Jeff Merrill | Sioux Falls Realtor

By Jeff Merrill | September 4, 2026

You walk into a house in central Sioux Falls that’s priced $40,000 under everything around it. Good bones, great lot, terrible kitchen. The furnace is on its last winter and the carpet needs to go.

You do the math and think: I could make this work. Then your lender says the home won’t pass appraisal in its current shape, and a regular mortgage is off the table.

That’s the wall almost every fixer-upper buyer hits. A renovation loan is how you get through it — and in a market this tight, it’s one of the few ways to buy under the median without landing in a bidding war.

Why a Regular Mortgage Won’t Work on a Fixer

A standard mortgage — FHA, conventional, VA — lends against the home as it sits today. If the home has real problems, the appraisal flags them, and the lender won’t fund the loan until they’re fixed.

That creates a chicken-and-egg trap. The seller won’t sink $30,000 into repairs before closing. You can’t do the repairs on a house you don’t own yet. And you don’t have the down payment plus another pile of cash for a new kitchen and furnace on top of it.

A renovation loan breaks the loop. It appraises the home on its after-renovation value — what it’ll be worth once the work is finished — and lends against that number. The purchase price and the repair budget go into one loan. You close, the seller gets paid, and the repair money sits in an account that pays your contractor in stages as the work gets inspected.

One loan. One closing. One monthly payment. That’s the whole idea.

The Two Renovation Loans That Matter Here

For most Sioux Falls buyers, it comes down to two programs: the FHA 203k and the Fannie Mae HomeStyle. They solve the same problem in different ways.

FHA 203k — the easier one to qualify for

The 203k is the go-to for buyers with average credit or a thin down payment. It follows regular FHA rules: 3.5% down at a 580 credit score, and it’s the most forgiving loan on credit and debt-to-income you’ll find.

The key detail is how the down payment is figured. It’s 3.5% of the purchase price plus the renovation budget, not just the price. There are two flavors:

• Limited 203k — for non-structural, cosmetic work up to $75,000. Kitchens, bathrooms, flooring, paint, a new roof, a furnace and AC swap. This covers the vast majority of Sioux Falls fixers, and the $75,000 ceiling is generous — it was raised from the old $35,000 cap in late 2024.
• Standard 203k — for structural work, additions, foundation repair, or a full gut. No set cap beyond the FHA loan limit, which is $541,287 for a single-family home in Minnehaha and Lincoln counties in 2026. It requires a HUD-approved 203k consultant to oversee the project and adds a few weeks to the timeline.

The one real downside is the same trap as any FHA loan: when you put under 10% down, the mortgage insurance stays for the life of the loan. The usual exit is refinancing into a conventional loan once you’ve built about 20% equity — and a good renovation often gets you there faster, because you’ve added value the day the work is done. I break the mortgage-insurance math down further in my guide to how FHA loans work in Sioux Falls.

Fannie Mae HomeStyle — the conventional route

HomeStyle is the conventional-loan version, and it’s the better fit if your credit is solid. It needs 5% down and a 620 score (as low as 3% down when paired with HomeReady), but it comes with two real advantages: no upfront mortgage insurance premium, and PMI that cancels once you reach about 20% equity instead of hanging around forever.

HomeStyle also allows a wider scope of work — including things the 203k won’t touch, like a pool or certain luxury upgrades — and it can be used on second homes and investment properties, not just your primary residence. If you’re comparing this against a standard purchase, my breakdown of conventional loans and PMI in Sioux Falls covers how the insurance side works.

There’s also a VA renovation loan for eligible veterans that keeps the $0-down benefit, but very few lenders in the area write them, so it takes some hunting to find one.

What This Looks Like in Real Dollars

Here’s a scenario I see all the time. A dated ranch in west-central Sioux Falls lists at $250,000 — priced low because it needs a kitchen, flooring, fresh paint, and a furnace and AC replacement. You get contractor bids totaling $45,000.

On an FHA Limited 203k, your loan basis is $250,000 + $45,000 = $295,000. Your 3.5% down comes to about $10,325. The renovation money is escrowed and released to your contractor in draws as the work passes inspection.

Now compare that to buying the already-updated version of that house down the street. A comparable move-in-ready home is closer to $310,000, you’re competing against other offers to get it, and in this market you’re paying near full price. Sioux Falls homes are still selling around 98% of list and sitting only about 85 days on average, so move-in-ready inventory doesn’t come cheap or easy.

