What are the advantages of a renovation loan?

There are a few key advantages to taking a renovation loan instead of a traditional mortgage if you are buying a fixer upper. First, you have to take only one loan to cover the purchase and rehab costs to your property. Second, by bundling these two loan segments together, you may find less expensive total financing costs. However, these loans pose additional risk for a borrower. The collateral on both portions of the loan, the purchase and improvement sides, is the home itself. Even if you can pay off the mortgage, you will lose your home if you cannot repay the cost of improvements.