Homeowners are increasingly turning to remodeling or finishing a basement as a way to create additional space in their homes.

But finishing a basement can be expensive, and many homeowners need to explore the different financing options available to them to get started on the project. Choosing the right type of financing can be confusing, though. But it doesn’t need to be that way, and in this guide we’re going to take a look not just at the average cost of finishing a basement but at the pros and cons of 6 different basement financing options.

Specifically, we’re going to take a look at:

How Much Does It Cost To Finish A Basement?

While it’s difficult to predict exactly how much a finishing project will cost without understanding the specifics of the basement in question, the average cost can give you a good indication of what to expect. 

And according to HomeAdvisor, the nationwide average for this kind of project is around $18,395 once labor, construction permits, and materials are considered.

However, this only tells part of the story. 

Depending on the scope of the project and the original condition of the basement, a finishing project could cost anywhere from $2,800 to well over $33,000. It really depends on how much work is involved and what you plan to use your finished basement for.  

There are many different factors that contribute to the cost of a basement remodel, and one of the most critical of these is size.

Take a look at this table to learn more about nationwide cost averages based on basement size.

Basement size in square feetAverage basement finishing cost

The Cost Of Finishing A Basement Bathroom

A basement bathroom helps you get more out of your basement, elevating it from just an additional area of space in your home to something far more functional and useful. To finish a basement and add a bathroom to the set-up, you can expect to spend somewhere in the region of $49,000, based on the nationwide average.

Generally, the bathroom part of the set-up will cost you around $15,000 for a standard space of between 30 and 50 square feet. But, of course, many basements are bigger than this, and if you want to go all out on a 100-square foot project with luxury and spa features, you could be looking at as much as $90,000.

You may be able to save some money on the project if your basement has existing plumbing fixtures and drains.

The Cost Of Turning A Basement Into A Bedroom

Basements make great bedrooms, thanks to their relative seclusion and insulation compared to other areas of the house, and you can expect to pay around $22,200 on average to complete your project. Just bear in mind that you may need to pay more in order to make sure that the space is fully up to code. 

This may include installing an egress window — i.e., a window large enough to facilitate safe escape in the event of an emergency — which can cost between $2,505 and $5,240 per window on average.

Remember that these prices refer to a basic bedroom set-up that meets all applicable safety codes. It does not include any additional features you may want to install in your bedroom, which are likely to push the cost up further. 

The Cost Of Turning A Basement Into An Apartment

You could choose to install a bathroom in your basement, or you may decide to put a bedroom in your space. But what about going further than this? How about going all the way and installing an apartment in your basement? This is a space that is going to provide you with everything you need in a living space, adding considerable value to your home if the project is handled in the right way.

This is not a project to be taken lightly, and so you can expect the costs to run to around $61,000, based on the nationwide average for a studio apartment with a kitchenette, a bathroom, and a laundry area. 

Additional features such as cabinetry, expensive appliances, and extra entry and exit areas push the price up considerably, and you may end up with an overall project cost of over $110,000.

Creating an apartment with a separate bedroom — rather than an open-plan studio space — will increase the price a little further and the average for an apartment in this configuration is around $63,000 — $2,000 more than the studio price. 

Remember, this is only an average, and features such as hardwood flooring, custom designs, or stoneware could see you spending up to $12,500. 

There are other variables too. 

An apartment will include a kitchenette — which means it will include kitchen appliances and fittings. These will need to be wired and plumbed in as appropriate, and you will also need wiring and plumbing in other key areas around the space. If you already have many of these power points and water connections in place within your basement, you can knock thousands of dollars off the total cost of the project.

The Cost Of Creating a Basement Bar

Another popular project that we’re seeing homeowners get started on right now is basement bars. 

After all, the basement makes the perfect space for entertaining friends and family.

But how much is it going to cost?

According to HomeAdvisor, a home bar will set you back an average of $8,000, which when added to the typical nationwide cost of a basement project, means the total cost is going to be around $26,000.

Of course, the cost depends on the size of your basement and the specification you choose for your bar, however with most of us spending more time at home than ever before, it’s easy to see why it’s become an increasingly popular project to place high on a renovation wishlist. 

The Pros & Cons of 6 Basement Financing Options

When it comes to choosing the right way to finance your basement renovation, it’s no surprise that homeowners often become confused, with a number of different options available, all with different eligibility requirements, interest rates and more. 

So which do you choose?

As far as we’re concerned, the one that lets you borrow all of the money you need for your project at the lowest possible monthly cost.

And to help you make the right decision, below we’ll take a look at the pros and cons of 6 different options for financing your basement remodel. 

A RenoFi Loan

RenoFi Loans are a new type of home renovation loan that lets you borrow based on your home’s after renovation value.

