9 ways to finance your kitchen remodel

If you look at your kitchen each morning frustrated by the chipped tile and the frustrating layout, there are several ways to get kitchen remodel financing so that you can have your dream kitchen sooner rather than later.

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If you want to learn how to finance a kitchen remodel, this article shares several financing options. Which solution is best for you will depend on your personal finances, individual credit score, lender terms, and the amount you need to borrow.

9 kitchen remodeling financing options 

Here are some examples of financing options for your kitchen remodel. Each option has its own requirements, terms, and considerations.

Kitchen remodeling loan

How it works

If you want to take out a kitchen remodel loan, many lenders offer personal loans that you can use for anything, including renovations. Some even offer personal loans specifically for kitchen remodels. 

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To get one of these loans, estimate the cost of your kitchen remodel and fill out a loan application with a reputable lender. You’ll get a lump sum to complete your kitchen remodel if approved. Typically, personal loans have fixed interest rates and a set repayment term, so you’ll have predictable monthly payments.

Requirements

To qualify for a personal loan for your kitchen renovation, you should have a solid work history, good credit, and a low debt-to-income ratio. 

Considerations

Always consider fees and interest rates when comparing lenders to finance a kitchen renovation. Personal loans typically have higher interest rates than home equity loans or HELOCs because most personal loans do not require collateral. 

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One benefit of a no-collateral loan is that personal loan lenders cannot foreclose on your home if you can’t make payments. Additionally, you don’t have to have a specific amount of equity in your home to qualify.

Reputable personal loan lenders

If you’re looking for a personal loan for renovation, here are a few popular lenders in the space:

• Lightstream – A personal loan lender thatoffers renovation loans for borrowers with excellent credit. Lightstream offers a loan specifically for kitchen remodels.

• SoFi – A popular online lender that offers home improvement loans that don’t require collateral. Additionally, some borrowers can get same-day funding with a SoFi loan.

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Borrowers should also check with their local bank or credit union, which might offer competitive rates and an in-person experience. Keep in mind, your interest rate will be based on your credit score, term length, and your loan amount.

0% APR card

How it works

If you’re a disciplined credit card user, another option is to apply for a new 0% credit card for your kitchen renovation. Some credit cards offer 0% financing for 12 months or more, which can give you adequate time to finance your renovation and pay off the bill.

Requirements

Each card issuer will have its own requirements for potential borrowers. However, you typically need a good credit score and a minimal amount of recent credit card inquiries to qualify for a new 0% credit card. 

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Additionally, if you have a high debt-to-credit ratio, consider paying off some of your debt before applying to increase your chance of getting approved.

Considerations

This option might only be helpful to borrowers who don’t need a large sum of money to renovate their kitchen. Credit cards have limits, and your limit will depend on your own personal financial situation. 

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Typically, you can apply for a larger sum if you get a personal loan, home equity loan, or home equity line of credit.

Reputable 0% APR cards

Some reputable 0% APR cards that offer a long 0% period include:

• The Discover It card
• The Chase Freedom Unlimited card
• The Capital One VentureOne Rewards credit card. 

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Please do your own research on 0% credit card options to choose the one that fits your personal circumstances best. Credit card offers can change at any time and depend on your credit usage and history.

Home equity loan

How it works

A home equity loan is a loan you apply for using the equity in your home as collateral. These loans have a fixed interest rate and a set term. That means your payments will always be the same for the duration of your term. Usually, home equity loans do not have prepayment penalties – but always confirm all loan terms with your specific lender. 

Requirements

Not everyone who owns a home will qualify for a home equity loan. In order to get a home equity loan, you will need to have 15% to 20% equity in your home, depending on the lender. Additionally, you'll need good credit and a stable work history to get approved for a home equity loan.

Considerations

Whenever you apply for financing, it's important to consider the interest rate and the loan terms. Home equity loans usually have better interest rates than personal loans. That's because with a home equity loan, your home is the collateral for the loan. 

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Additionally, because you're borrowing against your home, only take out this loan if you intend to make all your payments on time. If you don't, you could lose your home to foreclosure.

HELOC

How it works

A HELOC is a home equity line of credit. It's similar to a home equity loan because you use your home’s equity as collateral for the loan. However, it differs because, with a home equity line of credit, you borrow money as needed like a credit card.

Requirements

In order to qualify for a HELOC, you must have 15% - 20% equity in your home before applying. Having a good credit score can help you qualify for more competitive interest rates. Your lender might have additional requirements, like a steady income and a low debt-to-income ratio.

Considerations

A home equity line of credit is a helpful option if you’re not sure how much a project is going to cost. For example, you might encounter a larger structural problem when completing your kitchen renovation that requires you to borrow more. With a HELOC, you can borrow more money up to your limit as needed.

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If you have a home equity loan, you get a lump sum, so if you needed to borrow more money, you’d have to get another loan or find another way to finance it. 

Home equity investment

How it works

A home equity investment is a good option for homeowners who do not want to make monthly payments. With a home equity investment, homeowners get cash in exchange for a share of their home’s future value. 

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Homeowners can buy back their equity at a later time or pay the company back when they sell their home.

Requirements

The main requirement to get a home equity investment is having equity in your home. Unlike other options on this list, you don’t need perfect credit to qualify. Additionally, you can apply if you were recently laid off, between jobs, or if you are retired and living on a fixed income.

