How to Finance a Home with Historical Significance

Understanding the Unique Challenges of Financing Historic Homes

Purchasing a home with historical significance is a rewarding journey—filled with charm, character, and a tangible connection to the past. However, financing such properties comes with its own unique set of challenges that require careful planning and knowledge. Historic homes often have renovation restrictions imposed by local preservation boards or national registers, which means any restoration or upgrades must comply with strict guidelines to maintain authenticity. These limitations can impact renovation costs, timelines, and loan eligibility.

Additionally, traditional lenders may view historic homes as higher risk due to potential structural issues or the specialized nature of restoration work. To secure financing, potential buyers must provide supplemental information beyond standard mortgage application documents, including detailed renovation plans, historical status documentation, and sometimes approval from historic preservation authorities.

Fortunately, there are a variety of financial tools and resources designed specifically for historic homes. Understanding these options, including historic preservation loans, grants, and tax credits for historic homes, can significantly ease the financial burden and encourage preservation efforts.

Exploring Historic Preservation Loans and Grant Programs

When financing renovations on a historic property, many homeowners turn to specialized loan programs aimed at supporting preservation. Some key options include:

• Historic Preservation Loans: Cities such as Sioux Falls offer zero-interest loans to homeowners within historic districts or those with individual National Register listings. These loans typically cover exterior restoration work like roofing, windows, masonry, and porches—enhancing curb appeal while preserving historic integrity. For example, the Sioux Falls Historic Preservation Loan Program offers up to $25,000 for eligible applicants, with funds awarded annually.
• 203(k) Rehabilitation Loans and Fannie Mae HomeStyle Loans: These government-backed loans provide financing specifically for both purchasing and renovating older homes. They allow borrowers to bundle renovation costs into their mortgage, which is ideal for historic home restoration projects requiring substantial repairs.
• National Trust for Historic Preservation Grants: While grants are more competitive and usually target nonprofit organizations or public agencies, some programs also award funds for “bricks and mortar” preservation work. The National Trust Grants Program offers several funding opportunities year-round, including the Historic Preservation Fund by the National Park Service, which has recently distributed millions in revitalization grants.

Beyond loans and grants, local and state historic preservation offices often maintain lists of financial incentives and partnerships that can assist homeowners navigating complex restoration processes.

Leveraging Tax Credits to Offset Restoration Costs

Restoring a historic home can be costly, but tax credits for historic homes can help ease this financial challenge substantially. One of the most significant is the Federal Historic Rehabilitation Tax Credit (HTC), which provides a credit equal to 20% of qualified rehabilitation expenses for certified historic structures used for income-producing purposes. Although this credit primarily benefits commercial properties, many states extend similar credits to residential owners or offer their own historic tax incentive programs.

Some additional tax-related options include:

• State Historic Tax Credits: Many states offer credits that supplement the federal program, often including benefits for owner-occupied residential properties.
• Historic Property Easements: Donating a preservation easement to a qualified nonprofit can provide tax deductions while legally protecting historic features from future alteration.
• Preservation Easements: These are legal agreements restricting changes to certain aspects of the property, which may translate into property tax reductions or other financial incentives.

Homeowners should always consult with a tax professional experienced in historic preservation to fully understand eligibility requirements and maximize available benefits. More detailed tax guidance can be found on sites like the National Trust for Historic Preservation blog.

Navigating Renovation Restrictions for Historic Properties

Many historic homes fall under local historic district regulations or national registers that impose renovation restrictions. These guidelines dictate what changes are permissible to maintain a home's architectural integrity. Common restrictions include requirements to preserve original materials, maintain facade aesthetics, and seek approval before major exterior work. These can affect:

• Choice of materials (e.g., windows, siding, roofing)
• Design changes (e.g., additions, paint colors)
• Construction methods

Understanding these restrictions upfront helps avoid costly compliance issues or illegal modifications that may compromise property value or eligibility for funding. Local historic preservation offices are vital resources for guidance and application approval processes.

Real-World Success Story: Financing a Historic Home Renovation

Consider a homeowner in a designated historic district who planned to restore a 1920s Craftsman bungalow. They utilized the Sioux Falls Historic Preservation Loan Program for exterior repairs such as replacing original wood windows and restoring the porch. Additionally, they secured a Fannie Mae HomeStyle Loan bundling the house purchase and interior renovations, complying with local preservation guidelines.

To offset costs, the homeowner applied for and received state historic tax credits and took advantage of the federal historic rehabilitation tax credit for converting part of the home into a small rental unit. This multi-faceted financing approach allowed them to preserve the home’s historic character while modernizing its functionality—demonstrating a practical path forward for many historic property buyers.

Final Thoughts: Preserving History While Financing Wisely

Financing a home with historical significance requires a blend of traditional mortgage products, specialized preservation loans, grants, and tax incentives. Prospective buyers should gather comprehensive information on renovation restrictions, seek expert advice, and explore all available financial resources to ensure a smooth restoration journey.

The WP Ultimate Loan & Mortgage Calculator plugin offers valuable tools for mortgage calculations tailored to unique home purchase scenarios, including historic properties. For personalized assistance, don’t hesitate to Contact Us and learn how to optimize your financing strategy for historic homeownership.

By leveraging the right combination of funding, adhering to renovation guidelines, and maximizing tax benefits, homeowners can preserve the past while investing confidently in their future.

For further reading and financing ideas, explore resources such as the National Trust for Historic Preservation, National Park Service Historic Preservation, and loan programs recommended by Hippo’s guide to historic home restoration.