Whether you’re looking to redo your kitchen to add to its aesthetic value or want to upgrade your kitchen appliances, it’s important to pick the right option for your kitchen remodel financing.

How much should I budget for a kitchen remodel?

The average kitchen remodel costs around $12,600 to $35,000 — depending on the scope of renovation and kitchen size. A small kitchen remodel can cost as little as $4,000 while a high-end kitchen remodel can go as high as $50,000, or more. 

According to Remodeling magazine’s Cost Vs. Value Report, homeowners can recoup up to 53.9 percent to 58.6 percent ROI in the case of a large-scale kitchen renovation.

Is a kitchen renovation loan a good idea?

It’s best to finance your kitchen renovation if you don’t have time to save cash. Remodeling the kitchen through finance is probably one of the best ideas you’ve had. After all, renovating a kitchen can be an expensive undertaking. Fortunately, there are many easy kitchen finance options to help make your remodeling dreams a reality.

Planning a renovation for your kitchen? Try our free kitchen remodel cost estimator; it’s easy and convenient to use!

Pros and cons of getting kitchen remodel loans 

Securing the right kitchen remodel financing option gives you several benefits, including:

  • Offering you favorable interest rates and loan fees.
  • Helping you save you hundreds of dollars.
  • Offering you manageable monthly payments for your kitchen renovation.
  • Allowing you to spread out your kitchen’s costs, instead of a one-time hit to your bank account.

Some disadvantages of a kitchen remodel loan may include:

  • You need to have everything planned before the value appraisal of your home — including selecting a licensed contractor, your renovation plans, specs, and work schedules. You cannot make major changes that could affect the appraised value, which could in turn affect the loan.
  • The process of a loan application to the receipt of the loan amount is a bit strenuous. 

How do I finance a kitchen remodel?

To pay for a large-scale remodeling project such as a kitchen remodeling, homeowners often take out a construction loan or a home renovation loan, whereby they refinance with a mortgage that reflects the house’s value after the remodel. Apart from these, there are many finance options available such as the different types of secured loans as well as unsecured loans. Whichever kitchen loan you select, do look at your existing debt (including your mortgage) and decide whether you can afford to tack on another monthly payment.

What are the different kitchen remodel financing options?

When it comes to choosing the best way to finance a kitchen remodel, you need to do thorough research since no two home improvement loans are alike. There are two basic ways to finance your kitchen renovation: unsecured loans (which do not use your home as collateral) and secured loans (which are secured against your home equity). 

Under this umbrella, there are different loan options available. Let’s explore the most popular ones below. 

Unsecured home improvement loans

Since these loans are without collateral, the lender is at greater risk and hence offers smaller loan amounts with higher interest rates, and shorter loan terms.

Credit cards

If you have an excellent credit score, you probably qualify for $10,000 of credit at a favorable interest. This amount is good enough for a small kitchen remodel such as new kitchen countertops, kitchen floors, and kitchen lighting.

Pros: It’s an easy way to get a low-interest loan.

Cons: If you go past the repayment period, you may end up owing a lot of interest on the principal amount. Plus, the interest is not tax-deductible.

Personal loans

An unsecured personal loan is a great option if you want to spend $10,000 to $30,000 on a kitchen remodel. In comparison to a credit card, the APR will likely be much more, but the repayment period will be longer.

Having said that, the interest rates and terms on personal loans vary at different banks and credit unions.

Pros: It has an easy loan application process. It doesn’t have processing fees, origination fees, or closing costs.

Cons: The loan comes with higher interest rates and no tax benefit.

Secured home improvement loans

Secured loans are great if you’re planning to spend more than $30,000 on your kitchen upgrades. Since the loan utilizes your home equity, you can get a higher amount at a lower interest rate, longer payoff terms, and tax-deductible interest (if you’re using the funds for improving your house).

Cash-out refinance

A cash-out refinance is beneficial if you take out a new loan at a better rate and use it to pay off your old mortgage. That way, you can pocket the balance amount of money and invest it in your kitchen renovation. 

Pros: You can pay back the loan over 30 years or more if you choose to. 

Cons: This financing option is good only as long as you can get a substantially lower interest rate than your current mortgage rate. 

Home equity loans

Also known as a second mortgage, home equity loans have a fixed interest rate and a consistent monthly repayment plan. Here, you get a lump sum for your home improvement project. 

Pros: The loan has better interest rates than unsecured loans, especially if you have good credit and a flawless credit report.

