How to finance a house renovation: A guide

Owning a home can be extremely rewarding, but every house needs a little care. Upgrading your property not only adds comfort and value, it also make the space truly feel like your own. Of course, improvements come with a cost.

The good news is, you have plenty of options when you’re looking for a home loan to help pay for renovation. Whether you’re fixing a leaky pipe or creating the kitchen of your dreams, options like cash-out refinancing, home renovation loans, home equity loans and lines of credit, and personal loans can help make it happen.

With all of these options available, which one is right for you? Read on to find out!

How to finance a home renovation

If you’re looking for a home loan for renovation, you’ll quickly find there are plenty of choices. So let’s explore home improvement loans and find the one that fits your needs.

Cash-out refinance

If you’re considering refinancing your mortgage to pay for home improvements, it helps to understand how the process works: You’re essentially replacing your existing home loan with a new, larger loan.

With cash-out refinancing, you are turning your home equity — the difference between your home’s value and what you owe on the mortgage — into cash. This can be a good way to fund renovations without using high-interest credit.

Funds from a cash-out refinance can be used for nearly any purpose, but keep in mind you have to meet certain requirements to qualify. They include maintaining a healthy debt-to-income (DTI) ratio, which is the sum of your monthly debts and payments divided by your total monthly income, having a certain percentage of equity in your home, and more.

In addition to those requirements, here are the pros and cons of a cash-out refinance:

Home renovation loan

A home renovation loan is based on the home’s future value after your repairs or upgrades are completed. To calculate this figure, lenders typically require a detailed project plan in order to estimate the final value.

Common home renovation loans include:

• FHA 203(k) loan: Backed by the Federal Housing Administration (FHA), this loan allows you to combine your mortgage and home renovation costs into a single loan. It can be structured as a 15- or 30-year fixed-rate or adjustable-rate mortgage (ARM).
• VA renovation loan: Created for eligible military personnel, veterans, and their surviving spouses, this loan enables qualified borrowers to include the cost of specific repairs or improvements in their loan amount.
• USDA renovation loan: Available to low- to moderate-income borrowers who are remodeling properties in eligible rural areas, this loan provides funding for a smaller home on the property; new landscaping, windows, doors, siding, or roofing; kitchen or bathroom remodeling; or mechanical upgrades and improvements, such as electrical or heating, ventilation, and air conditioning (HVAC).
• Fannie Mae HomeStyle^® Renovation loan: This loan allows you to buy and renovate a property with one convenient loan, rolling construction costs into your monthly mortgage payments.
• Freddie Mac CHOICERenovation^® loan: This option is applicable for both more extensive renovations as well as smaller-scale remodels that exceed no more than 10% — 15% of the property value after completion.

Rocket Mortgage doesn’t offer home renovation loans, but we’re here to guide you through the options so you can make confident, informed decisions.

Here’s a closer look at the pros and cons of home renovation loans:

Home equity loan

A home equity loan gives you the power to tap into the value you’ve accumulated in your home without changing your existing mortgage. Indeed, this is essentially a second mortgage with a fixed interest rate, repayment term, and monthly payment. Unlike a cash-out refinance plan that replaces your current mortgage, a home equity loan is a separate obligation with a separate monthly payment. Another difference between the two options is that Rocket Mortgage offers Home Equity Loans, so you can explore our offerings with confidence.

A home equity loan can be a smart move if the combined rate is lower than what you’d get with a cash-out refinance.

Home equity loans come with the following pros and cons:

Home equity line of credit

A home equity line of credit (HELOC) essentially works like a second mortgage that’s a revolving line of credit — similar to a credit card. Unlike a cash-out refinance or a home equity loan, a HELOC allows you to draw on your equity as needed, instead of a single lump-sum loan.

