Refinancing for home improvements: How to fund your remodel

Q: Can I refinance my mortgage to pay for renovations?

Yes. A cash-out refinance replaces your existing loan with a larger one and gives you the difference in cash at closing, which you can spend on any renovation. Most lenders require you to keep at least 20% equity afterward and want a credit score around 620 or higher. Renovation-specific options like the FHA 203(k) and HomeStyle loan finance the work based on the home's after-improvement value.

Q: Are there tax benefits to refinancing for home improvements?

Possibly. Under current federal rules, mortgage interest is generally deductible when the borrowed money is used to buy, build, or substantially improve the home securing the loan, within overall debt limits. Interest on cash-out funds spent on cars, tuition, or debt payoff generally is not deductible. Keep contractor invoices tying the funds to the property and confirm treatment with a tax professional.

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

Plan on at least 20% equity remaining after the new loan closes, which means borrowing no more than 80% of your appraised value on a conventional loan. On a $400,000 home, that caps the new mortgage at $320,000. VA cash-out refinances can go higher for eligible veterans, and FHA allows up to 80% as well but adds mortgage insurance premiums.

Written by Samantha SheltonNMLS 1647301Updated September 2026

Homeowner standing in a half-finished kitchen remodel funded by refinancing for home improvements

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Deductibility of mortgage interest, property tax treatment of improvements, and loan program rules change and depend on your situation. Consult a qualified tax professional and confirm program terms with your lender.

Refinancing for home improvements usually means a cash-out refinance: you replace your existing mortgage with a larger one and take the difference in cash at closing. Conventional and FHA cash-out refinances both stop at 80% of your home’s appraised value on a one-unit primary residence, so on a $400,000 home carrying a $220,000 balance, the new loan tops out at $320,000 and frees roughly $100,000 for the remodel before closing costs.¹

The appeal is the price of the money: mortgage debt is secured by the house, so it prices well below credit cards or personal loans, and the project stays inside one payment. The tradeoff is symmetrical. You’re putting the house behind the kitchen, and a fresh 30-year term can reset a payoff date you’d already worked down.

Learn how refinancing for home improvements works, how much equity each program lets you touch, when a HELOC or a renovation loan beats a cash-out, and what a remodel does to a Michigan tax bill. For the wider view, start with our Refinancing and Home Equity guide.

Key takeaways:

Your ceiling is 80% of appraised value: Conventional and FHA cash-out refinances both cap the new loan at 80% loan-to-value on a one-unit primary residence, which frees about $100,000 on a $400,000 home carrying a $220,000 balance, before closing costs.
Seasoning decides when, not whether: A conventional cash-out needs at least one borrower on title for 6 months before disbursement; FHA requires 12 months of ownership and occupancy plus at least 6 months of mortgage payments made.
Renovation loans lend on the finished house: When the equity isn’t there yet, an FHA 203(k) or a HomeStyle Renovation loan underwrites the work against the “as completed” appraised value, with HomeStyle allowing renovation funds up to 75% of that figure on a refinance.

How does refinancing for home improvements work?

A cash-out refinance pays off your current mortgage with a new, larger one and hands you the difference, and one number governs the size of that difference: 80% of your home’s appraised value. To find a loan-to-value ratio, divide the loan amount by the appraised value. A $320,000 loan against a $400,000 appraisal is 80% LTV, the ceiling both Fannie Mae and FHA apply to a one-unit primary residence.

Mechanically it’s a purchase closing in miniature: appraisal, income and credit verification, payoff of the old lien, then the balance wired to you. Because it’s a full refinance, it costs like one, and the Federal Reserve tells homeowners to expect 3% – 6% of loan principal in refinancing fees.

How much cash can you actually pull out?

Take 80% of the appraisal, subtract what you owe, then subtract closing costs. On that $400,000 home, $100,000 gross less $9,600 – $19,200 in fees leaves roughly $81,000 – $90,000 for the contractor. Equity you see on a home value estimator is not equity you can spend, and the gap is two lines wide: the appraiser’s opinion, and the cost of the transaction. Our guide to using home equity wisely runs the same math on the other equity products.

