Home Improvement Finance

Kitchen Remodel Financing: How to Finance Your Dream Kitchen

Article Summary

Researching kitchen remodel financing may not be as fun as designing your dream kitchen, but it will save you money and time. The ideas in this guide could save you a lot of cash on your next kitchen renovation.

Kitchens are the heart of the home. Whether your kitchen project is creating your gourmet dream space or your kitchen renovation is about increasing your home’s value for resale, the cost can be shocking. Kitchen remodeling does not have to be frightening. There are multiple kitchen remodel financing options to consider. Researching financing may not be as fun as designing your dream kitchen, but the research will save you money and time.

In this guide, we will look at how to estimate the cost of your kitchen project and find the best kitchen remodel loans. The ideas in this guide could save you a lot of cash on your kitchen renovation.

Kitchen remodel cost

It doesn’t matter if you are a DIY champion or planning to hire a pro; you are probably excited to remodel your kitchen but dreading the cost. We get it. “A kitchen remodel is one of the most expensive home improvement projects that a homeowner will undertake,” says Marlin Martin, Owner of Eagle Building Solutions.

“A major kitchen remodel is one of the most expensive home improvement projects. It can cost between $23.5K to $135.5K.”

According to Hanley Wood’s 2020 cost vs. value report, a major kitchen remodel is the second most expensive home improvement project. The table below provides 2020 data on the cost and resale value of popular home improvement projects.

Master Suite Addition | Upscale$282,062$145,48651.60%
Major Kitchen Remodel | Upscale$135,547$72,99353.90%
Bathroom Addition | Upscale$91,287$49,96154.70%
Major Kitchen Remodel | Midrange$68,490$40,12758.60%
Bath Remodel | Upscale$67,106$37,99556.60%
Bathroom Addition | Midrange$49,598$26,80754.00%
Roofing Replacement | Metal$40,318$24,68261.20%
Bath Remodel | Universal Design$34,643$21,46362.00%
Roofing Replacement | Asphalt Shingles$24,700$16,28765.90%
Minor Kitchen Remodel | Midrange$23,452$18,20677.60%
Window Replacement | Wood$21,495$14,80468.90%
Bath Remodel | Midrange$21,377$13,68864.00%
Deck Addition | Composite$19,856$13,25766.80%
Window Replacement | Vinyl$17,641$12,76172.30%
Siding Replacement | Fiber-Cement$17,008$13,19577.60%
Deck Addition | Wood$14,360$10,35572.10%
Siding Replacement | Vinyl$14,359$10,73174.70%
Manufactured Stone Veneer$9,357$8,94395.60%
Grand Entrance | Fiberglass$9,254$4,93053.30%
Garage Door Replacement$3,695$3,49194.50%
Entry Door Replacement | Steel$1,881$1,29468.80%

HomeAdvisor’s Chief Economist Brad Hunter says that the total cost of kitchen remodels doesn’t have to be so high. In his experience kitchen remodels run from $13,341 to $37,700, with $21,668 being the average. However, depending on what you want, the price could end up in the six figures.

Cabinets and countertops are typically the most expensive components in kitchen projects. However, if you decide you want to change your layout, you could incur a lot of expense in moving plumbing, electrical, or if removing walls – contractor expense. These items can drive the amount of your home improvement loan needs through the roof.

But don’t let these prices discourage you just yet. We can help you finance your dream kitchen without going broke. We also have some great tips to help you cut costs.

Let’s take a look at how to finance your dream kitchen.

Kitchen remodel financing options

Option 1: Tap into the equity in your home as a kitchen remodel loan

You can finance home improvement projects with a home equity loan or a home equity line of credit (HELOC). Both of these options tap into your home equity, using your home as collateral. That means if you fail to make the payments, you risk losing your home. But securing loans with collateral also means lower interest rates and easier approval.

Home equity loan (HEL)

A home equity loan is similar to taking out a second mortgage. You borrow the equity in your property to receive a lump sum of cash. Home equity loans offer fixed interest rates, so you’ll make regular, fixed monthly payments over a specified period. Also, the interest you pay could be tax-deductible.

Kitchen remodel financing with a 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.

HELOC is similar to a credit card. It’s a revolving line of credit, and your house secures the loan. Instead of receiving a lump sum like a home equity loan, a HELOC gives you a line of credit that you can tap into over time.

“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.”

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.”

But to qualify for a HELOC, you’ll need good credit. You’ll 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.

