See how a RenoFi Loan transformed this kitchen in Pennsylvania

A kitchen remodel is perhaps the most desired renovation project that homeowners want to undertake, and these can be expensive, but choosing the right financing option can make it possible for you to borrow the money to do it just the way you want, without having to compromise on the specification.

The reality is, though, that you’re presented with a number of different ways to finance your new kitchen, and it’s not always easy to figure out the right route to go down. Maybe you’ve started searching up ‘kitchen remodel loans’ on Google and have been left feeling confused about the different options available to you.

But we want to help you understand the right financing option for you to use to pay for your new kitchen.

From RenoFi Loans (a new type of home renovation loan that we’ll tell you all about below) to tapping into your home’s equity, personal loans, and more; keep reading to learn all about your options and the pros and cons of each.

Specifically, we’ll take a look at:

Take the time to consider your options and choose the one that’s right for you, understanding that making the wrong choice can significantly limit your borrowing power or result in much higher interest rates and monthly payments.

How Much Does The Average Kitchen Remodel Cost?

Perhaps the biggest single consideration when choosing the right way to finance a kitchen remodel is the project scope.

After all, the amount that you’re going to need to borrow will often dictate the best way to get the money.

According to Remodeling, the average mid-range kitchen renovation costs between $23,452 for a minor remodel and $68,490 for a major remodel. The average upscale major remodel costs $135,547.

And while the exact specification that you choose for your renovation can heavily influence the cost, let’s not forget that your location can also impact this.

A major mid-range remodel in San Francisco, CA as an example will set you back an average of $83,418, whereas the same project in Knoxville, TN would cost $63,999.

It’s recommended that you take the time to scope out the cost of your remodel as the first step in order to make decisions around the financing options that could and couldn’t work, especially when you consider that according to the 2020 U.S. Houzz & Home study, 31% of projects, on average, go over budget.

What Is The Most Expensive Part of a Kitchen Remodel?

When planning your kitchen remodel, however, some of the questions that are often asked by homeowners prior to collecting contractors’ quotes relate to what the most expensive parts of a project typically are.

Based on data obtained from HomeAdvisor, these are the elements that typically make up the highest percentage of a project’s budget:

  1. Cabinetry and hardware (29%)
  2. Installation (17%)
  3. Appliances and ventilation (14%)
  4. Countertops (10%)
  5. Flooring (7%)

Understanding Your Kitchen Remodel Financing Options

You have a number of options to choose from when it comes to financing your kitchen remodel, with these options differing based on the equity that you have in your home, whether they’re secured or unsecured loans, and the borrowing power that they offer.

And to be in a position to determine which one is right for your project, it’s important that you understand the difference between these and the pros and cons of each, in relation to your own financial situation.

Secured Financing Options

Secured loans use your home as collateral, meaning that if you fail to make monthly payments, you could be forced to sell the property in order to settle the debt.

Because of this security, secured loans pose less risk to lenders, meaning you’ll typically be able to borrow a higher amount and access lower interest rates than with unsecured alternatives.

Secured financing options are commonly used to finance home improvement projects, with both home equity loans and lines of credit and and cash out refinance popular options, however both of these options require you to have a sufficient amount of tappable equity in your home.

If you’ve recently bought your property (let’s say within the last 10 years), this is unlikely to be enough for a full kitchen remodel.

Just take a look at how long it takes to build tappable equity that’s sufficient enough to let you borrow anything above enough to pay for a minor project:

tappable equity desktop

tappable equity mobile

But not having this equity this doesn’t mean that you have to reduce the scope of your project. Far from it; you just need to take the time to explore all of the options that exist and pay particular attention to those that let you borrow based on your home’s after renovation value.

RenoFi Loans

Let us introduce you to RenoFi Loans, a new type of home renovation loan that combines the best bits of a construction loan with a home equity loan.

See how these homeowners completed a kitchen makeover with a RenoFi Loan

A RenoFi Loan lets you borrow based on your home’s future value, allowing you to increase your borrowing power as a result of the value that the renovation will add.

