Kitchen Renovation Financing For Good & Bad Credit
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Best Way To Finance a Kitchen Remodel
Let’s compare different kitchen remodel financing options to renovate your kitchen flawlessly!
Kitchen Remodel Financing Options
1. Home Equity Loan
In the home equity loan option, homeowners can borrow up to 90% of their home’s value in the market. This equity is beneficial for major renovation works in the kitchen. The requirements of a home equity loan include:
- Homeowners should have an excellent credit history.
- If you make your home collateral or use 80% equity, you can also borrow loans with bad credit.
- The interest rates in the home equity loan are lower and don’t fluctuate.
- The 80% loan to value ratio (ratio of the loan amount to the value of your home) will allow you to borrow the amount immediately.
- The debt to income ratio (ratio of your debts and monthly income) should not exceed 45%.
2. Home Equity Line of Credit
A home equity line of credit is also one of the best ways to borrow money for major remodeling projects. The difference between a home equity loan and a home equity line of credit is that homeowners borrow the loan amount against the credit line in this loan option.
- Since the credit line will secure the home, the minimum credit score should be around 680.
- The monthly payments in the home equity line of credit are not similar to the home equity loan because the interest rates fluctuate.
- Like a home equity loan, the home equity line of credit also requires collateral. Usually, homeowners make their homes as collateral and borrow the necessary loan amount.
3. Cash-Out Refinance
Cash-out refinances loan option is suitable for homeowners who want to borrow a lump sum for a home renovation project. When you close your existing mortgage with the fees, the remaining amount will be for your new renovation project.
- The equity percentage should not be less than 20%.
- The credit score requirements are similar to the home equity loan and home equity line of credit. A credit score should not go less than 680.
- The loan to value ratio should be above 80%.
4. FHA(Federal Housing Administration) Loan
Homeowners who have poor credit scores may borrow the Federal Housing Administration Loan. FHA loans have fewer requirements compared to the other home renovation loan options. There are two types of Federal Housing Administration loans for home renovation projects, a 203(k) standard loan, and a limited loan.
FHA loans will help you do home renovation projects like energy-efficient repairs, roof remodeling, plumbing, and electrical repairs. However, there are also some restrictions on borrowing the FHA loans for renovations. The loan amount will differ depending on the state you live in and you need to hire an experienced home renovation contractor to borrow the loan amount immediately.
We have read the pros and cons of home equity loans and cash-out refinances. A kitchen remodel loan is another finance option with flexible payment options. It is a personal loan option for homeowners to revamp the look of their kitchen without breaking their budgets, comes with flexible payment options, a fixed rate, minimal origination costs, funds available that same day, and can be completely processed from your desktop or mobile device from the convenience of your own home.
Kitchen remodeling is one of the most significant home renovations due to the increase in value to your home. After the remodeling, the current home value increases. Home upgrades and repairs increase the net worth and home improvement loans get approved quickly with few documents. Homeowners should research lenders and their credibility before any loans are requested.
Can I Finance A Kitchen Remodel?
There are several loan options to finance a kitchen remodel. Many homeowners take traditional loans like home equity loans, cash-out refinance, and home equity line of credit. The monthly payments, credit score, and loan terms will differ in these financing loan options. The collateralized loan offers will make your home collateral and finance home improvement projects.
If a homeowner has an equity percentage, then these loan options will suit their needs.
Personal loans are not conventional and allow homeowners to borrow kitchen remodel loans without any collateral. While financing your kitchen remodeling options, you should check the requirements of any loan options and choose the best that matches your project scope.
How To Finance A Kitchen Remodel
The best way to remodel your kitchen is to choose the affordable loan option that has fewer requirements. A homeowner should ask these questions before financing your new kitchen:
- What is the model/plan of your kitchen?
- Which interest rate will suit the budget?
- Which is the affordable loan term?
- What kitchen improvement project should increase the value of your home?
Pros and Cons of Kitchen Remodel Financing
|Kitchen loans are feasible for large area renovations from granite countertops to flooring and everything in between.||The interest rate may be higher than home equity or cash-out refinance.|
|This is a loan and will be reported on your credit report.||Homeowners should be keen on making payments on time to ensure a good credit reference.|
|Homeowners can borrow money much faster even with marginal or poor credit.||Finding a credible source to borrow is a challenging task for some homeowners.|
What is the best kitchen remodel financing option?
We’ve extensively read about home loans, their pros, and their cons. Now, it’s time to compare the best financing options among the three home loans!
As stated above, kitchen remodeling ideas differ from extending the existing space to converting another space of your home. Kitchen remodeling designs include cabinet designs, electrical, plumbing services, gas lines, and storage space extensions.
A home equity loan takes the home as collateral and there is a risk of paying higher interest rates in both home equity loans and cash-out refinances. Home improvement loans offer personalized options and flexibility in payments, which is beneficial for emergency repairs at home. While comparing the three loan options, the home improvement loan has lower risks and homeowners should concentrate more on borrowing money from reputable lenders. TGUC financial offers loans for kitchen remodeling and finds contractors with background checks to reduce additional tasks for the homeowners.
The approval process is within 48 hours and you, as the homeowner, will have multiple options for payment amounts and length of loan all while building your credit score with compliance.
