Many Philadelphia homeowners bought a house that was livable but not finished, and now they're ready for the kitchen, the second bath, or the roof deck. The usual tools are a HELOC, a personal loan, or savings. A renovation refinance is often better, especially if you bought recently and don't have much equity yet.
How it works
A renovation refinance pays off your existing mortgage and adds the renovation budget into one new loan. The amount is based on the appraiser's as-completed value, what the house will be worth after the renovation.
- FHA 203k refinance: for owner-occupants, based on FHA's as-completed value math, up to the $630,200 single-family limit in the Philadelphia metro.
- HomeStyle and CHOICERenovation refinance: renovation up to 75% of the as-completed value, conventional terms, available for primary residences, second homes, and 1-unit investment property.
When it beats a HELOC
- Recent buyers. If you bought in the last few years, you may not have enough equity for a HELOC large enough to cover the project. A renovation refinance borrows against the finished value.
- Big projects. HELOCs are usually variable-rate, and a large balance can get expensive. A renovation refinance gives you one fixed payment.
- Protection during construction. The draw process means your contractor is paid for completed, inspected work, not up front.
When it doesn't
If your current rate is much lower than today's rates and the project is small, a second-lien option may cost less overall. We'll run both and show you the difference.
Good Philadelphia refinance projects
- Adding a second bathroom in a two-story rowhome
- Finishing the basement with waterproofing
- Roof deck and flat roof replacement
- Converting a large house into a legal duplex for rental income
Frequently asked questions
How is a renovation refinance different from a cash-out refinance?
A cash-out refinance is limited by your home's current value. A renovation refinance is based on the as-completed value, so you can borrow against equity the renovation will create. The renovation money goes into escrow and pays the contractor directly.
Can I use a renovation refinance if I have little equity?
Often, yes, because the as-completed value is what counts. That's the main advantage over a HELOC for newer owners.
Can I refinance and renovate a rental property?
HomeStyle can be used on a 1-unit investment property with more equity. The FHA 203k requires owner occupancy.