And this makes this type of loan the perfect way to finance your kitchen remodel, especially when you consider that you won’t be required to refinance or need to have built up equity.

In fact, with a RenoFi Loan, your borrowing power could increase by an average of 11x when compared to a traditional home equity loan or HELOC.

This makes these loans the ideal choice for homeowners who have recently bought their property or who have recently locked into rock-bottom rates and who don’t want to refinance to pay for home improvements. They also let you avoid the hassle of construction loans, an option that has often been used to pay for renovations in the past, much to the dismay of contractors.

To put it simply, RenoFi Loans let you borrow the most money at the lowest cost.

before and after desktop

before and after mobile only

Here’s what you need to know:

  • Loan amounts from $25k to $500k
  • Same low fixed 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

If you’ve been considering a full house remodel but had taken the decision to limit your project just to the kitchen due to limited borrowing power with alternative financing options, a RenoFi Loan could help you afford to complete your entire renovation wish list right now, rather than forcing you to carry out single projects over many years.

Just take a look at how they stack up against 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

To learn more about these loans and to find out whether they’re right for financing your kitchen remodel, chat with one of our advisors or use .

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

Using a traditional home equity loan or HELOC has commonly been used as a way to finance home improvements, including kitchen remodels, however many homeowners find that they don’t have enough equity available to finance major projects. Especially if they’ve only recently purchased the home.

Building up enough tappable equity to finance anything more than a minor kitchen remodel can take years, and most people don’t want to wait.

Whether you’ve bought a fixer-upper and need to start renovation work as soon as you possible can or that you’ve decided that your home needs modernizing, expanding or simply adapting to the ever-changing needs of you and your family, there’s a good chance that the kitchen will be at the top of your wishlist of projects.

If you’ve lived in your home many years, then a home equity loan or HELOC might be a suitable option, but for many homeowners, this option will limit your borrowing power and make it so that you struggle to afford to undertake the project to your own specification.

But let us tell you one thing; you don’t need to reduce the scope of your project if you’ve found that you don’t have the equity available to use this option, you just need to find an alternative that lets you borrow based on your home’s future value.

Cash-Out Refinance

For a lot of homeowners, refinancing to pay for home improvements, including a kitchen remodel, is one of the dumbest things that can be done.

But as with home equity loans, a cash-out refinance is often considered one of the go-to ways to finance a renovation project.

And while this can be a great way to borrow the money that’s needed if you’re able to lock in at a significantly lower rate, the reality is that this isn’t the case for most people and they’ll find that a cash out refinance means they end paying a rate that’s noticeably higher than what it previously was.

Add to this the fact that your borrowing power will typically be limited to 80% of your home’s current value and it’s easy to see why this option probably isn’t the right one for you.

FHA 203k or Fannie Mae HomeStyle Loan

FHA 203k and Fannie Mae HomeStyle Loans are two government-backed mortgages that let you borrow based on a property’s after renovation value in the same way that RenoFi Loans do.

They can be used to either refinance and pay for a remodel on your existing home or to finance the purchase and renovation of a fixer-upper.

But while borrowing against your homes future value can increase your borrowing power significantly compared with a home equity loan or line of credit, these types of loan don’t come without their complexities.

In fact, compared to alternative options, the process of applying for and obtaining an 203k or HomeStyle loan can cause significant delays as well as a whole load of hassle and then there’s the requirement to take out costly mortgage insurance and above market rates. Let’s not forget to also mention that you’ll need to refinance your mortgage to take out these loans.

Once over, they were the best option out there, but when alternatives exist that you don’t have to refinance for, offer market rates and still let you borrow against your homes after renovation value, you should probably rethink your options if you’ve been considering this method of financing for your kitchen remodel.

But there’s one exception to this, and that’s if you have a lower credit score and a bad credit history, given that FHA 203ks and HomeStyles require scores of 580+ and 620+ respectively.

Construction Loan

Whatever you’ve been told, you shouldn’t use a construction loan to pay for a renovation. And that includes your kitchen remodel.

