My Perfect Mortgage
Refinancing for Home Improvements: Best Practice
5 minute read
December 30, 2021

The best way to add value to your home is through home improvements. 

These projects take on many forms, ranging from a new kitchen or bathroom to finishing a basement or attic space. 

As excited as you may be about renovating your home to boost its value, there’s a question you must first answer: How will you pay for your upcoming home improvement projects?

A cash-out refinance for your home’s improvement just might be your answer. Let’s get into what it is, how you can use it, and the pros and cons of refinancing for home improvement. 

  • available in AL, CA, CO, CT, FL, GA, IL, MA, MD, MI, MN, NC, NJ, NY, OH, PA, SC, TX, VA, WA
  • Simple application
  • Quick decisions
  • Common sense underwriting
  • Fast closing period
  • Lend in all 50 states
  • Veteran lending specialist available to you, no matter where you are
  • In-house processing and underwriting
  • Express Loan Approval program, which allows you to be done with the whole process (minus the contract and appraisal), so you can focus on finding your home.
  • Rate Protect (Lock & Shop) lock in your rate before you even find a home!

Refinancing for Home Improvement

Refinancing for home improvement is exactly what it sounds like. You refinance your current mortgage, take cash out (as long as you have equity in your property), and use that money to renovate. 

You’re left with a mortgage payment based on the balance of your loan at the time of refinancing and the amount of cash you borrowed.

Here’s a simpler way to think about it: You borrow more than you owe and keep the difference for any home improvement projects you want to complete. 

What Can You Use the Cash For?

When refinancing for home improvement, you can use the cash for anything and everything related to renovating your property. This can include things such as:

  • Remodeling a room, such as a kitchen or a bathroom. 
  • Exterior upgrades, such as new windows, siding, or a roof.
  • Building an addition, such as for a new master suite or game room.
  • Backyard renovation, such as a swimming pool or outdoor kitchen

Your imagination is your only limitation. Once you know how you want to improve your home, you can move on to finalizing the details with your contractor. 

How to Qualify for a Cash-Out Refinance

Every lender has its own eligibility requirements for a cash-out refinance. Understanding how to qualify will allow you to put your best foot forward upon applying. 

The primary requirement is that you have enough equity to borrow. In other words, if your home is worth $300,000 and you owe $290,000, you’re not going to be eligible for a cash-out refinance, home equity loan, or home equity line of credit

Other general requirements include but are not limited to:

  • A credit score of 620 or higher.
  • A debt to income ratio of less than 50 percent.
  • A strong credit history.

If you have equity in your home, turn your attention to these requirements. If all three of these points check out, you’re in a position to apply for and receive approval for a cash-out refinance. 

Pros and Cons of Refinancing for Home Improvement

There are many benefits of refinancing a mortgage for home improvement. Some of these include:

  • The ability to secure cash and repay it through your monthly mortgage payment. One monthly payment instead of two is easier and less stressful to manage. 
  • Lower interest rates when compared to other options. With this, you can take on low-cost home improvement projects. 
  • Boost your property value. There’s never a bad time to build more equity in your home. 

Along with the above, you should also consider the potential pitfalls of refinancing for home improvement:

  • You may not secure the rate you want. It’s okay to refinance at a higher rate, but it will cost you more money over the long run. 
  • You put your home at risk. With a higher monthly payment, you’re more likely to feel financial strain should your circumstances change. And with your home serving as collateral, missing payments could result in foreclosure and repossession by the bank.

Don’t focus solely on the benefits of refinancing for home improvement. Consider if there are any drawbacks that should give you a reason to pause. You never want to make a mistake when it comes to your finances and investment in your home. 

Things to Know About Doing a Cash-Out Refinance for Home Improvement

The above is a good start, but there are other things you need to know about doing a cash-out refinance for home improvement. Here are three important details:

  • There are closing costs: Just the same as any refinance, there are closing costs associated with a cash-out refi. These are generally subtracted from the cash you receive. 
  • You get new terms: When you refinance, you agree to new loan terms. This means a new interest rate (hopefully lower) and term. Consider all the options available to you.
  • The amount you can borrow depends on your equity: Once your appraisal is complete, your lender will let you know how much you can borrow. This will dictate the type(s) of home improvement project you tackle.

Alternatives to Refinancing for Home Improvement

Even if you’re confident that a cash-out refinance makes the most sense, it never hurts to consider alternative options. Some of these include:

  • Home equity loan: This loan is also based on the amount of equity you have in your home. The difference is that you are taking out a loan in addition to your mortgage as opposed to refinancing your primary mortgage. This option leaves you with another monthly loan payment. 
  • Home equity line of credit: This is similar to a home equity loan, with the main difference being that you gain access to a line of credit. You can use the money as you see fit, repay it, and use it again. You won’t receive a lump sum of money upfront and there’s no obligation to borrow. 
  • Personal savings: If you have enough cash on hand to take on a home improvement project, it’s worth considering. This allows you to avoid a higher monthly mortgage payment, while still boosting the value of your property. 


There is no shortage of ways to add value to your home. 

If you need funds to do so through a home renovation project, it’s time to strongly consider a cash-out refinance. 

While there are many steps in the process, when you reach the end of the line you’ll feel good about where things stand. 

If you’re ready to take the first step, My Perfect Mortgage is here to show you the way

With our service, it’s simple to connect with lenders that can explain all your loan refinance options.

Photo by Blue Bird from Pexels

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.