How to Finance Your Home Remodel in Michigan: Loans, Grants, and Tax Breaks

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A kitchen remodel or a garage conversion can transform a house, but the number that stops most homeowners isn’t the design — it’s the financing. Cash on hand rarely covers a full renovation, and the array of loan programs, government incentives, and lender terms can feel like its own research project before a single wall comes down.

The good news: Michigan homeowners have more financing paths available than most people realize, from federal renovation mortgages to a state-run energy loan program with below-market rates. The less good news: a few incentives that used to be part of this conversation — most notably a major federal tax credit — went away at the end of 2025. Here’s what’s actually available right now, and what’s not.

FHA 203(k) Loans: Buy and Renovate in One Mortgage

The FHA 203(k) loan remains one of the most useful tools for financing a major remodel, especially for anyone buying a fixer-upper or refinancing a home that needs significant work. It rolls the purchase (or existing mortgage) and renovation costs into a single loan with one closing and one monthly payment.

There are two versions:

Standard 203(k) — for major renovations, including structural work, room additions, and full kitchen or bath overhauls. There’s no fixed cap on rehabilitation costs beyond the total loan staying within FHA’s county loan limits, and the combined total of purchase price and rehab costs must remain within the county’s FHA loan limits.

Limited 203(k) — for smaller, non-structural projects like new flooring, updated kitchens, or cosmetic work. This program got a significant upgrade in late 2024: HUD raised the rehabilitation cap from $35,000 to $75,000, and extended the repair timeline to nine months for Limited 203(k) mortgages and 12 months for Standard 203(k) mortgages. That change alone made the Limited program realistic for far more projects — a full kitchen remodel or bathroom addition that used to blow past the old $35,000 ceiling now often fits comfortably.

For 2026, FHA loan limits sit at $541,287 for most areas and up to $1,249,125 in high-cost areas. Basic qualification requirements: a credit score of 580 or higher for the standard 3.5% down payment (some lenders set their own minimum around 620–640 for 203(k) loans specifically), and all work must be done by a licensed contractor — DIY labor isn’t reimbursable, though supervised DIY work can be pre-approved in limited cases.

Because these loans involve staged draws, appraisals of “as-is” and “after-improved” value, and often a HUD-approved consultant, they take longer to close than a standard mortgage. Budget extra time in your project timeline if you’re going this route.

Michigan-Specific Financing: Michigan Saves

For homeowners focused on energy efficiency — new furnace, insulation, heat pump, windows — the standout state-level option is Michigan Saves, a nonprofit green bank that isn’t a government loan itself but connects homeowners with a network of participating lenders offering better-than-market terms.

Loans through the program are unsecured personal loans, ranging from $1,000 to $75,000, available at some participating credit unions with rates as low as 6.49% APR depending on the lender and your creditworthiness. Terms scale with the loan size — one year of term for every $1,000 up to $4,999, and up to a ten-year term (or longer where applicable) for loans of $5,000 or more. There are no annual or early repayment fees.

One important eligibility detail: this program is available for owner-occupied, single-family homes used as a primary residence — rental properties and secondary residences don’t qualify. It’s worth noting this isn’t a general remodeling loan; the qualifying improvements are tied to energy performance (insulation, HVAC, windows, appliances), though some non-energy work can be bundled in if it’s necessary to complete a qualified energy project.

MSHDA: Useful, But Mostly for Purchase, Not Renovation

The Michigan State Housing Development Authority (MSHDA) is the state’s primary housing finance agency, and homeowners often assume it has a straightforward home-improvement loan program. In reality, MSHDA’s flagship offering — the MI 10K Down Payment Assistance program — is a $10,000, zero-interest, non-amortizing second mortgage designed to help with the down payment and closing costs on a home purchase, not a renovation fund for homeowners already in their house. It can be combined with an FHA 203(k) purchase-renovation loan, which is a useful pairing for buyers taking on a fixer-upper.

MSHDA has also administered targeted home repair grant programs (MI-HOPE) for lower-income households, funded through federal and state dollars and distributed via local community agencies. As of 2026, that particular portal is not accepting new general applications, with existing funds being wound down. Programs like this shift often, so if a repair-grant option is something you want to explore, your local community action agency or county housing office is the most reliable source for what’s currently open.

