Kitchen Remodel Loans: Compare Financing Options

A kitchen remodel loan is a personal loan used for a kitchen renovation. Loan amounts range from $1,000 to $100,000, and repayment terms are typically two to seven years. Rates are from 7.5% to 36%.

The loan is distributed in a lump sum and repaid, plus interest, in fixed monthly installments.

Kitchen remodel loans don’t require collateral, meaning your credit and income determine approval and your loan’s annual percentage rate.

1. Get a firm cost estimate. The amount you plan to spend on the kitchen remodel could determine how you pay for it, so get a few quotes and settle on a budget first.

2. Pre-qualify. Once you have an estimate, pre-qualify to see potential loan rates and terms. Because this process doesn’t affect your credit score, you can pre-qualify with multiple lenders.

3. Compare lenders. If you get two similar offers, compare loan features like rate discounts, funding time and repayment term options to break the tie.

4. Apply. Gather documents like W-2s, paystubs and bank statements before you apply to make the loan application process smoother. A lender will do a hard credit check, which will cause your credit score to dip temporarily. Expect a decision within a day or two of applying.

A personal loan may be a good option if you don’t have much equity in your home or don’t want to use the home as collateral for the loan.

Monthly payments are often higher on personal loans because they tend to have higher rates and shorter repayment terms than home equity financing. However, many personal loans can be funded within a week, while a home equity loan or line of credit may take a couple of weeks or longer if the lender requires an appraisal.

A home equity loan is a second mortgage you get in a lump sum and repay in fixed monthly installments for up to 30 years. Rates start in the single digits.

Compare to personal loans: Home equity loans are similar to personal loans, but the loan amount is tied to the home’s value. Credit and income requirements may be softer for equity financing, so those with less-than-perfect credit who have repaid much of their mortgage may be able to borrow more with a home equity loan than a personal loan.

A HELOC is a credit line you draw from as needed, typically over a ten-year period. Repayment terms are often 20 years, and rates can be low but variable, meaning your monthly payments may fluctuate.

Compare to personal loans: Since you don’t borrow a HELOC all at once, it can be ideal if the project’s cost isn’t set and you want to be ready for surprise expenses. If you get a personal loan and unexpected remodeling costs come up, you can’t borrow more.

With a cash-out refinance, you replace your existing mortgage with a new one that includes funds for a remodel.

Cash-out refinancing works best for a remodel if the rate on your new mortgage has a lower APR than your current mortgage. This type of financing also comes with closing costs so financial planners recommend homeowners stay in the home long enough for the monthly savings to exceed the cost of refinancing.

The Federal Housing Administration has two programs that can help you finance a qualifying renovation:

Title I Property Improvement Loans are available for home improvements and repairs. If your renovation will cost more than $7,500, the loan must be secured by a deed of trust or mortgage.

The cost of a kitchen remodel can range from $27,500 to $158,500, depending on the materials used, the amount of work needed and additional features like new appliances. Here are tips to keep in mind when financing a future kitchen remodel.

Budget more than you think you’ll need. It’s a good idea to add extra money to your project’s budget for unexpected expenses. Ask contractors how much wiggle room they think is reasonable when you’re gathering quotes.

Account for a future sale. If you plan to sell the home, consider how much your taste should factor into the kitchen update. For example, if you plan to sell in the next five years, consider changes both you and a future buyer might find appealing.