That’s how much it will be worth once your home improvement project has been completed, given that when you carry out work, the value typically increases. 

Think of RenoFi Loans as combining the best bits of a construction loan with a home equity loan. 

Let’s look at this further.

One of the key advantages of a RenoFi loan is that you will be able to borrow against the projected value increase of your property. Your basement finishing project is an investment, right? Investments are designed to provide you with returns in the form of increased value, so it makes sense that you should be able to borrow against this.

As this is a projected value, there is no need for you to have built up equity in the property before you get approved, and you’ll be able to borrow up to 90% of your home’s after renovation value. 

A RenoFi Loan can increase your borrowing power by an average of 11x when compared with a home equity loan.

And this is one of the reasons why RenoFi Loans are quickly gaining popularity, given that it can take many years to build up the equity that’s needed to use a home equity loan or cash-out refinance, making these options inaccessible to newer homeowners. 

What’s more, the interest rates will be lower on this type of loan compared to other loan types, and the application process should be simpler and more straightforward, so it’s a win-win.

RenoFi Loans are available both as home equity loans and lines of credit, giving you the flexibility you need depending on the scope of your project.

Here’s what you need to know about RenoFi Home Equity Loans:

  • Loan amounts from $20k to $500k
  • Low fixed interest rates like traditional home equity loans
  • Repayment terms up to 20 years
  • Ability to borrow up to 90% of the after renovation value
  • The full loan amount available at closing

And here’s what you need to know about the RenoFi Home Equity Line of Credit:

  • Loan amounts from $20k to $500k
  • Variable rates 
  • 10 year interest-only period, followed by 20 year amortization
  • Ability to borrow up to 95% of the after renovation value
  • Line of credit that can be drawn down & paid back at your leisure for 10 years

Take a look at how a RenoFi Loan compares with other basement financing options:

Renovation Home Equity LoanSingle-Close Construction To Permanent Loan (CTP)Fannie Mae HomeStyle LoanFHA 203k (Full)Two-Close Construction To Permanent Loan (CTP)
Is this a mortgage?YesYesYesYesYes
1st or 2nd mortgage?2nd1st1st1st1st
Require refinance of existing mortgage?NoYesYesYesYes
Typical Interest RateMarketAbove MarketAbove MarketAbove MarketAbove Market
Loan Limit (Renovation Cost + Mortgage)$500,000Jumbos allowedConforming onlyConforming onlyJumbos allowed
Loan Term (max)20 years30 years30 years30 years30 years
Credit Score Required660+700+620+580+580+
Loan to ValueUp to 95%Up to 95%Up to 95%Up to 96.5%Up to 80%
Can be used for building new home?NoYesNoNoYes
Restrictions on type of improvements?NoNoNoYesNo

A RenoFi Loan is the perfect way to pay for your basement project, pretty much whatever the scope.

Why not arrange a chat with one of our advisors to learn more about how these new loans work or try out the RenoFi Loan Calculator ?

How do I know if a RenoFi Loan is right for my project?

The RenoFi team is standing by to help you better understand how RenoFi Loans work and the projects they are best suited for. Have a question - Chat, Email, Call now...

A Home Equity Loan Or Line Of Credit (HELOC)

If you have substantial equity built up in your property and you don’t mind borrowing against this, a home equity loan or home equity line of credit (HELOC) might suit your purposes.

You will likely find that this kind of loan provides you with lower interest rates when compared with those of personal loans and credit cards, and the interest may be tax-deductible, provided you are able to show that you are increasing the value of your property. 

With a home equity loan, you will be able to lock the interest rates, providing easier planning for the future, although this may not be possible with a HELOC.

But there’s one problem with this type of financing. 

And that’s the fact that these loans are inaccessible to those who haven’t built up sufficient equity. And that’s a problem.

Equity takes time to build up. Just look at how long it takes to build up $100k of tappable equity:

Newer homeowners especially are limited when considering options that use equity, often forcing them to turn to high-interest personal loans, credit cards or even reducing the scope of their project. And we don’t think that should be the case. 

But the fact remains that if you haven’t built up enough equity, this is going to limit your borrowing power, as this type of financing only allows you to borrow up to 90% of the value of your property, minus any outstanding mortgage payments. 

And this is one of the reasons why so many homeowners are turning to RenoFi Loans. And even those who do have tappable equity available, this type of financing makes it possible to get started on your entire renovation wishlist today, rather than doing it project-by-project over many years.

A Cash-Out Refinance

A cash-out refinance lets you refinance an existing home loan to free up cash for home improvement projects such as basement finishing. 

But we’re pretty set on the fact that most homeowners shouldn’t use a cash-out refinance for renovations.

