• Renovation mortgages allow you to purchase a fixer-upper and roll construction costs into the loan amount.
• Depending on the type of loan, there may be rules limiting the scope of projects you can finance – such as no luxury additions or rebuilds – and you may need to use an approved contractor.
• You'll likely need to come prepared with a contingency reserve, worth up to 15% or 20% of the home's estimated repair costs, and there may be added fees compared to a traditional purchase mortgage.

As home prices continue to rise and interest rates stay higher for longer, many of today's homebuyers are struggling to keep their monthly mortgage payments affordable. But for those who are willing to buy a lower-priced home that needs a little TLC, there's a glimmer of hope: About one in 20 homes for sale on the market could be considered a fixer-upper, with listings describing a "handyman special," "diamond in the rough" or "remodelers dream," according to research from Realtor.com.

Still, buying a fixer-upper isn't always the seamless undertaking seen on reality TV shows – especially when it comes to financing. Some mortgage programs have strict property requirements, which can pose a problem for buyers who lack the cash to make urgent repairs upfront.

For homebuyers who don't mind putting in a little sweat equity, though, there are several types of fixer-upper mortgages that roll the cost of home improvements into your total loan amount. If you've decided to buy a diamond in the rough, a renovation mortgage may be the right home financing option for your needs.

Read:

Many fixer-uppers are sold to investors who pay in cash, renovate the home and sell it for a profit – but DIY-savvy homebuyers also have options for financing fixer-upper homes. Besides paying in cash, there are a few types of renovation mortgages that can cover the cost of urgent home repairs available through the Federal Housing Administration, the Department of Veterans Affairs and the government-sponsored enterprises, Fannie Mae and Freddie Mac.

Here's a breakdown of the different types of mortgage programs for fixer-uppers that offer a built-in repair budget.

A 203(k) loan is a type of FHA mortgage that covers the purchase of a property as well as the cost of repairs and renovations in the loan amount. You can borrow up to the as-is value plus rehab costs and financeable fees or 110% of the home's value once repairs are completed, whichever........

© U.S.News