 203(b)

Low down payment for primary residences. The property must meet FHA’s minimum property standards (safe, sound, secure). Great for older homes that are basically functional but may need updates later with savings or a HELOC.

VA Purchase

Available to eligible veterans/servicemembers. Property must meet VA minimum property requirements. Strong option for service members buying livable historic homes.

USDA Guaranteed (Rural)

For eligible rural areas and income limits. House must be modest and move-in ready. Excellent when the historic property is outside metro areas and already habitable.

Construction & Construction-to-Permanent (C2P) Loans

Best for: Major restorations, structural reconstruction, additions, or rebuilding within a historic footprint.

How they work

Two-time close: Separate short-term construction loan (interest-only during build) then refinance into a permanent mortgage.

One-time close (C2P): Single closing that automatically converts to a permanent loan when work is done—saves closing costs and rate risk.

What lenders require

Detailed plans & specs (architect drawings if structural changes).

Fixed budget/bid from a licensed general contractor experienced with historic fabric (masonry, timber, plaster, lead-safe practices).

Draw schedule with inspections; lien waivers from subs.

As-completed appraisal based on plans.

Contingency reserve (often 10–20%).

Timeline with allowances for weather and preservation approvals.

Pros

Funds large-scale work; interest-only during build; locks in your end financing with C2P.

Considerations for Historic Homes

Approvals: If the house is in a local historic district or using tax credits, exterior changes typically require review/COA. Build that time into the draw schedule.

Lead/asbestos: Testing and abatement line items are wise in pre-1940 homes.

Material lead times: Custom windows, lime mortar, millwork—plan for longer procurement.

Repair Escrows (Holdbacks) & Bridge Options

Escrow Holdback: When the appraiser conditions the loan on minor repairs (e.g., peeling paint, missing handrails) that can’t be completed before close—some lenders will hold 1.2–1.5× the bid in escrow and release it after repair/inspection. Not for major defects.

Bridge/Temporary Financing: If you must buy before selling, a short-term bridge loan or HELOC on your current home can help with down payment and early repairs.

Portfolio, Jumbo & Non-QM Loans

Local portfolio lenders (community banks/credit unions) keep loans on their books and can be more flexible about unique properties, outbuildings, or acreage.

Jumbo: For higher-priced historic homes above conforming limits.

Non-QM: Bank-statement loans, asset-depletion, or DSCR (for investors) when standard income documentation doesn’t fit. Rates/fees can be higher—great tools when used thoughtfully.

Equity-Based Options (For Current Owners)

HELOC: Revolving line for phased projects—perfect for “repair-as-you-go” items like window restoration or porch work.

Cash-Out Refinance: Replaces your mortgage with a larger one and returns cash for renovations; makes sense if today’s rate and your equity position are attractive.

Incentives, Credits & Easements

Federal Historic Rehabilitation Tax Credit (HTC): 20% credit on qualified rehab costs—but only for income-producing properties (rentals, commercial).

State/Local Programs: Many states offer additional credits or grants.

Virginia: Long-standing state historic rehab credit (percentage of qualified expenses) for both owner-occupied and income-producing projects—fantastic when paired with the federal credit on rentals.

Tennessee: Periodic grant programs administered by the Tennessee Historical Commission can support eligible income-producing rehab projects; competitive and funding-cycle based.

Preservation Easements: Donating a façade or preservation easement (to an approved nonprofit) can yield potential tax benefits and protect the exterior long-term.

> Programs change—always confirm current rules, caps, and timelines with your CPA and the administering agency before you structure financing.

Appraisals on Historic Homes: Setting Yourself Up for Success

Scope & Bid Package: Provide your lender and appraiser the contractor’s written scope, line-item budget, and any architectural drawings.

Historic Context: A short memo on the property’s significance and a list of comparable sales of other historic homes helps the appraiser justify value.

As-Completed Photos/Specs: For renovation and construction loans, supply the finishes list (roofing type, window spec, plaster repair approach, mechanicals).

Which Loan Fits? (Simple Guide)

House is livable with light updates: Conventional, VA, USDA, or FHA 203(b).

House needs kitchens/baths/roof/HVAC but no structural work: 203(k) Limited or HomeStyle.

House needs structural repair/addition/full restoration: 203(k) Standard or Construction-to-Permanent.

You’re an investor or buying a second home: HomeStyle or portfolio lender; consider federal/state credits for income-producing projects.

You’re a veteran: Start with VA; ask about VA Renovation where offered.

Your Action Checklist

1. Pre-qual with the right lender (tell them it’s an old house and whether renovation funds are needed).

2. Hire a historic-savvy home inspector and, for big projects, a structural engineer.

3. Get a detailed contractor bid that matches lender draw formats.

4. Assemble approvals (historic district, zoning, tax credit Part 2, etc.).

5. Build a 10–20% contingency and realistic timeline.

6. Lock in insurance early (some carriers have rules for knob-and-tube, wood stoves, slate roofs).

Disclaimers (Because Details Matter)

Loan limits, down payments, PMI, FHA/VA/USDA standards, renovation caps, and grant/tax-credit programs change periodically and vary by county and lender. This page is educational, not legal, tax, or lending advice. Always confirm current terms with your lender and CPA.

Need a starting point?

I maintain a short list of lenders, 203(k) consultants, and preservation-minded contractors who work well with historic properties in Southwest VA/NE TN. Tell me a bit about the house and I’ll connect you with the right team.