A Note on PACE Financing

You may see PACE (Property Assessed Clean Energy) financing mentioned as a home-improvement option — it’s a real and growing tool nationally, letting property owners finance energy upgrades through a special assessment on their property tax bill. In Michigan, however, PACE financing through Lean & Green Michigan is limited to commercial, industrial, agricultural, and multifamily properties — it’s a financing tool specifically for commercial property owners, not a residential option. If you’re a homeowner, this program isn’t something you can currently tap into for a single-family remodel; it’s more relevant if you also happen to own income or commercial property.

Utility Rebates and the MiHER Program

Michigan’s most active incentive layer right now isn’t a tax credit — it’s utility and state rebates administered through the Michigan Department of Environment, Great Lakes, and Energy (EGLE). The Michigan Home Energy Rebates (MiHER) program, which launched statewide in April 2025, offers point-of-sale rebates for electrification and efficiency upgrades like heat pumps, insulation, and electrical panel work.

Combined HEAR and HOMES rebates can total up to $14,000 per household for low-income applicants (at or below 80% of area median income), with moderate-income households (80–150% AMI) eligible for smaller amounts. As of mid-2026, new income-qualified applications through the EGLE Detroit District have been paused, even though the program remains open elsewhere in the state — worth checking current status before counting on this for a Metro Detroit project.

On top of MiHER, both major utilities run their own rebate programs: DTE Energy offers up to $1,200 and Consumers Energy offers rebates in the $300–$350 range for qualifying heat pump installations, and these stack with the state program.

What Changed: Federal Energy Tax Credits Are Gone

This is the most important update for anyone who’s remodeled before and remembers claiming a credit for a new furnace or insulation: the federal Energy Efficient Home Improvement Credit (Section 25C) and Residential Clean Energy Credit (Section 25D) both expired at the end of 2025.

The One Big Beautiful Bill Act, signed in July 2025, accelerated the expiration of both credits to December 31, 2025, years ahead of their original 2032 sunset. Practically, that means:

Insulation, energy-efficient windows and doors, and qualifying HVAC systems installed and placed in service after December 31, 2025, no longer qualify for a federal tax credit
Solar panels, battery storage, and geothermal systems completed in 2026 or later similarly don’t qualify under Section 25D
If you completed a qualifying project in 2025 and haven’t filed for the credit yet, it can still be claimed retroactively via an amended return using IRS Form 5695

For any 2026 project, this means the rebate programs above (MiHER, utility rebates, Michigan Saves financing) have effectively become the primary financial incentive layer in place of the tax credit — a meaningfully different landscape than a year or two ago.

Home Equity Loans and HELOCs

For remodels that don’t fit neatly into an energy-efficiency or purchase-renovation loan — a garage conversion, a full kitchen gut, a bathroom addition — a home equity loan or home equity line of credit (HELOC) remains the most flexible financing tool available, and it’s what many Michigan homeowners end up using for larger, non-energy-focused projects.

A few things worth knowing:

Rates are typically lower than personal loans or credit cards since the loan is secured by the home
Interest may be tax-deductible, but only if the funds are used to “buy, build, or substantially improve” the home securing the loan — this is a real IRS rule, not a general assumption, so keep documentation of how funds were spent
Unlike a 203(k) or Michigan Saves loan, there’s no restriction on project type — this covers cosmetic remodels, additions, or garage conversions that don’t involve energy upgrades

Putting It Together

For a typical Michigan remodel in 2026, the realistic financing stack usually looks like one of these:

Buying a fixer-upper: FHA 203(k) loan, potentially paired with MSHDA’s MI 10K down payment assistance
Energy-focused upgrade in an existing home: Michigan Saves loan, layered with MiHER and utility rebates where income-eligible
General remodel with no purchase involved (kitchen, bath, garage conversion, addition): home equity loan or HELOC, since it’s unrestricted in scope
Lower-income households needing repair assistance: local community action agency or county housing office, since state-level grant portals shift frequently

Every one of these has eligibility rules that change based on income, property type, and location — and, as the 25C/25D situation shows, federal policy on this front can shift fast. Before committing to a financing path, it’s worth a direct call to the program administrator (EGLE for MiHER, an FHA-approved lender for 203(k), or a Michigan Saves participating credit union) to confirm current terms rather than relying on last year’s numbers.

Contact our Michigan Home Remodeling Contractors.