📋 This guide is for educational purposes only and not financial advice. Consult a licensed professional for your specific situation.

Homeowners often dream of upgrading their living spaces. Maybe you're considering a kitchen renovation, adding a new bathroom, or making key repairs. You might wonder if you can fold these projects into your existing mortgage. You can, in fact, include home improvements in a mortgage refinance, often through specific loan products designed for this purpose.

Quick answer: You can include home improvements in a mortgage refinance primarily through a cash-out refinance or a renovation loan. A cash-out option lets you tap into your home equity for funds, while renovation loans cover both the purchase price and improvement costs, typically up to 75-95% of the home's post-renovation value, depending on the loan type.

Understanding Cash-Out Refinance Options

A cash-out refinance replaces your current mortgage with a larger one. You then receive the difference between your new loan amount and the payoff of your old loan, minus closing costs, as a lump sum of cash. This cash is yours to spend on any home improvement project, from a $25,000 bathroom update to a $75,000 addition. It's a popular choice because you get a single monthly payment.

For example, if you owe $200,000 on a home worth $300,000, you've $100,000 in equity. A lender might allow you to borrow up to 80% of your home's value, or $240,000. This means you could get $40,000 in cash ($240,000 - $200,000) for your renovations. You'll need good credit, usually a FICO score of 620 or higher, and a debt-to-income (DTI) ratio below 43%. Don't forget, you'll pay closing costs, which typically run 2% to 5% of the new loan amount.

Renovation Loans: FHA 203(k) and HomeStyle

Renovation loans are specifically designed to finance both the purchase or refinance of a home and its improvements. These aren't just for major overhauls. They cover everything from basic repairs like fixing a leaky roof, which you can learn about in our basic plumbing repairs every homeowner should know guide, to significant structural changes. There are two main types you'll encounter.

FHA 203(k) Loans

An FHA 203(k) loan is backed by the Federal Housing Administration. It's ideal if you've less equity or a lower credit score, as it often accepts FICO scores as low as 580. You'll find two versions: the Limited 203(k) and the Standard 203(k). The Limited version covers minor repairs and non-structural renovations up to $35,000. It's perfect for painting, updating appliances, or replacing flooring.

The Standard 203(k) handles projects over $5,000, including structural changes like room additions or moving walls. This type requires a HUD-approved consultant to oversee the project. Both options require the home to meet FHA minimum property standards after the renovation, ensuring safety and habitability.

Fannie Mae HomeStyle Renovation Loans

Fannie Mae HomeStyle loans offer more flexibility than FHA 203(k) loans. They're not limited to FHA-approved contractors or properties. You can use these for almost any improvement that adds value to your home. This includes luxury upgrades like a swimming pool or even energy-efficient upgrades, which complement topics in our a beginner's guide to home insulation article.

You can borrow up to 75% of the home's "as-completed" value, meaning its estimated value after renovations. You'll need a stronger credit profile, typically a FICO score of 620 or better. The maximum loan amount depends on your area's conforming loan limits, which can be up to $766,550 in most parts of the U.S. For 2024.

Comparing Your Options

Choosing the right option depends on your equity, credit score, and project scope. Don't rush this decision. A cash-out refinance offers quick access to funds but requires substantial equity. Renovation loans provide specific funding for improvements, even if you've less equity, but they come with more rules and oversight.

Here's a quick comparison:

| Feature | Cash-Out Refinance | FHA 203(k) Loan | Fannie Mae HomeStyle Loan | | :------------------ | :------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Equity Required | Significant (typically 20% minimum) | Low (as little as 3.5% down payment) | Moderate (typically 5-10% down payment) | | Credit Score | Good to Excellent (620+ FICO) | Fair to Good (580+ FICO) | Good to Excellent (620+ FICO) | | Project Scope | Any purpose, including luxury upgrades | Repairs, structural changes (must meet FHA standards) | Any value-adding improvement, including pools | | Loan Limits | Up to 80% of home value | FHA loan limits (varies by county) | Conforming loan limits (varies by county) | | Oversight | Minimal, funds disbursed at closing | Requires HUD consultant for Standard 203(k) | Contractor bids and draw schedule required |

When to Consider These Options

You'll find these options beneficial in several scenarios. First, if interest rates have dropped since you got your original mortgage, a refinance might lower your monthly payment while also funding your projects. Second, if your home has appreciated significantly, you've built up enough equity to make a cash-out refinance attractive. Third, if you're buying a fixer-upper, a renovation loan combines the purchase and improvement costs into one loan, simplifying the process.

Consider a cash-out refinance if you've at least 20% equity and want broad flexibility with funds. For projects like a $15,000 kitchen refresh, it's often simpler. However, if your credit score is below 620 or you're tackling major structural work, an FHA 203(k) might be a better fit. Its lower credit requirements make it accessible for more homeowners.

Sources

Last reviewed: 2026-09-10 by Editorial Team

FAQ

What's the difference between a cash-out refinance and a home equity loan?

A cash-out refinance replaces your existing mortgage with a larger one, giving you the difference in cash. A home equity loan is a second mortgage, keeping your first mortgage intact. You'll typically pay closing costs for both, often 2-5% of the loan amount, but a cash-out means one monthly payment while a HELOC means two.

Can I include a new roof in my renovation loan?

Yes, a new roof is generally considered a qualifying improvement for renovation loans like an FHA 203(k) or Fannie Mae HomeStyle. These loans cover necessary repairs and upgrades that add value or improve safety. A Standard 203(k) can fund a full roof replacement, often costing $8,000-$15,000.

How much equity do I need for a cash-out refinance?

You'll typically need at least 20% equity in your home to qualify for a cash-out refinance. Lenders usually cap the new loan at 80% of your home's appraised value. If your home is worth $400,000, your new loan can't exceed $320,000. This ensures the lender has a buffer.