Why? Because most people find themselves forced to refinance onto a higher rate, losing out on the great one that they’re locked into. There’s also the need to pay closing costs on the entire loan amount, rather than just what’s needed for the renovation. 

The only exception to this is when refinancing significantly reduces the rate against what you’re paying on your current mortgage and unless this is the case, there’s almost certainly going to be a better alternative for you. 

A Construction Loan

With a construction loan, you’re able to borrow based on your home’s after renovation value, just like you can with a RenoFi Loan. 

But most homeowners shouldn’t use construction loans to pay for a basement remodel. Not at all.  

Construction loans are intended to be used to pay for ground-up construction, but they’re often considered as a way to finance a renovation. Why? Because until recently, they were one of the only options that let you borrow based on your home’s future value. That’s no longer the case, however.

When using a construction loan, you’ll be forced to refinance your existing mortgage (often onto a higher rate), be forced to pay closing costs based on the entire loan amount and face a complex inspection and draw process for funds to be released to you or your contractor.

And for this reason, many contractors flat out refuse to work with this type of financing.

You’ll almost certainly find that a different type of financing is better suited for your basement project. 

An FHA 203k Or Fannie Mae HomeStyle Loan

FHA 203k and Fannie Mae HomeStyle Loans are two government-backed renovation mortgages that are designed to help individuals finance the purchase (or refinance) of a property and the required renovation costs into a single loan. 

Both of these loans let you borrow against your home’s after renovation value, but some with a number of complexities that can result in delays and unnecessary stresses. If you’re using these loans to finance the renovation of an existing property, you’ll be required to refinance, usually onto a higher rate.

That said, both options are designed for those with less than perfect credit scores, and for this reason, approval is relatively easier to achieve when compared with other types of loan for those who have a poor credit history.

The credit score requirement for a RenoFi Loan is 660, and if you’re not going to be able to qualify on these grounds, consider either of these loan options and take a look at our FHA 203k Loans vs Fannie Mae HomeStyle Loans guide.  

A Personal Loan / Home Improvement Loan

Homeowners often turn to personal loans to pay for basement remodels when they’ve not got sufficient equity available to use a home equity loan, line of credit or cash-out refinance. 

Some will also instinctively turn to what is often advertised as a home improvement loan. Why? Because they’re led to believe that they’re a specialist financial product that’s perfect for all types of home improvement projects. You might even see these advertised as basement loans. 

But what many don’t realize is that these are actually high-interest unsecured personal loans advertised at homeowners looking to undertake certain projects. 

While personal loans might sound like a good option for paying for finishing your basement, they come with a wealth of drawbacks including lower borrowing power, shorter repayment periods and higher interest rates.

A higher interest rate, of course, means higher monthly payments, and these loans typically sit somewhere between 8% and 15%; almost double what you could get on other types of financing.

That said, personal loans (and even credit cards) are often well-suited to smaller, lower-cost projects. And when you consider that RenoFi Loans start from $20k, it’s important to think carefully about how much you need to borrow. 

How Much Does Finishing A Basement Increase The Value Of Your Home?

Homebuyers are often willing to pay more for a property with a that has had it’s basement finished. 

This is additional space — after all, either for projecting the homebuyer’s own redevelopment vision onto or for moving into and using straight away. 

In general, property appraisers add an additional $70 to the price of a house for each square foot of basement space, but for finished basements, this is increased to $100 per square foot. 

It might not sound like much, but it quickly adds up. A property with a 700-square foot finished basement, for example, would be worth $21,000 more than the same property with an unfinished basement. And, of course, this can differ based on your location. 

Generally speaking, you can expect to recoup around $700 for every $1,000 spent on your basement remodeling spend. 

The first priority should be creating a basement that you and your household can use and enjoy, but bear in mind this value increase too. This figure is based on a national average for a midrange basement finishing project.

What’s The Best Way To Finance Finishing A Basement?

We’ve taken a look at some of the basement financing options at your disposal, so which one is best for you? 

While it often comes down to your personal situation, how much you want to borrow, and what you feel comfortable putting up as collateral — basement projects are highly varied, so you need to understand the costs fully before you commit to a financing option.

In most cases, a RenoFi Loan is going to meet your needs and is the perfect way to borrow all of the money you need at the lowest monthly cost. Just remember that, with RenoFi Loans, you’re using a product that is designed specifically with home renovation in mind.

To discover more about basement financing, RenoFi Loans, and what one could help you achieve with your project, get in touch with our team today.

How do I know if a RenoFi Loan is right for my project?

The RenoFi team is standing by to help you better understand how RenoFi Loans work and the projects they are best suited for. Have a question - Chat, Email, Call now...