Researching kitchen remodel financing may not be as fun as designing your dream kitchen, but it can save you money and time. The ideas in this guide could save you a lot of money on your next kitchen renovation.
If you’re excited about remodeling your kitchen but dread the cost, that’s understandable. “A kitchen remodel is one of the most expensive home improvement projects that a homeowner will undertake,” says Marlin Martin, Owner/Partner of Eagle Building Solutions.
In fact, according to Hanley Wood’s 2017 cost vs. value report, a major kitchen remodel is the second most expensive upscale home improvement project. And it’s the fifth most expensive midrange project.
HomeAdvisor’s Chief Economist Brad Hunter says that the total cost of kitchen remodels runs from $12,589 to $33,067, with $21,668 being the average. However, depending on what you want, the cost could end up in the six figures.
But don’t don’t let these prices discourage you just yet. There are financing solutions that can help you fund your dream kitchen without going broke. There are also ways to cut costs.
Let’s take a look at five ways to finance your kitchen remodel.
1) Finance your kitchen with the equity in your home
You can finance your kitchen remodel by using a home equity loan (HEL) or a home equity line of credit (HELOC). Both of these options use your home as collateral. So, if you fail to make the payments, you risk losing your home.
Home equity loan (HEL)
A home equity loan is similar to taking out a second mortgage. You borrow the equity in your home to receive a lump sum of cash. Home equity loans have a fixed interest rate, so you’ll make regular, fixed monthly payments over a specified period. Also, the interest paid could be tax-deductible.
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Home equity line of credit (HELOC)
“The most common and cost effective way to finance a kitchen remodel is to obtain a Home Equity Line of Credit (HELOC),” says Jeff Hensel, sales and marketing director at North Coast Financial, Inc.
A HELOC is similar to a credit card. It’s a revolving line of credit and your home is used to secure the loan. Instead of receiving a lump sum like a home equity loan, a HELOC allows you to borrow smaller amounts over a period of time.
Hence says, “Tapping into the equity in your home offers you the flexibility to move funds in and out of the credit line as needed. You only pay interest on the amount of money you borrow.”
A kitchen remodel is one of the most expensive home improvement projects that a homeowner will undertake”
To qualify for a HELOC, you need good credit. You also need enough equity in your home. Most HELOC lenders require a combined loan-to-value (LTV) ratio of 70% or lower to qualify for a HELOC, says Hensel. The LTV ratio is your current mortgage amount owed divided by the appraised value of your home.
The combined LTV includes the amount of money you want on your credit line. “Calculate the combined LTV ratio by adding your current mortgage loan balance to the proposed amount you want for the HELOC. Then, divide that total by the current value of your home,” says Hensel.
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HELOC kitchen financing example
For example, say your home is worth $250,000, you want a HELOC for $20,000, and your current mortgage is $150,000. The latter totals $170,000. That total divided by $250,000 equals a 68% LTV ratio, which would qualify you for a HELOC.
HELOCs are a long-lasting source of credit. “Many HELOCs allow for borrowing against the credit line for 10 years,” says Hensel. “At the end of 10 years, the HELOC is often converted to a fixed loan. The outstanding balance is amortized over 10 years.”
During the application process, the lender may need your home’s current value. They will get this by requiring a home appraisal.
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2) Finance your kitchen remodel with contractor financing
Many kitchen remodeling contractors offer their own financing packages. This can be a convenient option. However, this route has its drawbacks. The main disadvantage is that you only have one potential loan to consider. You have no basis for comparison to know if the loan rates and terms are competitive.
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3) Kitchen remodel financing with a personal Loan
A personal loan may be your best option for funding your kitchen remodel, especially if you don’t have enough equity in your home to use. Personal loans are unsecured, so you won’t have to use your home as collateral.
The application is quick and easy. Once approved, the funds will appear in your account almost immediately. Personal loans offer longer repayment terms and typically have a fixed interest rate (though there are some that have variable rates).
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Use SuperMoney’s loan offer engine to receive personalized loan offers from top lenders. This will help you quickly discover the best options for your unique situation without hurting your credit score. You can then compare all the top lenders right here.
Manage Kitchen Remodel Costs
However you decide to fund your kitchen remodel, it’s always a good idea to cut costs wherever possible.
“The kitchen is the heart of every home. You want to get the kitchen of your dreams without breaking the bank,” says Martin of Eagle Building Solutions. “Determining where you should splurge and where you can save money helps cut costs.”
Some areas where Martin suggests cutting costs include kitchen cabinets and hardware. According to the National Kitchen and Bath Association, these comprise 29% of the cost of a kitchen remodel.
“Instead of ripping cabinets out and replacing them, which ups labor cost, re-face or refinish,” says Martin. He adds, “Freshen renovated cabinets with affordable hardware from your local home store.”
Countertops are another potentially expensive kitchen element. Says Martin, “Granite, stone, and marble are costly. Laminate, tile, and wood are the most budget-friendly.”
Martin also suggests saving money on labor by doing some of the work yourself. To avoid costly fixes, though, hire a professional contractor to do the difficult tasks.
“Cutting costs depends on your kitchen remodel goals,” adds Christine Ducato, vice president of Reliable Home Improvement. “Make a list of what you really want and prioritize. Then cut costs from there.”
Once you decide on the contents of your ultimate kitchen, check out your financing options by using SuperMoney’s loan offer engine. Then visit our reviews page to compare rates from all the top lenders.