Considerations

If you don’t have good credit or a solid job history, this option is a good way to access cash without having monthly payments or stringent requirements. Keep in mind, though, that this option means giving up part of your home appreciation, which means you’ll have to split your home’s proceeds in the future.

Cash-out refinance

How it works

Getting a cash out refinance means replacing your mortgage with a new, larger one. So, if your house is worth $400,000 and you owe $200,000 on your current mortgage, you could take out a new mortgage for $400,000 and withdraw the $200,000 difference in cash.

Requirements

Because a cash-out refinance is a new mortgage, you still need to meet basic mortgage qualifications like having a steady income, a good credit score, and a low debt to income ratio. Additionally, make sure you have enough equity in your home to ensure the process of a cash-out refinance is worthwhile.

Considerations

The most important consideration for a cash-out refinance is your interest rate. If you secured a low interest rate on your home, it might not be financially wise to refinance to a much higher interest rate. Instead, a HELOC or home equity loan might be a better choice so you can preserve your low interest rate on your mortgage.

PACE loan

How it works

PACE stands for Property Assessed Clean Energy. This is a type of loan you can use to make energy efficient home improvements on the condition that you incur an additional tax assessment.

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The availability of PACE loans depends on your location and whether or not your state approves them. While you don’t pay for your renovations upfront, you pay eventually with an assessment.

Requirements

PACE is only available to property owners who want to borrow more than $2,500 for energy efficient upgrades. Property owners should check with their mortgage lenders prior to borrowing a PACE loan, as the loan is tied to the property not the owners.

Considerations

Because re-payment of PACE loans comes in the form of an assessment payment, you can lose your home if you don’t pay it. Additionally, it can take time and administrative hurdles to set up a PACE loan. It may also be more difficult to sell your home with a PACE lien on the title. 

Title 1 property improvement loan

How it works

A Title 1 home improvement loan is a type of loan that many private lenders offer to homeowners who want to make improvements to their property. The Federal Housing Association insures these loans, and they are backed by the U.S. Department of Housing and Urban Development (HUD). 

Requirements

Lenders typically require a minimum credit score and a maximum debt to income ratio of 45%. Additionally, the improvements homeowners plan must “substantially protect or improve the basic livability or utility of the property,” according to HUD. 

Considerations

If you use a Title 1 loan, some lenders might require you to obtain proper licenses and estimates before making home improvements. Additionally, you might have to undergo a home inspection. So, if you plan to DIY your home improvement project, it must be up to specific standards. These loans are typically fixed rate for a set term. 

FHA 203(k) home improvement loan

How it works

Many people don't realize that they can use an FHA 203(k) loan to renovate a kitchen or any other part of a home that needs updating. 

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Borrowers can use this type of loan when they are purchasing a house. An FHA 203(k) loan enables borrowers to buy a house and finance renovations all within the same loan. 

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If you are already a homeowner, you can refinance your mortgage into an FHA 203k loan. However, a refinance isn’t worth it if you secured a low interest rate for your current mortgage.

Requirements

FHA Loans are mortgages with some of the most lenient requirements. Borrowers only have to make a down payment of 3.5%. Your credit score needs to be above 580, but this is much lower than many other products. There are limits on the amount you can borrow, depending on your location.

Considerations

If you already have a home with a low interest rate, it might not be a good idea to refinance a loan at this time. Refinancing your mortgage could leave you with a much higher interest rate. 

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This type of loan is ideal for people who are in the process of shopping for a home and want to purchase one that needs renovations. Always consider the rates and terms of mortgages before choosing one, as another type of mortgage might be more affordable when considering the total cost of the loan.

Weighing your options: How to determine what’s best for you

There are a few ways to determine which financing option is best for you if you want to take out a home improvement loan. Here’s what to consider.

Risk tolerance

Some people are more risk-averse than others. Taking out a loan like a HELOC or home equity loan might have lower interest rates, but it comes with a risk of losing your home if you can't pay. Also, getting a 0% credit card carries the risk of a much higher interest rate down the road if you're not able to pay your full balance before the trial period is up.

Repayment timeline

If you can pay off a loan quickly, an option like a 0% credit card might be viable for you. However, if you need longer to pay off your kitchen remodel loan, several options on this list have repayment periods of up to several years. 

Loan cost

Lenders might charge fees, such as origination fees, interest costs, credit check fees, and other add-ons. When comparing options make sure to look at the total cost of the loan. 

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Ask lenders exactly what fees they charge so you can adequately compare them. Ask as many questions as possible so you’re fully informed about your loan’s terms. 

Final thoughts

Remodeling a kitchen is a big financial undertaking that takes time and planning. Many people choose to finance a kitchen remodel to preserve their cash and still improve their home’s aesthetic and overall value.

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Whether you decide to use your home as collateral for a loan or try an alternative option mentioned above, you have many choices when it comes to financing home upgrades.

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Whatever option you choose, it’s a good idea to research lenders, carefully consider loan terms, think about your risk tolerance, and understand how much your remodel will cost overall. Hopefully, armed with this information, you can successfully find a financing option that meets your needs and helps you achieve your dream kitchen remodel. 

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If you want to use your home equity to cover the cost of your kitchen remodel with no monthly payments, consider an HEI from Point. It takes under 60 seconds to see if you qualify. 

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