(MONEY Magazine) – Not long ago, if you bought a home and needed extra funds to turn it into the house of your dreams, you had to tap into your savings, cash out some investments or--worst of all--max out your high-interest credit cards. For the most part, lenders simply didn't offer mortgages for more than the purchase price. But three years ago, Fannie Mae introduced its HomeStyle program, which enabled banks to begin offering loans for the cost of a house plus its planned renovations. Now, with home prices soaring across the country, fixer-uppers are more popular than ever--and an increasing number of local banks are making these loans.

Here's how HomeStyle loans work. Imagine you see great potential in a run-down Victorian selling for $100,000. If an appraiser then determines that, when properly restored, the house's value will jump to, say, $150,000, you'd receive a mortgage for $150,000, less your down payment. (Under the HomeStyle program, you can borrow as much as twice the pre-renovation value of the property.)

These loans are backed by Fannie Mae, which you can contact at 800-732-6643 for a list of participating lenders in your area. But not every prospective home purchase is eligible: The maximum loan amount is $252,700, so would-be country squires need not apply. (On the other hand, luxury additions to your home, like swimming pools, tennis courts and spa facilities, are considered reasonable expenses.)

If your sights are set on more expensive digs, some local lenders now offer similar mortgages with considerably more ample credit limits. For instance, Connecticut's Webster Bank (888-681-7788) will finance fixer-uppers appraised at up to $2 million after improvements.

--GRACE JIDOUN