There are some loan options for fixer-upper homes that allow the borrower to wrap the cost of the renovations into the loan. Here are a few:
FHA Loans – FHA which offers many different types of loans geared toward first home buyers and owner-occupants. They have programs that only require 3.5% down. Be aware, however, that loans with less than a 20% down payment will permanently carry mortgage insurance and their rate is higher than other lenders. Their 203(k) loan program even allows borrowers to wrap renovation costs into their mortgage when they buy a fixer-upper.
HomePath Loans – This is a labeling for loans on all Fannie Mae-owned foreclosure properties. They offer low down payment requirements, no required appraisals and they do not charge mortgage insurance. These loans are available both to owner occupied purchases and investors. The HomePath Renovation Mortgage is available to borrowers who plan on renovating the house.