6 loan options to finance a bathroom remodel

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.

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 A Bathroom Remodel Costs

While a minor bathroom remodel isn’t too expensive, when you’re talking about a major upscale remodel or a bathroom addition project - the cost starts to climb.

According to the Remodeling Cost vs Value Report 2021, an upscale bathroom remodel averages around $67,106 and a midrange bathroom addition averages around $49,598.

Read more about the cost of a bathroom remodel.

When you’re talking about costs over $50,000, most people don’t have that amount of money laying around and might want to look into financing options.

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 loans 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.

Here are the types of loans available to make your bathroom remodel a reality:

• Secured Loans
  • RenoFi Loans
  • Traditional HELOC or Home Equity Loan
  • Traditional Cash-out Refinance
  • Construction Loans
• Personal Loans
• Credit Card
• Cash

Secured Financing Options

There are two major types of loans: secured and unsecured.

Secured loans require collateral, while unsecured loans do not. If you miss payments on a secured loan, you could lose the collateral (in most situations, your home.) If you miss payments on an unsecured type of loan, you’ll tank your credit score.

When borrowing large amounts of money, lenders want to minimize the risk that’s involved, and secured financing uses your home as collateral. 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.

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.

There are three types of RenoFi Loans:

• RenoFi Home Equity Loans
• RenoFi HELOCs
• RenoFi Cash-out Refinancing

To learn more about the specifics of each, visit the RenoFi Loans page.

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 piece of 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 have to refinance into a new interest rate on their primary mortgage. If you already have a low-interest rate locked in, this is a bad decision.

Refinancing is one of the dumbest things that can be done in this specific situation. 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%.

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.