You see, this type of financing was once the only option that allowed homeowners to borrow against the after renovation value of their home, giving no real choice without sufficient equity available other than expensive personal loans.

But what’s wrong with using a construction loan for a renovation? Quite simply, it’s the need for you to refinance, significantly higher closing costs than alternatives and the complex draw process that’s involved.

Times have changed, and construction loans are no longer your only choice, and if this is an option that’s been recommended to you, we urge you to take the time to learn a little more about RenoFi Loans.

Unsecured Financing Options

Whereas secured financing uses your home as collateral and therefore poses less of a risk to lenders, the other kitchen remodel financing options that you might be considering are unsecured loans.

But one problem lies in the fact that it can sometimes be difficult for a homeowner to determine exactly what type of financing they’re being offered in the first instance.

Don’t follow?

It doesn’t take much research to come across home improvement loans. These are often marketed as a specialist way for homeowners to finance their home improvement project, in this case your kitchen remodel. But in reality, they’re simply unsecured personal loans that have been packaged up as a product to use to pay for home improvements and marketed in this way. In fact, you’ll sometimes even see these advertised as specialist kitchen remodel loans.

And that means that this type of loan will usually come with the same drawbacks as every other type of unsecured finance.

Borrowing decisions for unsecured loans are made based upon your credit score, income, the loan amount that you’re applying for and your debt to income ratio.

But let’s take a look in more detail at the most common types of unsecured finance that could be used to finance your kitchen remodel.

Personal Loans

We’ll say it straight up; most people shouldn’t use a personal loan to pay for home improvements, and that includes a kitchen project.

At least that’s the case for major remodeling projects, given that using a personal loan (or a ‘home improvement loan’ product from a lot of lenders) will usually result in higher monthly payments as a result of significantly higher interest rates (these can often be between 8% and 15% on personal loans), shorter payback periods, much lower borrowing power and the fact that interest isn’t tax-deductible as it is on a home equity loan, home renovation loan or most types of secured financing. Most will also carry a costly origination fee.

That said, if you’re only looking to carry out a minor remodel, let’s say you’re only looking to replace countertops or to reface or refinish your kitchen cabinets, the total cost of your project is going to be significantly lower than a major remodel of your entire kitchen. In these scenarios, you might only need to borrow $5,000 and for lower budget borrowing, a personal loan is probably going to be your best option.

Credit Cards

Credit cards usually come with an even higher interest rate than personal loans, making them an expensive way to borrow the money needed to remodel your kitchen. You’ll also find that the limit on most credit cards won’t be sufficient to pay for most home improvement work.

However, if you already have a credit card, funds can be accessed instantly, without having to go through a lengthy application process for another loan. If you only need to borrow a small amount of money, let’s say to replace a single appliance, this might be your easiest option.

Cash

Using cash to pay for your new kitchen, of course, is the cheapest option in the long run given that there’s no interest payable.

But not many of us are lucky enough to have access to the amount that’s needed to pay for even a minor kitchen project without draining a savings account or borrowing from their 401k.

In fact, it has been reported that the average American household has an average of $30,600 in their savings account, and this is rarely going to cover the cost of your entire remodel. That’s before we point out that completely emptying your savings account (and, in turn, leaving nothing there in case of an emergency) is a stupid idea, especially when we consider the suitable and affordable financing options available.

Your new kitchen isn’t an emergency, so don’t drain your emergency funds to pay for it. Instead, spread the cost over a period of time with an affordable monthly payment and keep your savings in your bank account just in case.

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

If you’re only planning a minor remodel, you might want to consider taking out a personal loan or using your credit card, but let’s remember that most renovation projects aren’t cheap or small scale. Think carefully about this decision and do your research before using either of these for more expensive projects.

But if you’ve already planned out your dream kitchen, you’re probably going to want to consider an alternative.

The best way to finance your kitchen renovation is going to be dependent upon the scope of the project and its total cost. And you need to consider whether this is the only room in your home that you’re wanting to remodel or whether this is just part of a larger full-home renovation project that you’ve been longing to carry out. Often, there’s a bigger wishlist of renovation works that homeowners want to carry out, but don’t know that there are ways of financing the whole project upfront.