Cash-out refinance vs. rate-and-term refinance

A rate-and-term refinance changes your rate or term and returns no meaningful cash; a cash-out returns cash and is priced accordingly. Fannie Mae applies separate loan-level price adjustments to cash-out transactions by LTV and credit score, so the same borrower is generally quoted a higher rate on a cash-out the same afternoon. The weekly benchmark is the Freddie Mac Primary Mortgage Market Survey. If the goal is changing who’s on the note, refinancing to remove a co-signer is a different transaction; refinance situations maps the rest.

When can you refinance for renovations? Seasoning rules by loan program

Seasoning is the waiting period between owning the home and being allowed to borrow against it, and it runs 6 to 12 months by program. Think of it as a cooling-off period for the loan file, not a credit test.

Conventional cash-out: 6 months on title

At least one borrower must have been on title six months before the new loan disburses, and any first mortgage being paid off has to be at least 12 months old, note date to note date. Inheritance is among the exceptions. One trip wire: a property listed for sale must be off the market by the disbursement date.

FHA cash-out: 12 months owned and occupied

FHA requires that you’ve owned and occupied the property as your principal residence for the 12 months before case number assignment, and a property carrying a mortgage needs at least six months of payments made. A home owned free and clear can be refinanced as a cash-out with no payment history. FHA’s ceiling is the same 80% of adjusted value, reduced from 85% by Mortgagee Letter 2019-11.² A quiet benefit falls out of that cap: since an FHA cash-out cannot exceed 80% LTV, annual mortgage insurance on a term over 15 years runs 11 years rather than the full term, because the 11-year duration applies at 90% LTV or below. See HUD’s overview of FHA loan programs.

VA cash-out: VA sets no LTV cap

VA doesn’t publish a loan-to-value ceiling on a cash-out the way FHA and Fannie Mae do. Its stated limit is that it will not guarantee a refinancing loan where the loan-to-value exceeds 100%. The 90% figure repeated around the internet is a lender overlay, not a VA rule, and lenders in Align’s network set it independently.³ Refinancing an existing VA loan carries statutory seasoning: the first payment due date on the old loan must fall at least 210 days before the new closing, and six consecutive monthly payments must have been made. Our post on the benefits of refinancing a VA loan covers the funding fee.

Pros and cons of refinancing for renovations

A cash-out refinance is the cheapest large sum most homeowners can raise, and the one with the most serious collateral attached.

Pro, the money is cheap: Secured by real property, mortgage debt prices far below credit cards and personal loans. On a $100,000 project that spread compounds into five figures of interest.
Con, the collateral is your house: Unsecured debt costs more because the lender’s remedy is a collections call. A mortgage lender’s remedy is foreclosure.
Pro, everything collapses into one payment: One loan, one servicer, one payoff date, instead of stacking a second lien behind your first.
Con, you may reset the clock: Eight years into a 30-year mortgage, refinancing into a new 30-year term means paying for 38 years total. Ask for a term that lands on or before your original payoff date.
Pro, efficiency work pays twice: At resale, and monthly on the utility bill. ENERGY STAR from the EPA is a sound place to start a specification.
Con, not every dollar comes back: Our roundup of renovation ideas to boost home value separates projects that return their cost from ones that buy enjoyment.
Pro, the interest may be deductible when the money improves the home: Mortgage interest is generally deductible only to the extent the proceeds buy, build, or substantially improve the home securing the loan, within the $750,000 limit ($375,000 married filing separately) for debt secured after December 15, 2017.⁴ See the IRS rules on deducting mortgage interest used for improvements.
Con, the closing costs are immediate: At 3% – 6% of principal, refinancing a $320,000 loan costs $9,600 – $19,200, and rolling those fees into the balance means paying interest on them for years.

What are your options besides a cash-out refinance?

Five products fund a remodel against your home, and they differ in three ways: whether your first mortgage survives, whether the rate is fixed, and whether the money arrives at once.