The fixer route lets you buy in at a lower price, control the finishes, and build instant equity through the work itself — as long as the numbers pencil out. That last part is where you want a second set of eyes before you write the offer.

How the Process Actually Runs

A renovation loan has a few more moving parts than a standard purchase. Here’s the shape of it:

1. Get pre-approved with a renovation lender. Not every loan officer does these — they’re specialized. Line one up before you shop so you know your real budget.
2. Find an eligible property. For a 203k it has to be your primary residence (1–4 units). Foreclosures and dated listings that have sat awhile are prime candidates.
3. Get contractor bids. You’ll need detailed, written bids from licensed contractors. On a Standard 203k, a HUD consultant helps scope the work.
4. Appraisal on after-renovation value. The appraiser values the home as if the work is already complete, which sets your loan amount.
5. Close, then renovate. Funds release to your contractor in draws as an inspector signs off on each stage — the same draw mechanic used on a new build. FHA gives you six months to finish.

If that draw structure sounds familiar, it’s cousin to the way a construction loan for building a home works — money paid out in stages against completed work rather than all at once.

Two practical notes. Renovation loans usually carry a rate about half a point higher than a standard purchase loan, and closing runs longer — plan on 45 to 60 days, not 30. Build that into your offer timeline.

Sioux Falls Specifics Worth Knowing

A few local details that come up on every renovation deal here.

The older housing stock in central and west Sioux Falls, along with parts of Brandon, is exactly where these loans shine — dated but solid homes with aging kitchens, roofs, and mechanicals. That’s the sweet spot.

Minnehaha and Lincoln counties sit in EPA Radon Zone 1, so fold a radon test into your inspection and, if levels come back high, a mitigation system into your renovation scope. And if you’re eyeing a fixer on acreage outside town, the standard inspection won’t cover the well and septic — those are separate checks you’ll want to line up, which I walk through in my guide to buying a home with well and septic near Sioux Falls.

Closings here run through a title company, not an escrow company like some states use, and the seller pays South Dakota’s transfer fee at closing — about $250 on that $250,000 fixer. None of that changes because you’re using a renovation loan; it just gets layered on top.

Frequently Asked Questions

Can you use an FHA loan to buy a fixer-upper in Sioux Falls?
Not a standard FHA loan — a home with no working furnace, a failing roof, or a torn-out kitchen won’t pass the FHA appraisal. But the FHA 203k renovation loan is built for exactly this. It rolls the purchase price and the repair budget into one loan with 3.5% down, based on the home’s value after the work is done.

How much down payment do you need for a 203k loan?
It’s 3.5% with a credit score of 580 or higher, the same as a regular FHA loan. The difference is that the 3.5% is calculated on the purchase price plus the renovation budget combined. On a $250,000 home with $45,000 in work, that’s 3.5% of $295,000, or about $10,325.

What’s the difference between a Limited and Standard 203k?
A Limited 203k covers non-structural, cosmetic work up to $75,000 — kitchens, flooring, paint, a furnace, or a roof. A Standard 203k handles structural work, additions, and gut renovations with no set cap beyond the FHA loan limit, but it requires a HUD consultant and takes longer to close.

Can you do the renovation work yourself with a 203k loan?
Generally no. FHA 203k loans require licensed, vetted contractors, and self-help work is only allowed in narrow cases with lender approval and proof you can do it. The funds are held and released in draws as an inspector confirms each stage is complete.

Is a 203k or a HomeStyle loan better?
FHA 203k is easier to qualify for with lower credit or a smaller down payment, but it carries lifetime mortgage insurance when you put under 10% down. Fannie Mae HomeStyle needs 5% down and a 620 score but has no upfront mortgage insurance, cancelable PMI, and a broader scope of allowed work. The right one depends on your credit and the size of the project.

About Jeff Merrill: Jeff Merrill leads The Jeff Merrill Team, powered by eXp Realty, serving Sioux Falls and the surrounding South Dakota communities of Brandon, Harrisburg, Tea, Madison, Mitchell, Canistota, and beyond. Jeff brings a direct, no-hype approach to helping buyers and sellers make confident decisions in every market.