Most homeowners do not pay for a kitchen, addition or new roof out of savings. Choosing the right home renovation loan can save thousands in interest and keep your project on schedule. This guide compares the main financing options available to Maryland homeowners, including a state program many people have never heard of. We are a contractor, not a lender, so treat this as a starting point for a conversation with your bank or credit union.
Key takeaways
- If you have equity, a HELOC or home equity loan usually offers the lowest rate for remodeling.
- FHA 203(k) and Fannie Mae HomeStyle loans let you borrow based on the home’s value after the renovation.
- Maryland’s Housing Rehabilitation Program offers loans of up to about $50,000 at 0 to 6 percent for qualifying health and safety repairs.
- Under Maryland law a contractor cannot take a deposit of more than one third of the contract price.
Renovation financing options compared
| Option | How it works | Best for | Watch out for |
|---|---|---|---|
| HELOC | Revolving line of credit secured by your home; draw as the project progresses | Projects paid in stages, like additions and whole house remodels | Variable rate; your home is collateral |
| Home equity loan | Lump sum at a fixed rate, secured by your home | Fixed price projects such as a roof or kitchen | Closing costs; you pay interest on the full amount from day one |
| Cash-out refinance | Replace your mortgage with a larger one and take the difference in cash | Large projects when current rates beat your existing mortgage rate | Resets your mortgage; not attractive if you hold a low rate |
| FHA 203(k) | Purchase or refinance loan that includes renovation funds, based on after renovation value | Buying a fixer upper or homeowners with limited equity | More paperwork, inspections and draw schedules |
| Fannie Mae HomeStyle | Conventional renovation loan based on after renovation value | Larger remodels and buyers with good credit | Lender and appraisal requirements |
| Personal loan | Unsecured loan, fast approval | Smaller projects under about $25,000 | Higher interest rates, shorter terms |
| 0% credit card promotions | Short promotional period | Small projects you can repay quickly | Very high rate when the promotion ends |
HELOC vs home equity loan
Both are secured by your home and usually let you borrow up to 80 to 90 percent of its value minus your mortgage balance. A HELOC works like a credit card: you draw what you need when you need it, which matches the payment schedule of a construction project. A home equity loan gives you the full amount up front at a fixed rate, which suits a single fixed price job. Interest may be tax deductible when the money is used to substantially improve your home; ask your tax advisor.
Renovation mortgages: FHA 203(k) and HomeStyle
If you are buying a home that needs work, or you have little equity, these loans let the lender count the value the remodel will add. They require a detailed contractor bid, and funds are released in draws as work is inspected. We regularly provide the itemized scopes of work these lenders require.
Maryland state help: the Housing Rehabilitation Program
The Maryland Department of Housing and Community Development runs the Maryland Housing Rehabilitation Program for owner occupied homes. According to the department, it generally lends up to $50,000 at 0 to 6 percent interest, with terms up to 30 years, for households earning up to 80 percent of area median income. Eligible work includes roofs, gutters, foundation and waterproofing, electrical upgrades, plumbing, heating, accessibility and other health and safety repairs. Applications go through your local housing office, and a licensed, insured Maryland contractor provides the scope of work.
Frederick County and the City of Frederick also run their own housing programs from time to time. Check with the county housing office before you sign a contract.
Need a detailed, itemized estimate for your lender or a state program? We prepare them every week.
Protect yourself when you finance a remodel
- Deposits: Maryland law caps a home improvement deposit at one third of the contract price, and no payment can be taken before the contract is signed.
- Licensing: only hire a contractor licensed by the Maryland Home Improvement Commission. Samuel Construction Group holds MHIC #134199.
- Liens: if the contract is secured by your home, Maryland requires a notice on the first page and gives you three business days to cancel.
- Draws: tie payments to completed milestones such as rough in, inspection and drywall, not to calendar dates.
- Lien waivers: ask for waivers from the contractor and major suppliers as you pay.
Our guide to hiring a general contractor in Maryland covers contracts and payment schedules in more detail.
Build a realistic budget before you borrow
- Get a written estimate with allowances for fixtures and finishes.
- Add a 10 to 15 percent contingency for hidden conditions in older homes.
- Include permit fees, temporary living costs and appliance purchases.
- Borrow for the total, not just the contract price, so you are not short at the end.
For typical project costs, see our guides to kitchen remodel cost, bathroom remodel cost, basement finishing cost and home addition cost.
Frequently asked questions
What is the best loan for a home renovation?
For homeowners with equity, a HELOC or home equity loan usually has the lowest rate. Buyers of fixer uppers or owners with little equity often use an FHA 203(k) or Fannie Mae HomeStyle renovation loan.
Does Maryland have grants or loans for home repairs?
Yes. The Maryland Housing Rehabilitation Program generally offers loans up to about $50,000 at 0 to 6 percent interest for income qualified owner occupants, covering health, safety and code related repairs. Local counties also run programs.
How much deposit can a contractor ask for in Maryland?
A licensed home improvement contractor in Maryland cannot accept a deposit of more than one third of the contract price, and cannot take any payment before the contract is signed.
Can I finance a remodel without equity?
Yes. Renovation mortgages such as FHA 203(k) are based on the value after improvements, and unsecured personal loans do not require equity, although they carry higher rates.
Get a price you can take to the bank
Lenders want a detailed scope, a timeline and a licensed contractor. We provide all three. Request your free estimate or call (240) 875-4120.