Can You Borrow Extra Money on Your Mortgage for Renovations?

Yes, you can borrow extra money on your mortgage for renovations, and you have five main ways to do it: a cash-out refinance that replaces your existing mortgage with a larger one, an FHA 203(k) rehabilitation loan, a Fannie Mae HomeStyle Renovation mortgage, a home equity loan, or a home equity line of credit. Which one fits depends on how much equity you have, whether your current mortgage rate is worth keeping, and how big the project is.

Which Option Fits Your Situation

Start with two questions. Do you want to keep your existing mortgage, or replace it? And is the loan amount based on what the home is worth today, or on what it will be worth after the work is done?

If you have significant equity and current rates are at or below your existing mortgage rate, a cash-out refinance folds everything into one loan. If your rate is low and you don’t want to lose it, a home equity loan or HELOC leaves the first mortgage alone and adds a second lien. If you’re buying a fixer-upper or your home doesn’t yet have the equity to support the project, an FHA 203(k) or HomeStyle Renovation mortgage bases the loan on the property’s post-renovation value, which is often the only way the numbers work.

Cash-Out Refinance

A cash-out refinance replaces your existing mortgage with a new, larger one and pays you the difference at closing. Owe $200,000 on a home worth $400,000, and you could refinance into a $300,000 loan and walk away with roughly $100,000, less closing costs. There are no restrictions on how you spend it or which contractor you use.

Fannie Mae caps cash-out refinances at 80% loan-to-value for single-family primary residences and 75% for two-to-four-unit properties.¹ The total loan cannot exceed the 2026 conforming loan limit of $832,750 in most areas, or $1,249,125 in high-cost markets.²

The tradeoff is that you’re resetting the mortgage clock. Ten years into a 30-year loan, refinancing into a fresh 30-year term adds a decade of payments. Closing costs typically run 2% to 6% of the new loan amount.

FHA 203(k) Rehabilitation Loans

FHA 203(k) loans are built for renovations. They let you finance the home (purchase or refinance) and the improvement costs in a single FHA-insured mortgage.³ The lender bases the loan on what the home will be worth after the work is done, which is the difference-maker when you’re buying a place with limited equity.

The program has two versions:

Limited 203(k): Up to $75,000 in renovation costs. Covers most cosmetic and moderate projects — flooring, kitchens, roof replacement, painting. No minimum repair cost required.
Standard 203(k): For major structural work. Repairs must total at least $5,000, with no fixed ceiling beyond the FHA loan limit for your area. Foundation repair, additions, and gut renovations qualify.

The Standard version requires an FHA-approved 203(k) consultant who writes a work plan and inspects the project at each stage.⁴ Consultant fees add to the total but can be financed inside the loan.

Fannie Mae HomeStyle Renovation

HomeStyle Renovation loans do the same job as a 203(k), but under conventional lending rules rather than FHA rules.⁵ A single-unit primary residence can go up to 95% LTV, and the loan can be used for either a purchase or a refinance. The total follows the same conforming limit as any conventional mortgage: $832,750 in most markets for 2026.²

Two practical advantages over FHA: HomeStyle covers second homes and investment properties, not just primary residences, and it doesn’t require a HUD consultant, which cuts fees and paperwork. The tradeoff is conventional underwriting, so you’ll generally need a stronger credit score and a lower debt-to-income ratio than FHA asks for. Renovation costs are also subject to a 75% cap tied to the as-completed value.⁶

Home Equity Loans and HELOCs

If you’d rather keep your first mortgage alone, especially if the rate is well below current market rates, a second lien is the way to fund renovations. These products borrow against your equity without touching the original loan.

A home equity loan delivers a lump sum at a fixed rate and a set repayment term, usually 5 to 30 years. It fits projects where you know the total cost up front and want predictable payments. A HELOC works more like a credit card: the lender sets a maximum, you draw as needed, and you pay interest only on what you’ve actually used.

HELOCs run in two phases. The draw period, typically 10 years, is when you can pull funds and often make interest-only payments. The repayment period follows, usually up to 20 years, during which you pay principal and interest with no further draws. That structure suits staged projects, because you don’t pay interest on money you haven’t spent.

Both products sit behind your first mortgage in a foreclosure. That’s why they carry higher interest rates than a first-lien mortgage. Federal law requires the lender to disclose all credit terms, including total borrowing cost and the annual percentage rate, before you sign.⁷

What Lenders Check Before Approving

Three numbers drive every renovation loan decision: your loan-to-value ratio, your debt-to-income ratio, and your credit score.

