Bathroom Remodel Financing: Understanding Your Options

Find out how your dream bathroom can become a reality when you choose a financing option that lets you borrow the most money at the lowest possible cost.

See how this bathroom went from antique to chic with a RenoFi Loan

A bathroom remodel is often right at the top of people’s renovation wishlist. In fact, it has been reported that 30% of all renovation projects carried out in the US in 2020 were bathroom remodels.

But a bathroom remodel can be expensive, and most homeowners aren’t able to use cash to pay for the entire project, meaning that you’re probably already considering your financing options.

And in this guide, you’ll learn about the different ways you can finance your renovation and the pros and cons of each.

Specifically, we’re going to look at:

If you’re about to start planning your bathroom remodel, take the time to find the right way to finance it. Choosing the wrong method could be expensive and significantly increase your monthly payments or limit your borrowing power.

How Much Does The Average Bathroom Remodel or Addition Cost?

The cost of remodeling your bathroom can differ significantly based upon the scope of your project (whether this is your master bathroom or half bath, for starters), but according to the Remodeling Cost vs Value Report 2020, here’s the average amount you can expect to pay for the following renovations:

  • Midrange Bathroom Remodel: $21,377
  • Upscale Bathroom Remodel: $67,106
  • Midrange Bathroom Addition: $49,598
  • Upscale Bathroom Addition: $91,287

Just remember that these averages change by location, with the cost of contractors and materials differing across the country.

To give an example, you can expect a mid-range bathroom remodel to cost an average of $28,786 in San Francisco, CA whereas the same project would be $18,591 in Knoxville, TN. That’s a difference of $10,195 compared between two locations.

Take the time to properly cost out your dream bathroom to know exactly how much you’re going to need to borrow, then add on another 5% to cover any unexpected costs that come up during construction.

What Is The Most Expensive Part of a Bathroom Remodel?

When it comes to scoping out your bathroom remodel to try and better understand how much it’s going to cost to complete it, you’ll probably be wondering what the most expensive parts of this type of project are.

Learn more about this master bath remodel in Philadelphia

And this is especially the case when you’re looking to keep this cost down.

To help give an idea as to the elements that cost the most in a typical bathroom renovation, we turned to HomeAdvisor data to see what makes up the highest percentage of a project’s budget.

The Cost of Materials

Before we dive in, let’s make one thing clear; the cost of materials can vary massively depending on the choices you make, hence why the percentages here are split into such wide bands. Here’s how the cost of materials commonly breaks down in a new bathroom:

  1. Bathroom vanity (10% - 30%)
  2. Showers (5% - 25%)
  3. Fixtures (10% - 20%)
  4. Faucets and plumbing (12% - 16%)
  5. Flooring (10% - 15%)
  6. Entry doors and windows (8% - 10%)
  7. Countertops (5% - 10%)
  8. Lighting (5% - 7%)
  9. Painting (5% - 6%)
  10. Bathroom fan (2% - 5%)

Labor Costs

Labor costs often account for between 40% and 65% of the total cost of a bathroom remodel, split between general contractors, plumbers, interior designers, electricians and drywall installation contractors.

You can also expect to pay anywhere between $1,000 and $2,300, on average, for the demolition of your existing bathroom, quickly increasing beyond this if there’s a requirement to remove load-bearing walls or where there’s a need to break water pipes or electrical lines.

Of course, the larger your bathroom and the more complex it is, the more you should expect to pay out on labor costs.

Does A Bathroom Remodel Add Value To Your Home?

Most renovations add value to your home, and knowing how much this could be can be a great way to justify the investment into a remodel. After all, if you’re able to eventually recoup a large percentage of the money that you put into a project, it suddenly makes a lot more sense, especially given that the reason you first considered a new bathroom was most likely that it needed upgrading, modernizing or improving.

See how a RenoFi Loan helped make this bathroom makeover a reality

But just how much value does a bathroom remodel add to your home?

According to Remodeling’s Cost vs Value Report, on average, you’ll be able to recoup somewhere between $13,688 (64% of the project’s cost) for a midrange remodel and $37,995 for an upscale remodel (56.6% of the project’s cost).

Again though, the return that you can expect to see will depend on whether it’s your master bathroom or a half bath that you’re remodeling.

For an addition, you can expect to recoup anywhere from $26,807 (54% of the project’s cost) when going midrange to $49,961 (54.7% of the total cost) when going upscale.

Don’t make the mistake of basing your project decisions solely on the value that it’ll add to your home, though. Your new bathroom is for you to enjoy and relax in, and if it just so happens that the renovation adds value to your home, then that’s a great bonus.

Understanding Your Bathroom Remodel Financing Options

If you want your dream bathroom, there’s a very good chance that you’re going to need to borrow most of the money that’s needed to make this happen.

