Renovation vs. Remodel: What’s the Difference?
Should you pursue a renovation vs. a remodel for your home improvement project? For many homeowners, these terms can mean the same thing, but there are distinct differences between a remodel and renovation.
The changes you’re making to your home can help determine which term applies to your project. Here’s what you need to know about a renovation vs. a remodel.
- What is a renovation?
- What is remodeling?
- Home renovation vs. remodel
- Financing your home improvement project
What is a renovation?
A renovation involves restoring a home to its original condition or better. An example: buying a fixer-upper and working with the existing structure to make the home habitable.
“You’ve got a house with great bones, you’re not going to change anything in the structure of it,” said Christopher Totaro, a real estate agent with Warburg Realty in New York City. “You’re just going to make (the home) look pretty again.”
What is remodeling?
The definition of remodeling means to change a home’s structure or style. This type of project might involve adding a shower to a half bathroom or finishing a basement, for example.
“You’re changing the structure and the layout of a thing, or you’re adding to the footprint of the house,” said Totaro, who previously owned a home construction company.
Home renovation vs. remodel
A home renovation isn’t as involved as a remodeling project, which tends to cost more because of the various contractors that might be involved. Totaro said that aside from using the words remodel and renovation interchangeably, people can mistake one definition for the other.
“People use renovation as if it was the bigger project, and remodel makes it sound like, ‘Oh I’m going to remodel my living room, so I’m going to buy a new couch,’” he said.
Some renovation projects can be large-scale, but a remodeling project typically means you’re taking spaces apart to rebuild or add to a home, Totaro said.
Let’s look at the differences between a renovation vs. a remodel:
|Definition||To change a home’s structure.||To restore or update a home.|
|Cost||Varies, but may cost more than a renovation.||Varies, but may cost less than a remodel.|
Financing your home improvement project
Unless you already have the cash on hand to complete your home renovation or remodel, you’ll need to borrow money for the project. As you weigh the renovation vs. remodel decision, consider the following financing options. (Note: Any loan or mortgage that taps your home equity puts your home at risk of foreclosure if you fail to make payments and default.)
- Home equity loan. A home equity loan allows you to borrow against your available equity in a lump sum. If you know exactly how much money you’ll need for your renovation or remodel, this loan type could work for you. There are loans available for borrowers with high loan-to-value ratios, but you’ll be limited to borrowing 85% of your equity.
- Home equity line of credit. A home equity line of credit (HELOC) is a revolving credit line against your home equity that works similar to a credit card. You repay only what you borrow — plus interest — and can reuse your available credit as long as you have access to it. If you need wiggle room in your renovation or remodel funds, a HELOC may work better than a loan. Most lenders will limit your credit line to 85% of your home’s value, minus your outstanding mortgage balance, according to the Federal Trade Commission.
- Cash-out refinance. Another home improvement loan option is a cash-out refinance. With a cash-out refinance, you borrow a larger loan to replace your existing mortgage and take the difference between the two in cash, and you’ll need at least 20% equity to qualify for a conventional cash-out refi.
- Fannie Mae HomeStyle Renovation. Fannie Mae, one of the two major mortgage agencies that buy and sell loans, offers its HomeStyle Renovation loan through approved lenders. The loan can be used for purchases or refinances. You’ll need at least 3% equity to qualify, and may be able to borrow up to 75% of the after-repair value of your home in renovation costs.
- Freddie Mac CHOICERenovation. The other major mortgage agency, Freddie Mac, offers the CHOICERenovation mortgage for purchases or refinances, plus home improvement costs. The minimum equity required ranges from 3% to 5%, depending on your individual lending circumstances. As with the Fannie Mae HomeStyle Renovation loan, you may qualify to borrow up to 75% of your home’s after-repair value in reno costs.
- FHA 203(k) refinance. The Federal Housing Administration’s 203(k) program allows you to borrow an FHA loan to refinance your existing mortgage and include your remodel or renovation costs in that same loan. There’s no equity requirement and you can qualify to borrow a maximum of 110% of what your home’s value will be after the completed repairs.