Refinancing For Home Improvements: How It Works

A mortgage refinance can change the terms of a loan to benefit a borrower. Depending on your refinance, you could get access to funds that can be put toward a number of expenses, including home improvements or renovations.

Refinancing mortgages for renovations is one way borrowers can fund home improvements they hope to make without needing to tap into their savings.

To begin your mortgage refinance and fund your home improvements or renovations, you can start an online refinance application today!

Using your home equity for your planned renovations is a smart move that many homeowners choose to make.

Home equity refers to the amount of your home that you own outright. You can determine the amount of home equity you own by subtracting your remaining mortgage balance from home’s current market value.

The amount of home equity you can access depends on a number of factors including which loan option you decide on. The funds you receive based on your home’s equity can be used for most or all your planned renovations.

Renovations you make while accessing your home equity could potentially increase your home’s value as well as the equity you have in your home.

Some of the benefits of using home equity for renovations are:

• The potential for longer terms and lower interest rates.
• Depending on how much home you own, you could borrow a larger amount.
• Possibility for tax deductions on interest paid, if you decide to itemize your tax return.

Some mortgage refinancing options that many owners choose to help fund home improvements are a cash-out refinance, home equity loan and HELOC.

A cash-out refinance will replace your current mortgage with a larger loan. You will then get the difference between what you currently owe and your new mortgage back in cash. You can use this money to cover any expenses you have or renovations you would like to make.

If you are looking to make renovations to increase your home’s value, make sure you research home projects that are the best return on investment and wait until your loan closes before starting any planned renovations.

Home equity loans allow you to access up to 85% of your home’s equity, offering you a lump-sum based on the amount of equity you have built in your home. A home equity loan is a second mortgage, meaning that you will use your home as collateral.

A home equity line of credit, or HELOC, lets you access a credit line based on the amount of equity you have in your home, while only paying interest on what you borrow for the first few years. After that, you will enter a repayment period during which you won’t be able to make additional draws and will start paying back what you borrowed as well as the interest.

A HELOC with Rate allows you a lump-sum amount based on your home equity, and as you start to pay back this amount, you will have the option to make additional draws. The combined loan-to-value ratio qualifying borrowers can access is up to 90% of a home’s value.

HELOCs are a great choice for renovations when you are unsure how much you will need to borrow. If you run into additional costs or the project ends up a little more expensive than originally planned, you will have access to funds that will help you cover it.

There are other options for financing home renovations that don’t access your home’s equity or include refinancing. These are a few options popular with homeowners.

If you are looking to purchase a distressed home or one that needs renovations, you can make a detailed plan of all your renovations and apply for an FHA 203k loan. These are government-backed loans that bundle the price of purchasing your home and completing renovations into one mortgage.

If the property you are looking at needs minor or nonstructural repairs, then you can apply for the simpler version of this loan, referred to as a streamline or limited FHA 203k loan.

If you are an active or retired military service member looking to purchase or refinance a primary residence that needs upgrades, you may qualify for a VA renovation loan, also called a VA rehab loan. Similar to an FHA 203k loan, a VA renovation loan can roll the cost of a home and renovations into one mortgage.

To qualify for this loan, you will have to meet lender requirements, as well as the requirements set by the Department of Veterans Affairs.

Homestyle by Fannie Mae and CHOICERenovations by Freddie Mac are two flexible loan options that roll the cost of home improvements into your mortgage as one loan. These loans could be used for almost any interior or exterior home updates or upgrades that increase the value of your property.

The amount you can borrow is based on the value of your home after renovations are completed. You will have to make a plan of all renovations before applying for either loan.

Talk to your lender and find out if either of these is right for your home and any renovations you are planning.

Even though there are many types of refinancing, you can apply for them all the same way: online with a trusted lender.

Your application online will connect you to a professional Loan Officer who can help you through the process. When your application gets approved, you will know how much you are able to put toward planned renovations.

Starting your application online will help you discover what your refinance will look like.

_{Using funds from a Cash-out Refinance to consolidate debt may result in the debt taking longer to pay off as it will be combined with borrower’s mortgage principle amount and will be paid off over the full loan term. Contact Rate for more information.}

_{Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.}

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_{Rate does not provide tax advice. The consumer should always consult a tax advisor for information regarding the deductibility of interest and other charges in their particular situation.}