Option	Rate structure	How you get the money	Closing costs	Best use case
Cash-out refinance	New first mortgage, fixed or adjustable	Lump sum at closing, up to 80% LTV	Full refinance, 3% – 6% of principal	One large project, when the new rate is acceptable
HELOC	Revolving second lien, usually adjustable	Draw as needed, repay and redraw	Typically lighter than a full refinance	Phased work, or an unknown final budget
Home equity loan	Second lien, fixed rate	One lump sum, fixed payment	Typically lighter than a full refinance	A known cost, when your first rate is worth protecting
FHA 203(k)	One FHA first mortgage with MIP	Escrowed, released as work is completed	Full refinance plus program fees	Repairs today’s value won’t support
HomeStyle Renovation	One conventional first mortgage	Escrowed draws against “as completed” value	Full refinance plus program fees	Conventional borrowers avoiding FHA insurance

The CFPB describes a HELOC as a credit-card-like line secured by your equity, adjustable-rate, with a payment that moves with the balance; a home equity loan arrives as a fixed-rate lump sum. That one difference decides most cases. See our guides to a home equity line of credit, the pros and cons of home equity loans, and how second mortgages sit behind your first.

Renovation loans lend against the house you haven’t built yet

A renovation loan solves the problem a cash-out cannot: no equity. Instead of lending against today’s value, these programs underwrite to “as completed” appraised value, escrow the funds, and release them as work is finished.

FHA 203(k), two versions: The Limited 203(k) allows up to $75,000 in rehabilitation costs with no minimum; the Standard 203(k) carries a $5,000 minimum and no separate ceiling beyond the FHA loan limit. Both refinance your mortgage and fund the work in one closing. See the benefits of FHA 203(k) loans.
HomeStyle Renovation, the conventional counterpart: On a refinance, renovation funds may run up to 75% of “as completed” value, in one conventional first mortgage with no FHA mortgage insurance. Our breakdown of what a HomeStyle Renovation loan is covers the draw rules.
Manufactured homes are capped tighter: HomeStyle limits renovation funds on a manufactured home to 50% of “as completed” value, so scope against that number first, and read what to know about refinancing a manufactured home.
Pick the product before the contractor: Each sets its own bidding, consultant and timeline requirements. Our explainer on what a renovation loan is compares them, and financing home renovations covers unsecured options for smaller jobs.

How to decide whether refinancing for improvements is worth it

Three checks decide it, and the first disqualifies more homeowners than the other two combined.

Compare the blended rate, not the headline rate: If your mortgage sits well below current cash-out pricing, a refinance reprices your whole balance to fund a fraction of it. Price a second lien against the cash-out, divide closing costs by any monthly savings for your break-even month, and compare total interest rather than payment.
Confirm seasoning before you order bids: Six months on title for conventional, 12 months of ownership and occupancy for FHA. A cash-out on a second home is a different loan with its own pricing and LTV ceiling; see our tips for refinancing a vacation home.
Use the three-day window: On a refinance of your principal residence you generally may rescind until midnight of the third business day after closing. Holding off is always an option, and our guide to home equity loan tips covers the smaller-scale version.

What Michigan homeowners should know

Michigan taxes improvements differently than appreciation, and that difference sets what a remodel costs you every year afterward.

The cap does not protect additions: Michigan limits annual growth in taxable value to the lesser of 5% or inflation, and the State Tax Commission set the 2026 inflation rate multiplier at 1.027, or 2.7%. New construction lands on top of that cap, so a permitted addition raises taxable value the year after it’s built.
Seventeen categories of upkeep are excluded by statute: Under the Mathieu Gast Act, expenditures for normal repair, replacement and maintenance on residential property, from outside painting to a replacement furnace, stay out of true cash value until the home sells. Remodels adding no square footage often qualify.
Refinancing does not uncap your taxable value: Michigan uncaps taxable value to state equalized value the year after a transfer of ownership, and refinancing your own mortgage transfers no ownership. Your Principal Residence Exemption, worth up to 18 mills of local school operating tax, survives the closing too.
Budget the tax before the tile: A $60,000 addition adds roughly $30,000 of taxable value, since assessed value tracks half of true cash value, which at an illustrative 40 mills runs about $1,200 a year. Millage varies widely, so use your own bill and read our guide to the impact of home improvements on property taxes.

