7 Kitchen Remodel Loans: Compare Financing Options

What is a kitchen remodel loan?

A kitchen remodel loan is a personal loan that you use to pay for a kitchen renovation. You get this type of loan in a lump sum and repay it, plus interest, in monthly installments.

Loan amounts range from $1,000 to $100,000, and repayment terms are typically two to seven years. Rates are from 6% to 36%.

These loans don’t require collateral, meaning approval and the loan’s annual percentage rate are based on information like your credit and income.

» MORE: Best personal loans for home improvement

Financing a kitchen remodel: Personal loans vs. home equity

A personal loan may be a good option if you don’t have much equity in your home or don’t want to use the home as collateral for the loan.

Monthly payments are often higher on personal loans because they can have higher rates and shorter repayment terms than home equity financing. However, many personal loans can be funded within a week, while a home equity loan or line of credit may take a couple of weeks or longer if the lender requires an appraisal.

» MORE: Personal loans vs. home equity loans

Home equity loan

A home equity loan is a second mortgage that you get in a lump sum and repay in fixed monthly installments for a term of up to 15 years. Rates are often in the single digits.

Compare to personal loans: Home equity loans are similar to personal loans, but the loan amount is tied to the home’s value. Credit and income requirements may be softer for equity financing, so those who have less-than-perfect credit but have repaid much of their mortgage may be able to borrow more with a home equity loan than a personal loan.

» MORE: Best home equity loan lenders

Home equity line of credit

A HELOC is a credit line that you draw from as you need it over a period of up to 10 years. Repayment terms are often 20 years, and rates can be low but variable, meaning your monthly payments may fluctuate.

Compare to personal loans: Since you don’t borrow a HELOC all at once, it can be ideal if the project’s cost estimate isn’t firm or when surprise expenses come up. If you get a personal loan and then unexpected remodeling costs come up, you can’t borrow more.

» MORE: Best HELOC lenders

Steps to get a kitchen remodel loan

1. Get a cost estimate. The amount you plan to spend on the kitchen remodel could determine how you pay for it, so get a few quotes and settle on a budget first.

2. Pre-qualify. Once you have an estimate, pre-qualify to see what loan amount and rate you could be approved for. Because this process doesn’t affect your credit score, you can pre-qualify with multiple lenders to compare offers.

3. Compare lenders. If you get two similar offers, compare loan features like funding time, repayment term options and credit-building assistance to break the tie.

4. Submit an application. Gather documents like W-2s, paystubs and bank statements before you apply to make the loan application process smoother. A lender will do a hard credit check when you apply, which will cause your credit score to temporarily dip. Expect a decision within a day or two of applying.

» GET STARTED: Pre-qualify on NerdWallet

Financing a kitchen remodel with a personal loan: Pros and cons

Pros

• No collateral: With an unsecured personal loan, you don’t have to put the home up as collateral, so the lender doesn’t have the right to take it if you fail to repay.

• Fast funding: Some lenders can fund a personal loan the same or next day after you apply. Most personal loans are funded within one week.

Cons

• Rates may be high for bad-credit borrowers: Because your credit history is a key factor on a personal loan application, borrowers with bad credit scores (629 or lower) may not qualify, or may qualify for an APR on the high end of a lender’s range.

• No tax benefits: Unlike with home equity loans and lines of credit, you can’t claim a tax deduction on the interest you pay on a personal loan.

Other kitchen remodel financing options

Cash-out refinance

With a cash-out refinance, you replace your existing mortgage with a new one that includes funds for a remodel.

Cash-out refinancing works best for a remodel if the rate on your new mortgage has a lower APR than your current mortgage. Financial planners also recommend homeowners plan to stay in the home long enough for the monthly savings to exceed the cost of refinancing.

» 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 must 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, former 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 spending and maximize your return, says Larry Ginsburg, a certified financial planner based in Oakland, California.

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