Both Fannie Mae and the Federal Housing Authority allow buyers to borrow on what the house is expected to be worth after the renovation is complete. Homeowners can use either program to refinance their current mortgage, plus roll the renovation costs, into one loan.
These home improvement loans require that borrowers show that the money was spent on the house. For the FHA 203(k) program, the borrower hires a consultant to assess the construction plan and to perform an inspection before the money can be disbursed to the contractor. Borrowers then have up to six months to finish the project and are allowed up to five more disbursements.