How Align handles a hard refinance

Low equity, a credit setback or an unusual property can make a refinance look impossible at one lender and workable at another. Lenders add their own rules on top of the program's.

Samantha takes your file to the wholesale lender whose rules fit it, and if waiting is the better move, she tells you that instead.

Already have an offer from your current servicer or one of the big national lenders you see advertised? Bring us the Loan Estimate. We will compare it line by line and show you where we can do better.

Run a refinance break-even review

FAQ: Refinancing for home improvements

Here are answers to common questions about refinancing for home improvements.

Can I refinance my mortgage to pay for renovations?

Yes. A cash-out refinance replaces your loan with a larger one and gives you the difference in cash at closing, spendable on any renovation. Conventional and FHA both cap the new loan at 80% of appraised value, so you keep at least 20% equity. The FHA 203(k) and HomeStyle instead finance the work against “as completed” value. Our guide to financing home renovations compares the routes.

What’s the difference between a cash-out refinance and a HELOC?

A cash-out refinance replaces your entire mortgage with one new loan at one rate and pays a lump sum. A HELOC leaves the first mortgage alone and adds a revolving second lien you draw from as needed, usually at an adjustable rate. Take the refinance for a large one-time project when the new rate works, and a home equity line of credit for phased work.

Are there tax benefits to refinancing for home improvements?

Possibly. Mortgage interest is generally deductible only to the extent the money buys, builds, or substantially improves the home securing the loan, within the $750,000 limit for debt secured after December 15, 2017. Interest on funds spent on cars, tuition, or debt payoff generally is not. Keep invoices tying the funds to the property, note that improvements also raise your property tax assessment, and confirm with a tax professional.

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

Plan on at least 20% remaining after closing, because conventional and FHA cash-out refinances both cap the new mortgage at 80% of appraised value. On a $400,000 home that’s $320,000, no matter how much you owe. VA declines to guarantee a refinance above 100% LTV rather than setting an 80% ceiling, so eligible veterans may go higher. Our guide to using home equity wisely shows how to measure what you have.

The bottom line on refinancing for home improvements

Refinancing for home improvements works best when you already hold the equity and the new first-mortgage rate is one you’d accept on its own merits. Conventional and FHA cash-out refinances both stop at 80% of appraised value, turning a $400,000 home with a $220,000 balance into roughly $100,000 gross and $81,000 – $90,000 after 3% – 6% closing costs. Seasoning gates the timing: six months on title for conventional, 12 months of ownership and occupancy for FHA. When the equity isn’t there yet, a 203(k) or HomeStyle loan finances the work against the finished house.

If you’re ready to price a remodel against your equity, talk to Align Lending, we’ll shop your scenario across our lender network and put cash-out, HELOC and renovation-loan pricing in front of you side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your rate, loan amount, cash proceeds and closing costs depend on your application, your appraised value and market conditions, and will be itemized on your Loan Estimate and Closing Disclosure. Return to text.

2. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA cash-out loan-to-value limits, seasoning rules, 203(k) parameters and mortgage insurance premium terms are set by HUD and are subject to change. Return to text.

3. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. Loan-to-value limits below VA’s own guaranty threshold are lender overlays that vary by lender and are subject to change. Return to text.

4. This is general information, not tax advice. Whether any mortgage interest is deductible depends on your individual circumstances, on how the proceeds are used, and on whether you itemize. Consult a qualified tax professional about your situation. Return to text.

