7 Options for bathroom remodel financing

If you are tired of living with an outdated bathroom – but don’t have the cash on hand to improve it – bathroom renovation financing may be the solution for you. There are several financial tools that can help you pay for the bathroom remodel of your dreams. 

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According to data from Angi, bathroom remodels have an average return on investment of 72.7%, making them one of the most valuable home renovations you can do.

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Below are seven bathroom remodel financing options. We explain how each financing option works, the requirements, and some pros and cons to consider before choosing one.

7 bathroom remodel financing options

If you want to finance a bathroom remodeling project, take the time to consider your options. Before choosing one, decide the loan amount you need – and whether or not you want to make monthly payments.

Home improvement/personal loan

How it works

One of the most straightforward ways to borrow money to renovate your bathroom is to take out a personal loan. Some personal loans are also called home improvement loans, and many banks, credit unions, and online lenders offer them.

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One benefit to a personal loan is that you receive a lump sum and a fixed interest rate, which means that you have predictable monthly payments during your entire loan term.

Requirements

In order to qualify for a personal loan, you need a good credit score. In fact, the higher your credit score is, the more competitive your interest rate will be. 

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Additionally, lenders like to see one to two years of stable employment history and proof of income. Lenders will also calculate your debt-to-income ratio, which is the amount of money you send out to debt payments each month in relation to your income.

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Borrowers who have a high debt-to-income ratio are seen as riskier, so if you have significant debt payments, consider putting your home improvement project on hold until your DTI improves.

Considerations

The interest rate on personal loans might be higher than other types of loans, such as a home equity loan. That's because personal loans don't have collateral. 

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Additionally, it's a good idea to ask your lender about their funding speed. Some traditional banks may take a few weeks to disperse funds, whereas online lenders might be able to send you your funds in just a few days.

0% APR card

How it works

Another option to consider for your bathroom remodel financing is to open a new 0% APR credit card. There are many different 0% cards that offer 12 to 24 months of no interest. After that point, your interest rate will jump. According to the Consumer Financial Protection Bureau, the average APR on credit cards is currently 22.8%.

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If you plan to pay off your card prior to interest accruing, you can borrow money using this method without paying extra financing costs.

Requirements

In order to open a new 0% credit card, you typically have to have a good credit score. Your eligibility will vary depending on various factors including the amount of available credit you currently have, the amount of open accounts you have, and your overall payment history.

Considerations

The credit limit a lender extends to you depends on many different factors. It’s possible you might not get approved for an amount equal to the amount of your bathroom remodel. 

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If you choose this option for your bathroom remodel with financing, set reminders of when your 0% APR period ends. Otherwise, you’ll accrue significant interest charges on your remaining balance.

Home equity loan

How it works

A home equity loan is another option you can use for bathroom remodel financing. With a home equity loan, your home is the collateral for the loan. Additionally, home equity loans have fixed interest rates and a set payment term. 

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You'll get a lump sum that you'll pay back in equal loan payments over a specific term.

Requirements

In order to qualify for a home equity loan, lenders prefer that you have a stable employment history and a good credit score. Additionally, most lenders require you to have at least 15% to 20% equity in your home.

Considerations

One benefit of home equity loans is they typically have lower interest rates than other financing options, like personal loans or home equity lines of credit. However, the downside is that if you don't make your payments on time, your lender can foreclose on your home.

HELOC

How it works

HELOC stands for home equity line of credit. This is a revolving line of credit, similar to a credit card. Once you’re approved for a home equity line of credit (HELOC), you can use funds as needed up to your limit. 

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If you pay down your line of credit, you can free up space to borrow money again.

Requirements

In order to get a home equity line of credit you must have at least 15% to 20% equity in your home. Your equity requirements will vary by lender. Additionally, lenders prefer borrowers to have a stable income and a good credit score.

Considerations

The biggest benefit of a home equity line of credit is that it's a flexible way to finance your bathroom renovation. Often, it's hard to estimate the total cost of a project.

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With home equity lines of credit, you can borrow money as needed. However, a home equity line of credit has a variable interest rate, which means that your payments can be difficult to predict. 

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Finally, similar to a home equity loan, if you don't make your payments on time, your lender can foreclose on your home since your house is the collateral for the line of credit. 

Home equity investment

How it works

A home equity investment is a partnership between you and a home equity investment company. You get a lump sum of cash in exchange for a share of your home’s future value.

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The company earns money whenever you decide to buy your equity back or when you sell your home, any time within the duration of your term.

Requirements

If you want to complete a bathroom remodel with financing, a home equity investment is worth considering because there are much less stringent requirements.

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You do need to have available equity in your home. However, you do not need to have perfect credit in order to qualify.

Considerations

One of the biggest benefits of a home equity investment is that there are no monthly payments. Additionally, there are no income requirements – meaning that this financing solution is available even if you are self employed, between jobs, or retired. 

Cash-out refinance 

How it works

A cash-out refinance involves replacing your current mortgage with a new, larger mortgage. Then, you take out the difference in cash. 

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For example, if you currently owe $150,000 on your house and you want to make $50,000 of renovations to your home, you can complete a cash-out refinance. With this, you could get a new mortgage for $200,000, and take $50,000 out in cash at closing.

Requirements

In order to get a cash-out refinance, you need to have a solid amount of equity in your home. Additionally, because you are getting a new mortgage, you'll need to meet the same qualifications as you would for any mortgage, including having a stable work history and a good credit score.

Considerations

When you get a cash out refinance, you don't get to keep the same interest rate you have on your original mortgage. So, if interest rates have gone up considerably since you got your first mortgage, it might not be worth it to do a cash out refinance. 

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Additionally, you will have to pay closing costs and other fees just like you did with your first mortgage.

FHA 203(k) home improvement loan

How it works

With a FHA 203(k) loan, you can get funding to renovate your home, including remodel a bathroom. Borrowers typically take out this loan so they can pay for a house and renovations all rolled into one loan. 

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You can also apply for a FHA 203(k) if you’re already a homeowner and refinance your current mortgage into an FHA 203(k) mortgage.

Requirements

In general, FHA loans have lenient requirements, and this is true with the FHA 203(k) loans as well. The minimum downpayment is 3.5% for those with a credit score of 580 or more. There are also max loan amounts that vary depending on where you live. 

Considerations

If you already own a home, it might not be worth it to refinance into an FHA 203(k) loan if current interest rates are higher than your original mortgage.

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However, if you’re considering buying a home that needs a bathroom renovation, this type of loan can be a good option if you want to roll your home and renovation into one loan.

Final thoughts

You have several options when it comes to completing a bathroom remodel with financing. The one that’s best for you will depend on your personal financial situation, your credit score, the amount of equity in your home, and your own personal risk tolerance.

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