But there are a number of different types of bathroom remodel loan and financing options available to help you to make your project a reality each with its own pros and cons.

Some you should stay away from completely, whereas others should be considered carefully against things like the equity that you have in your home, your credit score, the amount you need to borrow, and the maximum monthly payments you can afford to make.

So let’s dive deep into looking at these options and help you to figure out which is the way for you to make your bathroom remodel a reality.

Secured Financing Options

If you’re looking for an affordable way to borrow the money that you need to kickstart your project, then there’s a good chance that the most suitable bathroom remodel financing options for you will take the form of secured loans.

You see, when borrowing large amounts of money, lenders want to minimize the risk that’s involved, and secured financing uses your home as collateral. Quite simply, that means that if you fail to keep up with your payments, for whatever reason, the property could be sold to repay the money that you owe.

And this lessened risk means that these types of financing can offer lower interest rates and a higher level of borrowing power than unsecured loans.

RenoFi Loans

RenoFi Loans are the perfect way for pretty much any homeowner to finance their remodel, and this new type of home renovation loan combines the best bits of a construction loan with a home equity loan.

Quite simply, a RenoFi Loan can let you borrow the most money at the lowest possible monthly payment for your new bathroom.

Here’s what you need to know:

  • Loan amounts from $25k to $500k
  • Same low fixed interest rates as traditional home equity loans
  • Term up to 20 years
  • Ability to borrow up to 95% of the after renovation value
  • Full loan amount available at closing

RenoFi Loans are also available as a home equity line of credit.

These loans let you borrow based on your home’s after renovation value, rather than its current value, meaning that your borrowing power increases by an average of 11x when compared with a traditional home equity loan.

And this makes total sense, given that you can expect the value of your home to increase once your remodel is completed. RenoFi Loans let you tap into the equity that your renovation is going to create to finance the project upfront.

You see, whilst home equity loans and lines of credit or a cash-out refinance have historically been the most commonly used methods of financing to pay for a renovation, these require you to have built up equity that can be tapped into.

But it can take years to build up sufficient equity to be able to afford to undertake even a relatively small remodel, meaning that many new(er) homeowners are stuck between a rock and a hard place, unable to borrow the money that they need with these traditional methods.

A RenoFi Loan solves this problem, whilst also being the only home renovation loan that doesn’t require you to refinance your first mortgage.

And here’s how they compare with the other options that you might be considering:

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

Homeowners are quickly turning to these loans as their preferred method of financing their bathroom remodel and to learn more about them or find out whether they’re right for your project, we welcome you to chat with one of our advisors or use the .

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...

Home Equity Loans or Lines of Credit

If you’ve got tappable equity available in your home, a home equity loan or line of credit (HELOC) could be a possible method of bathroom remodel financing for you to consider.

But this very much depends on how much you need to borrow and whether or not you have sufficient equity built up. As mentioned above, many homeowners find that they haven’t lived in their homes long enough to be able to finance their project using equity without reducing the scope, and we’re not fans of having to do that.

If you’re only wanting to carry out a small bathroom renovation, using equity might work, but for larger upscale projects or where this room is just one from a much larger wishlist, there’s a good chance you’ll find that this is limiting. Alternatively, if you’ve lived in your home for many years you’ll probably have enough equity available.

If you need to borrow more than the equity in your home will allow using these traditional methods, don’t worry. And certainly don’t go reducing the scope of your remodel unnecessarily. As you saw with RenoFi Loans, alternatives to home equity loans that let you borrow based on your property’s future value do exist, and for most homeowners, that’s going to be the most effective way to borrow the money you need to undertake your renovation just how you want, without reducing the specification or completing it in a number of phases over a longer period of time.

Cash Out Refinance

Alongside a home equity loan, a cash-out refinance is the other method of financing that’s commonly used to pay for home improvements, but it carries similar drawbacks in that if you’ve not got sufficient equity, you won’t be able to borrow the money that you need.

But aside from this, homeowners who use a cash-out refinance to pay for their bathroom remodel run the risk of having to refinance onto a higher rate than the one they’re currently locked into, significantly increasing the cost of monthly payments unnecessarily.

And in most cases, we’d argue that refinancing is one of the dumbest things that can be done in this situation, especially when alternatives exist that allow you to borrow without needing to do this. The only exception is when refinancing significantly reduces the interest rate of the loan.

Construction Loans

Construction loans aren’t the right method of bathroom remodel financing, not at all. Yet they’re often wrongly recommended as the perfect way to pay for a renovation project.

Like RenoFi Loans, these allow you to borrow based on your home’s after renovation value, therefore increasing your borrowing power when compared with home equity loans or a cash-out refinance. But these loans were never designed to be used to finance home improvement projects, rather as a way to borrow the money for the ground-up construction of a house.