HELOC kitchen financing example

Say your house 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 provide credit for long stretches of time. “Many HELOCs allow for borrowing against the credit line for ten years,” says Hensel. “At the end of 10 years, the HELOC is often converted to a fixed loan. The outstanding balance is amortized over ten years.”

During the application process, you’ll have to provide the lender with your home’s current value. You’ll supply this information via a home appraisal.

Click here to compare lenders that offer home equity loans and lines of credit.

Cash-Out Refinance

If you have been in your home long enough to build equity and interest rates are favorable, another loan option involves refinancing. Cash-out refinancing allows you to refinance your current mortgage loan and receive cash out from the equity.

Here are the basic steps to a cash-out refinance:

  1. Get an appraisal to find out if you have equity in your home.
  2. Shop around for a lender that will offer you the best rates and terms on a new mortgage.
  3. Take out the loan and pay off your existing mortgage.
  4. Gain access to the excess cash.
  5. Make repayments to the new lender.

There are drawbacks to a cash-out refinance loan. There can be numerous fees with a refinance of your loan. Like an equity loan and HELOC, if you cannot make your loan payments, you risk losing your house. Make sure you can handle the monthly payment before pursuing any option that attaches your property to a loan.

A cash-out refinance can provide funds for your kitchen renovation and debt consolidation if needed. If you refinance your loan with an improved interest rate, you could actually find yourself with improved monthly payments and better cash flow. A word of wisdom, though, if you use the cash out for both your project and debt consolidation, do not run up the balances on your credit cards or credit. The table below allows you to compare mortgage refinance lenders. Consider getting at least three quotes to ensure you have the best possible deal.

Pros & Cons of a Cash-Out Mortgage Refi

Compare the pros and cons to make a better decision.

  • Lower interest rates can help you save thousands in interest.
  • You may be able to claim tax deductions on your mortgage payments.
  • Access to large amounts of cash (if you have the equity).
  • You can save money on the overall cost of the mortgage if you also lower your rates and/or choose a shorter term.
  • Closing costs range from 2% to 5% of the mortgage.
  • Funding the loan can take weeks.
  • You could lose your home if you default on payments.

Option 2: Finance your kitchen remodel with contractor financing loans

Many kitchen remodeling contractors offer financing or loan packages. This financing option may seem convenient. However, this route comes with a significant drawback. 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. If you are a business that would like to provide no-fee point of sale financing to your clients, consider partnering with SuperMoney.

If you decide to go this route, be sure to research the lender landscape and confirm that your contractor’s rates and terms are competitive.

Pros & Cons of Contractor Financing Loans

Compare the pros and cons to make a better decision.

  • Convenient, all-in-one building and financing.
  • May not offer the best interest rates and terms.
  • Only one financing option is given.

Option 3: Apply for a home improvement loan

A personal loan may be your best option as a kitchen remodel loan, especially if you don’t have enough equity in your property to use. And because personal loans are unsecured, you won’t have to use your house or assets as collateral.

“Instead of ripping cabinets out and replacing them, which ups labor cost, reface or refinish.”

The application process is quick and easy. Once approved, loan funds will appear in your account almost immediately. Personal loans offer longer repayment terms and (usually) fixed interest rates.

The lower your credit score is, the higher your interest rate will be. However, some lenders will consider borrowers with low credit scores.

Many online lenders are offering personal loans to fund your home improvement projects, such as AvantLightStream, and Prosper.

Different personal loans come with different rates, fees, and requirements, so check out the best personal loans to ensure that you choose the best option for you.

Pros & Cons of Personal Loans

Compare the pros and cons to make a better decision.

  • Quick online application and approval process.
  • Quick funding (sometimes within 24 hours).
  • Competitive interest rates with good credit.
  • Predictable payment amount with fixed interest rate.
  • Can choose the length of your loan.
  • Multiple lenders to choose from.
  • High interest rates if you have poor credit.
  • Some lenders charge loan origination fees.

Use SuperMoney’s loan offer engine to receive personalized loan offers from top lenders. This will help you discover the best options for your unique situation without hurting your credit score. You can then compare all the top lenders right here.

Use SuperMoney’s loan offer engine to receive personalized loan offers from top lenders. This resource will help you discover the best options for your unique situation without hurting your credit score. You can then compare all the top lenders right here.

There are many options for financing your home improvements. A personal loan does not require equity in your property, but it is not the only option if you have no equity in your property. A home improvement loan may qualify you for tax deductions or credits. The rules are specific to get those perks, but it is certainly worth seeing if your kitchen’s energy-efficient appliances could result in some tax breaks.

