Kitchen Remodel Financing: How-to Guide
The kitchen is the home’s hearth. It’s where we gather at the beginning of our day for much-needed cups of coffee and where we hang for late-night chats and ice cream straight out of the container. For people who love to cook, it’s a safe haven—one that brings their love of food and loved ones together.
A properly designed kitchen welcomes guests and provides room for creative culinary feats (and feasts). But when the kitchen is dated, the space is too small or poorly laid out, or the appliances are in disrepair, it becomes a challenge to feel comfortable and enjoy what should be your oasis.
Remodeling your kitchen can give it a much-needed facelift. But that could cost tens of thousands of dollars.
If you don’t have savings put away for a kitchen remodel, what then?
Today, we’ll discuss your kitchen remodel financing options.
How Much Does a Kitchen Remodel Cost?
A kitchen remodel, or kitchen renovation, is a financial commitment, to say the least. Not only are there the upfront costs to consider, such as the size of the project, design, kitchen features, etc, there are also the tertiary costs of not having a working kitchen—ordering out is generally more expensive than cooking at home.
According to a Home Advisor survey, the average kitchen remodel costs $25,627 or $150 per square foot. It ranges from $13,494 on the low end to $38,077 on the upper end of the average—although some remodels can be more than $100,000 projects. Prices break down as follows:
- Modern appliance installation and ventilation remodels average out to $7,130.
- New countertops will average around $2,300.
- Brand new flooring, doors, windows, walls, and ceiling can total $3,680.
Remember, these are just averages. So, a $2,300 average countertop may not seem like much. However, if you opt for a rare material like pristine Calcutta Marble, a premium Onyx, or a Pyrolave enameled lava—either of which costs hundreds of dollars per square foot—that could quickly increase the price of just the countertops five-fold.
Depending on where you live, the scale of the project, and the quality of inputs, the cost of a kitchen remodel can range significantly higher than the national average. In fact, some estimates put the average major mid-range kitchen remodeling costs at approximately $68,490, with the average upscale remodel costing $135,547. Along those lines, a major kitchen remodel project in California will likely be even more expensive, averaging $148,216.
How to Fund a Kitchen Remodel
Even if you don’t have $50,0000 cash squirreled away for kitchen remodel financing, there are various financing options available, including:
A Personal Loan
If you don’t have any equity in your home or valuable collateral, it’s possible to take out a personal loan for home improvement. This allows you to borrow a lump sum at a fixed interest rate, which must be paid back over a fixed period.
Also known as an unsecured loan, this financing option tends to have more onerous terms because nothing is backing the loan. As a result, there are borrowing limits, meaning that you may not receive enough money to cover the entire project.
To qualify for a personal loan at competitive interest rates, the borrower typically is expected to have a good or excellent credit rating. With Experian, for example, that would necessitate that your FICO score is 700 or higher, with 800+ being ideal.
A personal kitchen remodel loan tends to have fast funding. As long as you have a good credit score, it may take only a few weeks, if not days, to receive the loan amount. Funding is also flexible since you get to decide the amount you receive, so long as you stay below the creditor limit.
That said, there tend to be shorter loan terms and higher interest rates because the loan is unsecured.
Pros of a personal loan include:
- Fast funding
- Flexible loan amounts
- No collateral needed
Cons of a personal loan include:
- Higher interest rate or APRs
- Shorter loan term
- Need good credit for larger loan amounts
Remember, remodeling is a pretty daunting kitchen project. So if you want to apply for a personal loan, make sure you don’t have bad credit and have steady income throughout the repayment term.
Another kitchen remodel financing option is to use your credit card. This may be a better method for people who are only conducting a minor remodel. And it becomes even more attractive if you can find a card that offers a low- to zero-interest line of credit during a given time window.
That said, this type of home improvement financing should probably be your last resort unless you know you’ll be able to pay back the money quickly. You need to be able to pay off the card before high interest rates kick in. Along these lines, credit cards have limits on the maximum amount. It may be enough to cover part of the project, but not the entire remodel.
