Kitchen Remodel Financing: Compare Loan Options
Homeowners have several kitchen remodel financing options through personal loans, home equity loans, and lines of credit.
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Kitchen remodeling is a common home renovation undertaking among homeowners. Aside from the perk of having a new kitchen, it can also lead to increased property value and an easier time selling the house.
Potential buyers want to see updated fixtures and finishes, new kitchen appliances, fresh countertops, and unique touches throughout. However, tackling this kind of home improvement project is expensive.
Fortunately, home improvement loans are available to help you pay for the project without depleting your savings. As long as you can afford the monthly payments that come with a kitchen remodel loan and you qualify for a low interest rate, they are generally a good idea.
This guide covers the best kitchen remodel financing options, so you can make your HGTV dream a reality.
In this guide:
Using personal loans to finance a kitchen remodel
Most homeowners tilt toward personal loans to pay for renovations. Personal loans are a reliable solution for kitchen financing because there is a loan option out there for nearly all types of borrowers.
Though some loans are marketed as something like “home improvement loans” or “kitchen loans” personal loan lenders do not typically restrict how borrowers can use the funds, and loan amounts can be high enough to cover basically any renovation budget.
Pros of using a personal loan
- Quick funding, sometimes in as little as one business day.
- Low-credit borrowers may still qualify.
- Amounts are flexible, up to loan limits of a specific lender.
- No collateral is required to back the loan.
Cons of using a personal loan
- Personal loans may have higher interest rates or annual percentage rates than other kitchen financing options.
- Loan terms may be shorter than home equity loans or lines of credit.
>> See Options: Best Personal Loans
Using home equity loans as kitchen loans
Another option for kitchen renovation financing is a home equity loan. For homeowners who have available home equity, a home equity loan can be a cost-effective solution.
Home equity loans are secured using the home as collateral, so interest rates are often lower than for personal loans. However, you’ll wait longer to receive funding from home equity loans, and the application process may require extra steps.
Pros of using a home equity loan
- Lower total cost of borrowing thanks to lower interest rates compared to personal loans.
- Ability to qualify even if credit is not strong, so long as there is equity available in your home.
- Larger loan amounts, based on home equity amount.
Cons of using a home equity loan
- Your home is collateral, so if you cannot repay the loan, it’s on the line.
- You have to have enough equity to qualify—most lenders will not let you exceed 90% to 95% loan-to-value with a home equity loan and your remaining mortgage balance.
- An appraisal may be required to determine the property’s equity, which means an added cost.
- You may pay closing costs for a home equity loan.
>> See Options: Best Home Equity Loans
Using a HELOC as a kitchen loan
Similar to a home equity loan, a home equity line of credit (HELOC) may be a viable option for financing a kitchen remodel or renovation.
A HELOC operates like a credit card for homeowners. You establish a flexible line of credit you can draw from multiple times over the life of the account, and you can borrow as much or as little as you need each time. You only pay for want you draw, plus interest.
A HELOC is most beneficial for homeowners who plan to complete a kitchen remodel over several months. However, like a home equity loan, your home equity is collateral. This makes it crucial to understand how much you can afford to repay.
>> Read more: Should You Use a Home Equity Loan or Line of Credit for Remodeling Improvements?
Pros of using a HELOC
- Potentially lower interest rates than personal loans, because the home is used as collateral to back the credit line.
- A flexible credit line you can use multiple times over the life of the account, unlike a home equity or personal loan.
- Repayment can extend far longer than a personal loan, making a kitchen remodel more affordable over time.
Cons of using a HELOC
- Overborrowing is an issue for some homeowners.
- Your home is on the line as collateral, so if you cannot repay, the lender could recoup losses through foreclosure.
- Higher interest rates compared to home equity loans. Rates are often variable and may increase over time.
>> See Options: Best Home Equity Lines of Credit