Here are some of the terms you’ll need to know when you explore a HELOC:

• Variable rate: Your interest rate can fluctuate over the life of the loan, so your payments may change.
• Draw period: This usually lasts about 10 years, during which you can withdraw from the HELOC and make interest-only payments.
• Repayment period: After the draw period ends, you can no longer take money out of the HELOC and you must make fully amortizing payments until the loan is paid off.

Note that that Rocket Mortgage doesn’t offer HELOCs, but we’re here to help you understand how they work.

Taking out a HELOC brings the following pros and cons:

Personal loan

A personal loan is essentially an unsecured installment loan, which means your home isn’t used as collateral —unlike a home equity loan. Because personal loans are unsecured, they may have higher interest rates than home equity loans.

The pros and cons of taking out a personal loan include:

Refinancing requirements

If you want to move forward with refinancing, remember that you’ll have to meet certain requirements.

• Credit score: Fannie Mae and Freddie Mac recently removed the minimum credit score requirement from their conventional loan eligibility guidelines, creating new opportunities for borrowers. This change offers greater flexibility, but remember that many lenders still set their own standards. For example, FHA loans typically require a score of at least 500; VA loans technically have no official minimum, but most lenders look for 620 or higher; and USDA loans don’t have a set requirement, yet most lenders prefer a score of 640 or above.
• Home equity: Most lenders require that you have at least 20% equity in your home before moving forward with a refinance. (That doesn’t apply if you’re refinancing with a VA loan, as your lender may allow a higher loan-to-value ratio.) At Rocket Mortgage, you can cash out up to 100% of your equity with a minimum credit score of 620. If your equity is under 20% but you have a good credit rating, refinancing may still be possible. However, you may get a higher interest rate and have to pay for private mortgage insurance (PMI).
• Debt-to-income (DTI) ratio: Lenders use the DTI ratio to evaluate your ability to pay back your loan. Your total minimum monthly debt is made up of the following minimum monthly payments: Car loans, student loans, credit card debt, home equity loans, mortgages, and any other recurring debt. Some lenders require that your DTI ratio not exceed 50% for you to be eligible for a refinance, while Rocket Mortgage will work with you on a conventional loan refinance if your DTI is 65%. This can give you more flexibility and opportunities to achieve your goals.
• Appraisal: When you refinance your property, you’ll have to get an appraisal, which provides a professional assessment of your home’s market value. This helps determine how much home equity you can borrow against.

Refinancing for home improvements: A step-by-step guide

Ready to move forward with the refinancing? Here’s your step-by-step guide to make it happen:

1. Identify your goals: Start by determining what you want to accomplish — do you want a kitchen upgrade? A new roof? More living space? Catalog your priorities at the outset, and it can make the entire process smoother.
2. Calculate your home’s value: Your home’s value plays a big role in how much equity you can access. Use online tools or get a professional appraisal to determine your property’s worth.
3. Determine your loan options: Explore refinancing programs to compare rates, terms, and closing costs — a little research now can save you thousands over the term of your loan.
4. Apply for your loan: Once you’ve chosen the best option, submit your application with all required documentation, including income verification and property details.
5. Go through the underwriting process: Underwriting is when your lender reviews your details to confirm eligibility.
6. Close on your loan: This is when you sign the final paperwork and lock in your terms. Once this step is complete, your funds are just around the corner!
7. Fund your home renovations: With your cash in hand, you can start bringing your renovation plans to life.

The bottom line: Is refinancing right for you?

Refinancing can be a powerful tool for homeowners looking to make the most of their investment. Refinancing enables you to tap into your home’s equity to cover renovations, repairs, or upgrades, and the long-term benefits often far outweigh the short-term drawbacks. With the right strategy, refinancing can help you turn your goals into reality.

At Rocket Mortgage, we want to help you create the perfect home. Check out our refinancing options today!

Refinancing may increase finance charges over the life of the loan.

Refinancing may increase finance charges over the life of the loan.

Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher‑priced loans in the State of New York are subject to additional regulatory requirements. Additional restrictions apply. This is not a commitment to lend.

Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.