Cons: If you fail to pay back the loan, the bank has the right to foreclose on you in order to get their money back.

Home equity line of credit (HELOC)

Opening a credit line allows you to raise the money for your kitchen remodel in a flexible way. The loan comes with an adjustable interest rate. You can borrow the required amount of money during the ‘draw period’ and pay back during the ‘repayment period’. 

Pros: There are no closing costs. You only pay interest on the amount you borrow. 

Cons: It’s a riskier option as rates fluctuate. Plus, the loan lender may foreclose your property if you default on the repayments. It’s difficult to get if you do not have a solid credit history or score. 

So, which loan is the best type for a kitchen renovation? Well, it depends on your requirement and eligibility. For example, if you know the total cost of your value-enhancing remodel and prefer to get a lump sum, then a home equity loan is a good option. But if you need the money on short notice or without putting up collateral, then a personal loan is a safe bet.

In what order should you remodel your kitchen?

Whether you’re planning to redo the kitchen yourself or hire licensed and insured contractors, here are the order of steps to follow.

  • Demolish the existing space: Clearing the existing space is important before beginning work on your kitchen remodel. Start with removing the cabinet doors first. Then, remove the doorway and window trim. Keep them aside if you plan to reuse them. Take out sheets of paneling from the walls with a crowbar. Shut off the power and remove all the kitchen appliances as well as directly wired light fixtures. Cover all the exposed wires.
  • Hire the right contractors: You can hire a general contractor who’ll oversee other workers and the entire renovation process. Make sure that the professional(s) you hire show you proof of being licensed, bonded, and insured. They should have the necessary permits and references too.
  • Get written details of the payment plans and contract: Make sure to pay no more than 10% upfront, 50% when the renovation is halfway, and the balance amount upon the project completion. 
  • Replace your dated plumbing: When your walls are open, it’s easier to replace your older plumbing — leaking pipes or faulty shutoff valves.
  • Replace kitchen wiring and install new lighting: It’s necessary that you replace any wiring or circuit box that doesn’t conform to code. Once you do, you may want to install recessed ceiling lighting, new pendant lights, or accent lighting. Check your city codes to determine any requirements/prohibitions for incandescent, fluorescent, or halogen bulbs.
  • Hang the drywall: Once the electrician and plumber have finished their jobs, you need to hang the drywall, but with the right tools. Make sure you apply the joint compound (through a process called mudding) properly.
  • Paint your kitchen walls and ceiling: Ensure that you use quality brand paint, paintbrushes, and the right finish — preferably a semi-gloss for the walls and ceiling. Such a finish is easy to wipe down and doesn’t retain any moisture.
  • Install kitchen flooring and baseboards: You might want to consider the old-fashioned hardwood flooring or some eco-friendly flooring options such as cork flooring, bamboo flooring, or recycled carpeting.
  • Hang the kitchen cabinets: Always let a professional installer hang your cabinets. They will ensure that the kitchen cabinets are level and correctly installed. 
  • Install the kitchen countertop: For custom-made countertops, the installers will want to measure the template with the cabinets in place. Whether you choose a quartz countertop or a marble one, keep your lifestyle and requirements in mind. 
  • Install the backsplash: A tile backsplash is a great way to incorporate a complementary color in your kitchen design. Make sure it’s installed properly — with no unwanted seam.
  • Get the right cabinet hardware: Ensure that the pulls and knobs you choose are in a style and finish that complement your cabinets as well as the look of your kitchen.
  • Install the kitchen appliances: It’s time to call your electrician and plumber and install your appliances. The range hood is usually the first item to be installed. Take care that every kitchen appliance is aligned and plumbed properly. Check for any leaks or breakage before paying the contractor.

Some useful kitchen remodel financing tips 

Here are some important financing tips that will make your kitchen remodeling seamless and tension-free:

  • When budgeting for a kitchen remodel, always set aside 17% to 20% of your home’s market resale value for sudden, unexpected costs.
  • Sit down with your contractor and get a cost estimate before planning the kitchen remodel.
  • Try to minimize your spending on renovation and maximize your return on investment.
  • Plan upgrades that will increase your house’s value. Consult an experienced real estate agent if you need help. 
  • Prioritize your updates in terms of their importance.
  • Always check your chosen financing option for hidden costs, fees or a prepayment penalty. 
Kitchen Remodel Financing & Loan Options was last modified: November 6th, 2020 by Ramona Sinha