Option 4: Credit cards

A credit card is a convenient option that will allow you to start your project quickly. If you can qualify for a credit card that offers a 0% APR promotion for an introductory period, you could pay off your renovation interest-free.

Depending on your credit score, credit card companies can charge very high rates. If you can’t get a good deal, the interest payments can add up quickly. Check your credit card to find out the interest rate before you start your project. With the project estimate from your contractor, you can determine the cost of putting the project on a credit card. Just as with a loan, you need to make sure you can afford the monthly payment.

You always have the option of reaching out to customer service at lending institutions to ask for additional details about loans, credit cards, and other financing options.

If you apply for a new credit card to cover your project cost, remember your credit score will take a hit. This is true for any loans or lines of credit you apply for to cover project costs. If you are working on rebuilding your credit score, be cautious about financing. Credit cards and personal loans typically charge higher interest to those with problematic credit history.

Pros & Cons of Credit Cards

Compare the pros and cons to make a better decision.

  • Easy application process.
  • Some cards offer 0% APR intro offers.
  • Option to earn cashback, rewards.
  • Only consumers with good credit will qualify for large credit limits.
  • High interest rates.

Option 5: Cash

The best way to finance a kitchen remodel is cash, obviously. If you have the money, pay in cash and save in interest and loan fees. Even better, consider doing the work yourself instead of hiring a contractor.

Pros & Cons of Cash

Compare the pros and cons to make a better decision.

  • No interest.
  • No monthly payments.
  • Only available to homeowners with substantial savings.
  • Less money to invest and put toward retirement.
  • Will not help you build your credit history.

How to cut costs on your kitchen remodel

However you decide to fund your kitchen remodel, it’s good 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.”

“Instead of ripping cabinets out and replacing them, which ups labor cost, reface or refinish. Freshen renovated cabinets with affordable hardware from your local home store.”

Some areas where Martin suggests cutting costs include kitchen cabinets and hardware. According to the National Kitchen and Bath Association, these comprise 29% of a kitchen renovation cost.

“Instead of ripping cabinets out and replacing them, which ups labor cost, reface or refinish,” says Martin. He adds, “Freshen renovated cabinets with affordable hardware from your local home store.”

Countertops are another 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. But to avoid costly fixes, 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 want and prioritize. Then cut costs from there.”

Once you decide on your ultimate kitchen contents, check out your loan options using SuperMoney’s loan offer engine. Then visit our reviews page to compare rates from all the top lenders.

Things to remember when shopping for a loan

You have options when it comes to kitchen remodel financing. Home equity loans, personal loans, and kitchen remodel loans are among your available financing options. Homeowners must be aware of interest and fees associated with financing options. When shopping for financing services, be mindful of APR in addition to your payment amount.

When we consider loan options, we must also consider finance qualifications. Like any loan, lenders will look at the homeowners, credit score, debt to income ratio, credit history, and other details in your credit profile, including your bank account and your credit utilization. Your credit history plays a significant role in the rates of interest and fees you can expect with your home improvement loan.

Expert tip: Before you apply for a loan, find out the credit requirements for the financing option you are considering. That will help you avoid unnecessary credit pulls on your credit and you won’t waste time on a financing options you cannot qualify for due to your income, credit score, or current debt levels.

FAQs for Kitchen Remodels

Can you finance a kitchen project?

Your credit score will determine your financing options. A personal loan or other kitchen remodel loans will carry an annual percentage rate determined by your credit history. Some of your options for a kitchen loan include:

  • Use your equity for lines of credit (HELOC) or an equity loan
  • Use low-interest rate credit cards (watch your rates if using a card for your project)
  • Personal loan with low annual percentage rates (APR)
  • Point-of-sale or contractor loans

What is the most expensive part of a kitchen remodel?

Cabinets are typically the most expensive part of a remodel, followed by countertops. However, if you change your kitchen layout, plumbing and electrical costs may be the biggest expense.

Can you remodel a kitchen for $5000?

If you are a DIY type of person, you can do the work yourself and save a lot in labor costs. You will also be able to select more economical options for your kitchen elements. The budget is up to you. A little sweat equity can save a lot of money.

Where can I cut costs on my kitchen project?

Look for discounted or gently used components. Avoid a home improvement loan if you can pay in cash. Do some of the work yourself, if you have the skills. Avoid moving plumbing and electrical components to keep costs down. Finally, reface or paint your cabinets to save on the most expensive element in most kitchen projects.

Related reading: On the subject of home improvement, could you increase your home’s value and usefulness by adding a garage, guest house, or the like? If so, learn how to pay for such structures by reading How To Finance a New Garage or Detached Structure.