And here’s what you should be thinking about when choosing the best financing option:

  • How much money you need to borrow based on the scope of your remodel
  • 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

You shouldn’t be forced to reduce the scope of your project simply because you haven’t got sufficient equity in your home or want to avoid the higher monthly payment that comes with unsecured loans, and If you’ve not already explored borrowing against the future value of your home, we strongly recommend that you do so.

Think carefully about what your forever home looks like and ask yourself which rooms you’d remodel or the additions you’d make if you could borrow the money for it all up front and make affordable monthly payments. Maybe that kitchen remodel is all that you’re wanting to do, but if there’s other rooms on your wishlist too, we want you to know that there’s likely a way to borrow the money you’ll need.

But for most homeowners and for most projects, a RenoFi Loan is going to let you borrow the most money at the lowest possible cost.

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...

Does A Kitchen Remodel Add Value To Your Home?

If you’re borrowing money to finance a kitchen remodel, there’s a good chance that you’re wondering how much value you can expect it to add to your home.

See how this homeowner transformed her kitchen with a RenoFi Loan

And if we look again at Remodeling’s 2020 Cost vs Value report, we can see that the average midrange kitchen renovation in the US adds between $18,206 for a minor remodel (77% of the project cost) and $40,127 for a major remodel (58.6% of the project cost).

For a major upscale kitchen remodel, the average value added is $72,993, or 53.9% of the project cost.

But don’t forget that the reason that you’re considering renovating is to get the perfect kitchen for you and your family’s needs. Yes, a new kitchen can add value to your home, and you’ll hear many realtors tell you that a kitchen can make or break a sale, but you shouldn’t judge your project’s scope just on this.

Plan and undertake the kitchen that you’ve always wanted, leverage the best-suited method of financing it and enjoy your forever home. Think beyond the resale value (while remembering that you’re going to be able to recoup a large percentage of the costs, especially as the value of homes continues to rise).

The Reasons Why Kitchen Remodels Often Go Over Budget

We’ve already touched on the fact that over 30% of remodeling projects go over their planned budget, but what are the most common reasons why this happens with kitchen projects?

We recently caught up with a number of designers, remodelers, and contractors to understand the rooms that are most likely to go over budget during a renovation, and can share that the biggest causes of extra money being needed on a kitchen remodel project are:

1. The sheer complexity of elements of these projects

Most kitchen renovations are major projects that involve many different elements; countertops, cabinets, appliances, plumbing, flooring, and more. All of these add to the cost of the remodel and can easily tip a project over budget if these aren’t carefully managed.

2. The fact that the kitchen is the focal point of the home

Most realtors will be the first to tell you that kitchens help to sell homes, and even for those who have found their forever home and have no plans to sell up, it’s a room that the whole family wants to enjoy and make the most of.

The kitchen is the focal point of most homes and it’s the room that most people are prepared to go all out on. It’s easy to take a kitchen over budget by choosing expensive options, often without realizing just what they’ll add up to.

3. The expensive tradework required on kitchen remodeling projects

A kitchen project is going to need to involve more expensive tradework than say, a master bedroom, and that’s simply the nature of this type of renovation.

But the trades needed in the kitchen (think plumbing, heating and electrical) come at a higher cost than others, and the simple fact that the more trades are involved the more expensive this will be in itself helps to show why this room can frequently go over budget.

Consider Your Options Carefully & Start Planning Your Dream Kitchen

Planning your dream kitchen should be exciting, but the worry around whether or not you’ll be forced to reduce the scope of your renovation because of your borrowing power or an unexpectedly high monthly payment can take away this excitement.

Take the time to consider your options carefully and be sure to understand the pros and cons of each.

If you’re still not sure how to qualify for the lowest possible interest rates and monthly payments while maximizing your borrowing power, we’d love to chat about whether or not a RenoFi Loan is right for your project.

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...