How Can I Get Money For A New Kitchen?
For a new kitchen remodeling project, you should borrow money from the financing option that doesn’t involve any risks and includes a fixed-rate loan. Homeowners can borrow higher loan amounts in the home equity line of credit and home equity loans. But if you are not able to pay off the money, the loan lenders will take control of your property, making the foreclosure risk the major disadvantage of collateralized loan offers.
On the other hand, if you are borrowing money for your new kitchen, the unsecured personal loan option is best because it has a fixed interest rate and doesn’t make your home collateral, so there are no risks involved in this loan option.
How Much Should I Invest In A New Kitchen?
If you are planning to invest in a new kitchen, you should first formulate the remodeling plan. The loan funding should not exceed the total amount of your home but renovation costs may also depend on the total value of your home. The maximum amount you should invest in your kitchen renovation should be around $80,000. Nevertheless, the renovation cost might decrease or increase based on the homeowners’ budget and preferences.
These are the major renovations that will increase the value of your home,
- Induction hobs
- New appliances
What Percentage Should You Spend On A Kitchen?
You should not invest more than 20% of your home’s value in the market. Here is the percentage of the loan amount you should spend for the major renovations:
- Kitchen Cabinets – 30%
- Kitchen Countertops – 10 – 15%
- Plumbing works – 5% to 10%
- Electric works – 5%
- Other renovations – 3% to 5%
Do Kitchen Remodels Pay Off?
Kitchen renovations are one of the highest ROI projects among other home improvement projects. Many homeowners do major renovations in the kitchen before selling their homes. If you are doing major renovations like cabinetry remodeling, you can also expect 80% ROI.
For instance, if you are spending $125,000 on your kitchen renovations, you can expect up to $60,000. If the minor kitchen renovations are up to $20,000, the homeowners can expect up to $18,000 return on interest (ROI). In a nutshell, the minimum ROI will be up to 50%.
How Do You Renovate Your Kitchen
These are the types of kitchen renovations and the average loan amount you should borrow:
- Increase the space(functionality) – Homeowners should borrow loan amount from $40,000 to $50,000.
- Installation – If you want to install an HVAC system or any other appliances at your home, the loan amount will be around $4,000.
- Energy Efficient Kitchen Repairs – Upgrading your kitchen appliances will help you reduce energy costs. The loan amount will be from $2,000 to $10,000
- Countertop Remodel – The countertop remodels project will be from $2,000 to $3,000.
- Cabinetry – Cabinetry is one of the major kitchen renovation projects. The minimum loan amount that every homeowner should borrow for cabinetry remodel is around $7,000.
- Minor Repairs – The minimum loan amount you should borrow to do minor kitchen renovations like painting, plumbing, designing, and lighting is $800.
The loan amount will depend on the type of kitchen renovation that you do.
Note: Major kitchen renovations like extension, installation, and cabinetry remodeling will increase your home’s value in the marketplace.
How Do I Budget My Kitchen Remodel?
Budgeting your home improvements is the first step that every homeowner should take. If you do any home improvement work without formulating the budget and analyzing the project scope, there is a chance that you will spend more money and receive less ROI. There are kitchen remodel financing tips you should follow before planning on a renovation, including:
Kitchen Remodel Financing Tips
- Select the remodeling plan for your kitchen and check the average cost for the plan.
- Analyze the ROI for the kitchen remodel plan that you are taking up.
- Taking note of the percentage breakdown for kitchen remodels will help to do the tasks efficiently without breaking your budget.
- If you are planning to add a luxury item to your kitchen, you should not exclude the cost in the budget.
How Much Does It Cost To Remodel A 12X12 Kitchen?
The cost will be around $250 per square foot. If you are planning to remodel a 12X12 kitchen, the minimum loan amount will be $15,000 and the maximum will be around $40,000. However, the cost might vary based on the type of remodeling plans that you are taking up.
Frequently Asked Questions
Why are kitchen renovations expensive?
Kitchen renovations are expensive compared to other home improvement projects because the ROI in kitchen renovations is higher. It is also one of the renovation projects that increases the value of your home.
Can you update your entire kitchen?
Yes, homeowners can update their entire kitchens by extending the space, installing energy-efficient systems, plumbing works, electric repairs, and changing flooring works.
How often should I remodel my kitchen?
If you are doing minor renovations, you can remodel your kitchen once every five years. If you have already done major kitchen renovations, then you can do it once every 10-15 years.
Home improvement loans benefit the homeowners to increase the value of their home with large renovations like kitchen conversion and extensions. Extensions and conversions at home are a great way to increase the current value of your house. If a homeowner is spending an amount on remodeling and renovations, the value of the home should increase more than the amount spent on renovations.
Other finance options like home equity loans and cash-out refinance give the loan amount to the homeowners but there is a risk of foreclosure. The home improvement finance option doesn’t make your home as collateral and approves your loan fast with few requirements. Are you ready to borrow a loan for your kitchen renovation with TGUC financial?
Apply For A Kitchen Remodel Loan
Get your personalized Home Improvement loan offer. Submit your loan inquiry and get the best rate. Don’t delay finishing your Home Improvement project for financial reasons.