A cash-out refinance is one of the most common ways to pay for a big home project. You get the money up front at a mortgage rate, and if the work substantially improves the home, the interest may be deductible.
How much you can borrow
The loan is based on your home's current appraised value, not its value after the work:
- Conventional or FHA: up to 80% of the value on a primary home
- VA: up to 100% for eligible borrowers
- Second homes: up to 75% (conventional)
Example: your home is worth $600,000 and you owe $300,000. At 80%, the maximum loan is $480,000, which leaves $180,000 before closing costs for the project.
The tax angle
Under IRS Publication 936, interest on mortgage debt used to substantially improve the home that secures it can be deductible as home mortgage interest if you itemize, within the $750,000 acquisition-debt limit. Keep receipts. Details in cash-out refinance taxes.
Cash-out refinance vs. other ways to pay
| Option | Best for |
|---|---|
| Cash-out refinance | Big, one-time projects when today's rate is near your current rate |
| HELOC | Staged projects where you draw money as bills come in, or when you want to keep a low first-mortgage rate |
| Home equity loan | A fixed lump sum without touching your first mortgage — see cash-out vs. home equity loan |
| Renovation loan (such as FHA 203(k) or Fannie Mae HomeStyle) | Projects where you need to borrow against the home's value after the work |
Tips for project financing
- Get contractor bids first, so you borrow what you need, plus a cushion.
- Hold the cash in a separate account to keep a clean record for taxes.
- Think about value: some projects add more resale value than others. The loan amount is set by today's appraisal either way.
- On a primary home, funds are released after the three-business-day right of rescission, so plan your contractor's start date around closing.
Rules to know
The usual cash-out rules apply: a 12-month-old existing mortgage for conventional loans, 12 months of owning and living in the home for FHA, and enough income to carry the new payment. See the requirements guide and run numbers in the cash-out calculator.
Frequently asked questions
Can I use a cash-out refinance for home renovations?+
Yes. You can use the cash for any project. The amount is based on your home's current appraised value — up to 80% on most primary homes.
Is cash-out refinance interest deductible if I renovate?+
Interest on the part used to substantially improve the home securing the loan can be deductible if you itemize, within IRS limits. Keep receipts and ask your tax preparer.
Is a HELOC or cash-out refinance better for a remodel?+
A HELOC fits staged projects or when you want to keep a low first-mortgage rate. A cash-out refinance fits one large project when today's rates are close to your current rate.