5 Kitchen Remodel Loans and Other Financing Options

Getting an unsecured kitchen remodel loan: Pros and cons

Home improvement is one of the most common reasons people take out a personal loan, lenders say. It can make sense if you don’t have a lot of equity in your home or you need the funds fast. Consider these pros and cons of kitchen remodel loans.

Pros

• No collateral: With an unsecured personal loan, you don’t have to put your home up as collateral, which is the case with home equity options.
• Fast funding: Getting a personal loan typically takes from one to seven business days. It can take 30 to 45 days to access the money with a cash-out refinance, home equity loan or HELOC.
• Lower rates than credit cards: Personal loan interest rates range from 6% to 36%, and borrowers with good or excellent credit may qualify for the lowest rates. On average, these rates are lower than those on most credit cards.

Cons

• Higher rates than home-equity options: Because personal loans are unsecured and typically have shorter repayment terms of two to seven years, they tend to have higher interest rates than home equity loans and lines of credit.
• May be harder to qualify: Issuers of personal loans primarily use just your personal credit history to assess your creditworthiness, while mortgage lenders also consider your home’s value and how much equity you have.
• No tax benefits: Unlike with some home equity loans and lines of credit, you can’t claim a tax deduction on the interest you pay on a personal loan.

» MORE: Pre-qualify for personal loans on NerdWallet

Other kitchen remodel financing options

Using your savings is the cheapest way to pay for kitchen updates, but if that's not an option, here are other ways to finance your project.

Credit cards

When it’s best: Credit cards work best for lower-cost updates that you’re able to repay within 12 to 18 months.

You could save on interest if you pay for a small project with a 0% interest credit card. These cards come with a promotional period — typically around 18 months — during which you don’t have to pay interest.

Check the card’s interest rate before committing in case you end up having to make payments beyond the interest-free period.

» MORE: Calculate the right financing option for your remodel

Home equity loan

When it’s best: If you know the cost of your remodel, prefer getting your money in one lump sum and expect your project to increase the value of your home, then a home equity loan is a good option. It can also be cheaper than a personal loan.

Home equity loans can take a month or longer to fund, but they typically have low closing costs and low interest rates because they're backed by your home and have longer repayment terms.

» MORE: Best home equity loan lenders

Home equity line of credit

When it’s best: If the upgrade will increase your home's value, but you're unsure how much it will cost, a HELOC is a flexible financing option.

A HELOC is another low-rate option secured by your home, but instead of borrowing all at once, you borrow and repay only what you need for the project.

Some HELOCs come with an option to make interest-only payments during the draw period (the period when you can borrow from the credit line), which isn’t available with a home equity loan.

» MORE: Best home equity line of credit lenders

Before you choose, learn the pros and cons of home equity loans vs lines of credit.

Cash-out refinance

When it’s best: Cash-out refinancing works best if you plan to stay in your home long enough for the monthly savings to exceed the cost of refinancing.

With a cash-out refinance, you replace your existing mortgage with a new one that includes your remodel costs. Typically, it's a good option when you already have some equity in your home and current mortgage rates are lower than what you’re paying.

» MORE: Find a lender that offers cash-out refinances

Federal programs

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 has to be secured by a deed of trust or mortgage.

The Energy Efficient Mortgage Program helps finance renovations that make your home more energy-efficient and can help lower your utility bills.

Kitchen remodel financing tips

Budget more than you think you’ll need. A good rule of thumb when budgeting for a kitchen remodel is to set aside 17% to 20% of your home’s market resale value, says David Pekel, CEO of the National Association of the Remodeling Industry.

For example, you might budget from $50,000 to $60,000 for a remodel on a home valued at $300,000.

Typically, it’s better to sit down with a contractor before you start planning the remodel to get an estimate. Most contractors won’t charge you for an hour-long consultation, he says.

New Jersey-based kitchen and bath designer Peter Salerno says unexpected costs like added features or faulty wiring and plumbing are common with kitchen remodels. Pekel recommends saving an extra 10% of what you’ve budgeted for the project to cover unexpected costs.

» MORE: How to save on your kitchen remodel

Account for your home’s value. Especially if you’re fixing up to sell, your goal should be to minimize your spending and maximize your return, says San Francisco-based certified financial planner Larry Ginsburg.

An experienced real estate agent can help you gauge whether your planned updates will increase the house’s value, Pekel says.

Prioritize your updates. Prioritize your budget based on which updates are the most important, Salerno says.

For example, new top-of-the-line appliances — which can be the most expensive part of a remodel — might not be a good use of your budget if your goal is to knock down a wall and make more space.