Loan-to-value compares what you owe to what the property is worth. Cash-out refinances are capped at 80% LTV for a single-family primary residence; a HomeStyle purchase on a one-unit primary residence can reach 95%.¹ On a $400,000 home with $300,000 owed, an 80% cap leaves $20,000 available; the same home under HomeStyle allows a much larger renovation because the appraisal is based on the finished value.

Debt-to-income measures your monthly debt payments against your gross monthly income. Fannie Mae’s automated system permits up to 50%. Manually underwritten loans start at 36% and can stretch to 45% with strong credit and cash reserves.⁸ Because the renovation loan raises your monthly payment, the lender uses the new, larger figure to run the ratio.

On credit score, most lenders want at least 660 to 680 for home equity products and renovation loans. Some accept scores as low as 620 if income and reserves are strong. Higher scores mean better rates and a better shot at the full loan amount.

What Renovation Loans Actually Cost

Renovation loans carry all the standard mortgage closing costs, plus fees tied to the construction oversight process. Refinance closing costs typically run 2% to 6% of the loan amount, covering appraisal, origination, title insurance, and recording fees.

The extras are what surprise borrowers. Because renovation funds are released in stages, each draw requires a professional inspection, usually $150 to $375 per inspection. Title update fees run around $125 per draw. A Standard 203(k) consultant charges $400 to $1,000 depending on the scope, plus per-inspection fees during construction.⁴ The appraisal itself costs more than a standard one, because it has to value the property both as-is and as-completed. Residential appraisals generally fall between $525 and $1,550.

How the Money Reaches Your Contractor

On a 203(k) or HomeStyle loan, you don’t collect a check at closing. The renovation funds go into an escrow account, and the lender releases them on a draw schedule tied to construction milestones. Your contractor finishes a phase, you or the contractor requests a draw, an inspector confirms the work, and the lender releases the funds. The cycle repeats until the project is done and a final inspection matches the completed work to the original plan.

The structure protects both sides. If a contractor walks off the job or does substandard work, the remaining money is still in escrow. The downside: contractors must float their costs between draws, and some smaller outfits will not take work under a draw schedule. Bring this up when you’re picking a contractor.

A cash-out refinance or a straight home equity loan works differently. You receive the funds at or shortly after closing, and no one controls how you spend them. More flexibility, less protection if the project goes sideways.

Your Three-Day Right to Cancel

Federal law gives you three business days to cancel most mortgage transactions secured by your primary home, including refinances, home equity loans, and HELOCs. The clock starts once you’ve received the closing documents, the Truth in Lending disclosure, and the notice of your right to rescind.⁹ Cancel within that window and the lender must return any fees you’ve paid and release its claim on the property within 20 days.

The right of rescission does not apply to a mortgage used to buy the home in the first place. If you’re using a 203(k) or HomeStyle loan to purchase a property, the rescission right doesn’t cover that transaction. It does cover renovation refinances and second liens on a home you already own.

Interest Deduction if You Itemize

Interest on money borrowed to substantially improve your home is deductible if you itemize, as long as the loan is secured by the property. That covers a cash-out refinance, a 203(k), a HomeStyle mortgage, or a home equity product. The funds have to actually go toward buying, building, or substantially improving the home securing the debt.¹⁰

The total mortgage debt eligible for the deduction is capped at $750,000 for most filers, or $375,000 if married filing separately. The cap, originally set by the Tax Cuts and Jobs Act for loans taken out after December 15, 2017, has been made permanent. It applies to the combined balance of all mortgages on your primary home and one second home.¹⁰ Under the tax code, “acquisition indebtedness” includes any debt used to acquire, construct, or substantially improve a qualified residence.¹¹

If you use part of a home equity loan for renovations and the rest to pay off credit card debt, only the renovation portion qualifies. The IRS applies principal payments to the non-qualifying portion first, so mixing purposes works against you.¹⁰ Keep the receipts and invoices that show where the money went.

1
Fannie Mae. Eligibility Matrix – December 10, 2025
2
Federal Housing Finance Agency. FHFA Announces Conforming Loan Limit Values for 2026
3
eCFR. 24 CFR 203.50 – Eligibility of Rehabilitation Loans
4
U.S. Department of Housing and Urban Development. 203(k) Rehabilitation Mortgage Insurance Program Types
5
Fannie Mae. HomeStyle Renovation
6
Fannie Mae. HomeStyle Renovation Mortgages – Loan and Borrower Eligibility
7
Office of the Law Revision Counsel. 15 USC 1601 – Congressional Findings and Declaration of Purpose
8
Fannie Mae. B3-6-02, Debt-to-Income Ratios
9
Office of the Law Revision Counsel. 15 USC 1635 – Right of Rescission as to Certain Transactions
10
Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
11
Office of the Law Revision Counsel. 26 USC 163 – Interest