You shouldn’t be using a construction loan to finance your bathroom. It’s as simple as that, given that you’d be required to refinance your existing mortgage, face higher closing costs and have to go through the complex draw process that comes with this type of loan.

If you’ve been looking into this as an option, take the time to find a better alternative.

Unsecured Financing Options

Unlike secured financing, unsecured loans don’t use your home as collateral, making them a much greater risk to lenders, in turn limiting your borrowing power and imposing a much higher interest rate.

For most bathroom remodeling projects, an unsecured loan isn’t going to be the right option, unless you’re only looking to borrow a smaller amount, when it’s likely going to be the best way to borrow.

That said, many homeowners are led down the path of taking out an unsecured loan, often in the form of what’s advertised as a ‘home improvement loan.’ These are offered by multiple lenders, sometimes even as specific bathroom remodel loans, and are really nothing more than unsecured personal loans advertised to homeowners looking for a way to finance their renovation.

If you’ve been considering a home improvement loan from your bank or another lender, stop for a moment to ensure you fully understand what’s being offered and the specifics of the loan.

Personal Loans

Personal loans are commonly used to finance home improvement projects, including bathroom renovations, due to the ease of getting funds and widespread availability.

But when compared with other finance options, they’re likely going to limit your borrowing power and significantly increase your monthly payments as a result of higher interest rates and shorter repayment periods. As an example, it’s not uncommon for the rate on a personal loan to be anywhere between 8% and 15%; over double what you can get with alternatives, and to have a payback period of between 5 and 10 years.

Higher interest rates mean higher monthly payments on the same loan amount.

Just take a look at the difference in monthly payments on a $50k loan borrowed over 10 years at these two rates; 8% and 15%, compared with 4%.

Interest RateMonthly Payment
4%$506
8%$607
15%$807

And let’s not forget that the rates offered on personal loans can vary depending upon your credit score, income and other debts.

If you’re only looking to borrow a small amount for your bathroom remodel, then personal loans are probably going to be your best option, but for larger projects, you’ll quickly find that their limitations work against you.

Credit Cards

Borrowing on a credit card can be expensive due to high interest rates, making them unsuitable for most renovation projects. You’ll find that the limits make it difficult to borrow the amount that’s needed for larger remodels and that the cost makes monthly payments sky high.

That said, if you’re carrying out a small DIY remodel on your bathroom, spending just a few thousand dollars and can repay relatively quickly, a credit card is going to be an attractive option. Just not for costly projects that you’ll want to repay over many years.

Cash

Cash is without a doubt the most cost-effective way to pay for any home improvement work, given that there’s no interest payable. However the reality is that most homeowners don’t have sufficient savings that they can dip into to pay for a larger renovation without eliminating their emergency funds.

And that’s not something that’s recommended.

When finance options exist that can allow you to finance your bathroom remodel with affordable monthly payments, it usually makes sense to do this rather than emptying your bank account. After all, emergency savings exist for a reason, and a new bathroom doesn’t really count as an emergency…

What’s The Best Way To Finance Your Bathroom Remodel?

There’s no denying that you’ve got a number of bathroom remodel financing options that could be used, but they’re not all going to be the best option.

When figuring out which route to go down, you’ll need to consider these things to help you to reach a decision:

  • How much money you need to borrow based on the scope of the project (you’ll need to budget more for a master bath remodel than a half bath, for example)
  • How much equity you have in your home
  • Your credit score and credit history
  • Any debt on other loans and credit cards
  • The maximum monthly payments you can afford
  • The timeframe that you wish to repay the loan over

Once you know how much your new bathroom is going to cost you, it comes down to finding the best way to borrow all of the money you need at the lowest possible monthly cost.

Is Your Bathroom Remodel Part Of A Larger Renovation Wishlist?

Maybe your bathroom is the only room in your house that’s due an upgrade, or perhaps it’s just one thing on a long list of projects that you wish you could afford to carry out now.

See more photos from this open-floor concept renovation

If you’re buying a home in the US today, there’s a good chance that it’s more than 40 years old. And that usually means a long list of renovation work that’s needed to turn it into your dream home.

But for various reasons, we often tackle this list over many years, putting our families through life in a seemingly endless construction zone.

If your dream bathroom is part of a bigger project that you’re wanting to tackle, why not explore the options that could allow you to complete everything all at once? Borrowing against your home’s future value could allow you to do this, and helping to make renovation dreams come true is one of the reasons why RenoFi Loans were launched.

Why not arrange to chat with one of our advisors to learn more about whether this type of loan is the best way to finance your bathroom remodeling project or use the to see how much you might be able to borrow.

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...