Whether you are looking to purchase a fixer-upper, or want to roll the cost of renovation into your current mortgage, many homeowners ask: Can You Add Renovation Costs to a Mortgage? As always, the answer is yes, but it’s a lot more complicated than that, and depends on your individual situation.

What Does an Average Renovation Cost in 2023?

Renovation costs vary wildly, depending on the details. If you decide your bathroom needs a facelift, and decide to paint the vanity, paint the walls, and do nothing else, the only cost is your paint supplies and your time. But if you decide to gut the entire bathroom, costs go up. The bathtub, new tub fixture, new shower fixture, new sink fixture, new sink basin, new vanity, new mirror, new exhaust fan, flooring, backsplash, toilet. And that is just for the materials. Remodeling your bathroom can cost anywhere from about $3000 to $30,000, depending on the size of the bathroom, and the extent of the renovation. The area that you live in also affects the cost of remodeling greatly. A remodel in California is much more expensive than one in Indiana.

What about a kitchen? There is flooring, new refrigerator, microwave, stove, dishwasher, cabinets, countertops, sink basin and fixture, and stove hood. Once again, you can do a DIY renovation for a minimal cost, but the average cost to renovate your kitchen is around $15,000 to $40,000. This number can grow into the hundreds of thousands if you live in a high end home. 

The only way to know what your renovation will cost is to get your priorities and budget in order. You can refer to this article for help with that. Then call a reputable contractor for an estimate. 

If you are in the New Albany Indiana area, please call us at 812-944-6383, and we will be happy to help you through the process, and get you an estimate. 

Why Would You Want to Add Renovation Costs to a New Mortgage?

One of the most popular reasons that someone would look into this is that they’ve found a home that has a ton of potential, but needs some work, and they don’t have the cash or equity to cover it immediately. It’s a common problem, and there are solutions. 

A large blue house with white trim and a lot of lighting

Can You Add Renovation Costs to a New Mortgage?

The answer is yes, but it depends on your current mortgage situation. You could look at a government sponsored FHA 203k or FannieMae Homestyle loan that is designed for purchasing or refinancing a home that needs renovations, and is based on the value of the home after the renovations are complete. 

There are some downsides to this type of loan. 

  • First, you must have a rigid plan for your renovations. Adapting while remodeling is not an option. 
  • Second, you have to pay for a construction inspector and the loan comes incrementally, making it even more rigid.
  • Third, there are restrictions on the types of renovation you can finance.
  • Most importantly, the fees and interest rate are higher than other types of loans. 

The tradeoff for the higher fees and interest is that people with lower credit scores can get approved for these loans. The FHA 203K only requires a 580 credit score. But these loans charge for that ease of access.

Construction Loan

What about a construction loan? These are typically used for building a brand new home, but since they are based on future value, they have been used for renovating existing properties. Since the fees and interest may be lower than the government loans mentioned above, this is often a better option.

Can You Add Renovation Costs to a Current Mortgage?

If you are a homeowner who wants to finish their basement, renovate their kitchen, or remodel their bathroom, you don’t want to have another payment to worry about every month. But there is a way to add renovation costs to your mortgage. A cash out refinance will let you extract equity from your home to pay for those renovations without a separate payment. Since these renovations will often increase the value of your home, it is often worth the cost of refinancing. Especially if you are performing renovations to get the home ready to sell. But if you don’t have enough equity, this isn’t an option.

wooden kitchen flooring

The downside to refinancing is the fees associated with a refi. If you refinance with a higher interest rates, that is a double blow to the wallet. Then the closing costs can be as much as 5% of the total loan. Your monthly payment will be much higher. I know it seems like that’s just the cost of getting access to your equity, but you can avoid that larger payment with patience or a separate loan. This is a steep price to pay just to be able to remodel your bathroom immediately.

Consider comparing the cost of a cash out refi to a separate loan. It may be inconvenient to get a personal loan and make a separate payment for renovations, but it also may be worth it. Especially if you can pay the loan off as soon as you sell the home.

What if I don’t have the Equity?

You could refinance using one of the above options to renovate your home, but that is often not the best choice financially. Look into a personal loan. Some contractors provide financing. There are also several online loan services that may have lower fees and rates. Then there is the old standby option: Save the money that you need, then renovate. If you’re not looking to sell immediately, you don’t have to rush a renovation. 

The Takeaway

Keep in mind that multi purpose loans often come with extra fees. It is often not worth it to try to roll your renovation costs into your mortgage. If it is something that can wait, you will save thousands in the long run by being patient, and/or by getting separate financing for renovations.

Do you need to remodel or renovate your home in Southern Indiana? Don’t hesitate to call us here at Flooring Masters & Professional Remodelers. We provide you with the best options for perfect floors, bathroom remodeling, kitchen remodeling, as well as basement and garage finishing. Schedule a free estimate today!

About The Author

John Raisor is a well traveled carpentry and food writer.


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