Pros of using a credit card include:
- Rapid access to funds
- Available promotions and deals on cards
Cons of using a credit card include:
- A cap on the loan amount
- Higher interest rates
- Need to pay off the card each month
Home Equity Loan
A different route for financing your kitchen would be to take out a second mortgage with a home equity loan for remodels. This allows you to leverage your existing home equity to access funds. It doesn’t change the original mortgage terms; rather, it adds an additional payment with different terms.
This type of secured loan uses the home as collateral, allowing the borrower to receive lower interest rates.
With a home equity loan, you can deduct interest from taxes if the loan is being used for home improvements. And, you typically get larger loan amounts at lower rates because the home acts as collateral. However, at the same time, if you can’t repay the loan, the lender could seize your home.
Pros of using a home equity loan include:
- Lower interest rate
- Ability to leverage 70%–90% of the equity amount
- Home improvements are tax-deductible
- Credit doesn’t matter if you have equity
Cons of using a home equity loan include:
- You risk your house
- You must have enough equity to qualify
- It may necessitate a home appraisal
Home Equity Line of Credit (HELOC)
With a HELOC, you can borrow money against the value of your home and the equity therein to remodel your kitchen. It’s similar to a home equity loan, except that it functions more like a credit card than a second mortgage.
You put up your home equity in exchange for a flexible line of credit you can use as you see fit. With this loan option, you borrow as much or as little as you need for your kitchen remodeling project and then only pay interest on that amount.
Like a home equity loan, this is a secured form of financing. So, if you’re unable to repay the loan, the lender could foreclose on the house.
Pros of using a HELOC include:
- Home improvements are tax-deductible
- Lower interest rates than a personal loan
- Flexible credit that can be used multiple times
- Longer repayment times
Cons of using a HELOC include:
- You risk your house
- Higher interest rates than home equity loans
- It becomes easy to overborrow
Federal Loan Programs
Some homeowners that wish to finance home improvements can do so via government-provided loans. Section 203(k) program via the U.S. Department of Housing and Urban Development (HUD) allows American homeowners to take out a new mortgage or refinance the existing mortgage by accounting for the additional cost of renovations.
Types of improvements that borrowers can make include:
- Structural alterations and reconstruction
- Modernization and home improvements
- Replacing plumbing
- Replacing or repairing floors
- Making energy conservation improvements
To qualify, the cost of rehabilitation must be at least $5,000, and the total value of the property must still fall within the FHA’s mortgage limit for that specific area.
If you do qualify, apply to an FHA-approved lender.
Pros of using a federal loan program include:
- Programs that offer fixed interest rates
- Loan programs specific to certain demographics. For example, those who live in rural areas may qualify for the Rural Home Improvement and Repair loan or grant.
Cons of using a federal loan program include:
- Those who must default on their loans or who can’t repay their loan will not be able to declare bankruptcy.
- The application process can be slightly more involved, especially if you’re applying for a special grant or loan.
However, there are other simpler ways to obtain the funds needed for the kitchen of your dreams.
Start Upgrading Your Kitchen Today
Are you ready to remodel your favorite room so you can start channeling your inner Gordon Ramsay?
Today there are several financing options available to homeowners, and they aren’t just applicable to the kitchen. Some of these options can also be used for bathroom remodel financing. But none of them provide the same value and flexibility as a sale-leaseback.
Through a sale-leaseback, you can sell your home, convert home equity to cash, and lease back homes. With the extra cash, they’ve been able to pay off debts, perform home renovations, purchase their next home, or cover a major life event.
Remodeling your kitchen can give it a much-needed facelift. But that could cost tens of thousands of dollars. We have an alternative option for kitchen remodel financing. If you are still unsure of alternative options for remodel financing, after reading this article, consult a financial advisor to discuss your options.
- Home Advisor. How Much Does it Cost to Remodel a Kitchen? https://www.homeadvisor.com/cost/kitchens/remodel-a-kitchen/#estimator
- Remodeling.com National Data. https://www.remodeling.hw.net/cost-vs-value/2020/
- Experian. What Is a Good Credit Score? https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/
- U.S. Department of Housing and Urban Development. 203(k) Rehab Mortgage Insurance. https://www.hud.gov/program_offices/housing/sfh/203k/203k–df