Borrow against what the home will be worth after the work.
A renovation refinance replaces your current mortgage with a new one that also funds a remodel, sized on the home's after-renovation value. Ken Clark Jr. helps homeowners compare a 203(k) or HomeStyle refinance with a cash-out refinance or HELOC.
Short answer: a refinance that pays off your current mortgage and includes the cost of repairs or improvements, with the renovation money paid out as the work gets done.
HUD describes the 203(k) as a way for homeowners to refinance a current mortgage and combine the cost of renovations into a single loan; if it is a refinance, part of the proceeds pays off the existing mortgage and the rest is held in escrow and released as the rehabilitation is completed. Fannie Mae's HomeStyle Renovation is available for purchases and limited cash-out refinances.
Short answer: because a renovation refinance is sized on the after-renovation value, while a cash-out refinance is limited by what the home is worth today.
If your home needs work, today's value may not support the loan you need. A renovation refinance uses an appraisal of the home "as completed," so the planned improvements can count. The trade-off: you need a contractor, bids, and draws, and the money must be spent on the reviewed scope.
Short answer: renovation refinances win on borrowing power when the home needs work; a cash-out refinance or HELOC wins on flexibility.
| FHA 203(k) refinance | HomeStyle refinance | Cash-out refinance | HELOC | |
|---|---|---|---|---|
| Value used | As-completed value, within FHA limits | As-completed value | Current value | Current value |
| Occupancy | Primary residence | Primary, second home, or investment (program limits apply) | Varies by program | Varies by program |
| Cash to you | No; funds pay for the work | No cash back at closing | Yes | Yes, as you draw |
| Contractor and draws | Required | Required (no do-it-yourself on PRMG HomeStyle) | Not required | Not required |
| First mortgage | Replaced | Replaced | Replaced | Kept; HELOC is a separate lien |
| Rate type | Fixed or adjustable options | Fixed or adjustable options | Fixed or adjustable | Commonly variable |
For a closer look at the last two columns, see refinance vs HELOC. The CFPB's HELOC explainer covers how lines of credit work.
Short answer: you refinance your current mortgage into a new FHA loan that also funds a Limited or Standard 203(k) scope, for a home you live in.
The same rules apply as on a purchase: up to $75,000 of non-structural work on a Limited, or a $5,000 minimum and a HUD roster consultant on a Standard, with completion within 9 or 12 months. The loan must fit FHA county limits. See Limited vs Standard and the 203(k) guide.
Short answer: it is a conventional limited cash-out refinance where the LTV is based on the as-completed appraised value, and you cannot receive cash back at closing.
Per Fannie Mae's HomeStyle FAQs, the funds must go to new improvements, repairs, and renovations, not to pay off other debts. Renovation costs are generally limited to 75 percent of the as-completed value on a refinance. Mortgage insurance, if any, can be cancelled later under standard rules. On PRMG HomeStyle, a hired contractor is required (no do-it-yourself work), and adding a separate unit is not eligible. More on HomeStyle.
Educational illustration only. Not an actual client, loan offer, or commitment to lend.
A homeowner owes $310,000 on a house worth $450,000 today. A kitchen, bath, and roof project is bid at $95,000, and the appraiser estimates an as-completed value of $560,000. A cash-out refinance based on $450,000 may not reach the $405,000 they need, depending on program limits. A HomeStyle refinance sized on $560,000 could cover the payoff and the renovation, with the funds paid to the contractor in draws, subject to underwriting. If their current rate is well below today's rates, a HELOC for the $95,000 might cost less overall, even at a variable rate. We run all three.
Where available: PRMG renovation programs are available in every state where PRMG is licensed, which is all states except New York, including California and New Jersey, for eligible borrowers and subject to underwriting and program guidelines.
Answered by Ken Clark Jr., Certified Mortgage Advisor. Program availability and requirements vary and are subject to change.
A refinance that pays off your current mortgage and includes the cost of repairs or remodeling, with renovation funds paid to the contractor as work is completed.
Yes. HUD allows homeowners to refinance a current mortgage and include renovation costs in one FHA loan, for a primary residence, subject to FHA limits.
Yes, as a limited cash-out refinance. Fannie Mae does not allow cash back at closing on a HomeStyle refinance.
Generally yes. Both 203(k) and HomeStyle use an as-completed appraisal, subject to program limits and underwriting.
Not on a HomeStyle refinance. Renovation funds go to the work. If you want cash in hand, compare a cash-out refinance or HELOC.
It depends. A HELOC keeps your existing first mortgage and rate, which can be valuable if that rate is low. A renovation refinance may allow a larger amount based on the after-renovation value.
Plan on a contractor. PRMG HomeStyle does not allow do-it-yourself work, and 203(k) work is done by contractors reviewed by the lender.
The 203(k) requires a primary residence. HomeStyle allows certain second home and investment property refinances, subject to program limits.
Longer than a standard refinance, because bids, the as-completed appraisal, and sometimes a consultant are needed. Plan ahead.
Adding a separate unit is not eligible on PRMG HomeStyle. Ask about your specific ADU plan before you commit.
Guidelines change. Verify current program requirements with Ken Clark Jr. before relying on them for a transaction.
Disclaimer: This content is for educational purposes only and is not a commitment to lend, a guarantee of approval, or a rate quote. Loan programs, down payment requirements, terms, and eligibility depend on borrower, property, project, builder, and program qualifications, are subject to underwriting, and vary by state. Not all applicants or projects will qualify. Builder registration is a documentation review for program eligibility and is not an endorsement of any builder. Equal Housing Opportunity. Paramount Residential Mortgage Group, Inc. (PRMG), NMLS #75243. Ken Clark Jr., NMLS #225375. PRMG is licensed in 49 states, excluding New York.
Certified Mortgage Advisor and Branch Manager at PRMG Mortgage (NMLS #75243). 28 years in mortgage lending. Specializes in FHA, VA, conventional, DPA, jumbo, Non-QM, renovation, and construction financing for buyers and investors in Sacramento, New Jersey, and nationwide. PRMG is licensed in 49 states, excluding New York. Three-time Gold Award winner for Highly Reviewed Mortgage Team in Sacramento (2023, 2024, 2025). NMLS #225375.
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