Sources: maximum 80% LTV, CLTV and HCLTV on a cash-out refinance of a one-unit principal residence, Fannie Mae Eligibility Matrix, referenced by Fannie Mae Selling Guide B2-1.3-03. Requirement that at least one borrower be on title for six months prior to the disbursement date, that a first mortgage being paid off be at least 12 months old measured by note date, and that a property listed for sale be taken off the market on or before the disbursement date, Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions (12/10/2025). Loan-level price adjustments applied to cash-out refinances by loan-to-value ratio and credit score, Fannie Mae Loan-Level Price Adjustment Matrix. HomeStyle Renovation funds limited to 75% of the “as completed” appraised value on a refinance and 50% on a manufactured home, Fannie Mae Selling Guide B5-3.2-02. FHA cash-out requirement that the property be owned and occupied as the borrower’s principal residence for the 12 months prior to case number assignment, that properties with mortgages have a minimum of six months of mortgage payments, and that properties owned free and clear may be refinanced as cash-out transactions, HUD Single Family Housing Policy Handbook 4000.1, Section II.A.8.d.v. FHA maximum cash-out loan-to-value and combined loan-to-value of 80% of Adjusted Value, reduced from 85%, HUD Mortgagee Letter 2019-11. FHA annual mortgage insurance premium duration of 11 years at an original loan-to-value of 90% or less on terms greater than 15 years, otherwise the mortgage term, and upfront premium of 1.75% of the base loan amount, HUD Handbook 4000.1 Appendix 1.0; current premium rates, HUD Mortgagee Letter 2023-05. FHA loan program overview, U.S. Department of Housing and Urban Development. Limited 203(k) maximum rehabilitation cost of $75,000 with no minimum and Standard 203(k) $5,000 minimum, HUD 203(k) Program Comparison Fact Sheet (revised 11/4/2024) and HUD Handbook 4000.1 Section II.A.8. Absence of a VA-published loan-to-value ceiling on cash-out refinances, and VA’s position that it will not guarantee a refinancing loan where the loan-to-value exceeds 100%, U.S. Department of Veterans Affairs and VA Circular 26-19-05; VA cash-out eligibility conditions, VA Housing Assistance. Seasoning requiring the first payment due date on the loan being refinanced to be at least 210 days before the new closing date plus six consecutive monthly payments, 38 U.S.C. § 3709. Refinancing fees of 3% to 6% of outstanding principal, Board of Governors of the Federal Reserve System, A Consumer’s Guide to Mortgage Refinancings. HELOC as an adjustable-rate line of credit that works like a credit card secured by home equity, with a payment that varies with the outstanding balance, and a home equity loan paid as a lump sum at a fixed rate, Consumer Financial Protection Bureau. Right of rescission through midnight of the third business day on a refinance secured by a principal residence, 12 CFR § 1026.23. Weekly average mortgage rate benchmark, Freddie Mac Primary Mortgage Market Survey. Home mortgage interest deductible only to the extent the proceeds are used to buy, build, or substantially improve the home securing the loan, and the $750,000 and $375,000 limits for debt secured after December 15, 2017 ($1,000,000 and $500,000 for earlier debt), IRS Publication 936. ENERGY STAR product and upgrade guidance, U.S. Environmental Protection Agency. Michigan annual increase in taxable value limited to the lesser of 1.05 or the inflation rate, plus all additions, and uncapping to state equalized valuation in the calendar year following a transfer of ownership, MCL 211.27a(2) and (3). 2026 inflation rate multiplier of 1.027, Michigan State Tax Commission Bulletin 14 of 2025. Definitions of “additions” and “new construction,” MCL 211.34d. Nonconsideration of expenditures for normal repairs, replacement and maintenance on residential property until the property is sold, and the enumerated categories, MCL 211.27(2), the Mathieu Gast Act. Assessed and state equalized value at 50% of true cash value, Michigan Constitution of 1963, Article IX, § 3 and Michigan Department of Treasury. Principal residence exemption from up to 18 mills of local school operating tax, MCL 211.7cc and MCL 211.7dd, Michigan Department of Treasury.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Loan program limits, seasoning rules, mortgage insurance terms, tax deductibility and Michigan property tax rules change and vary by property, county and loan program. Confirm your figures with your Loan Estimate and Closing Disclosure and consult a qualified tax professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.