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How to Finance a Kitchen Remodel

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There are few home improvement projects more satisfying than a kitchen remodel. After all, the kitchen is where every member of your household spends time each day. The average price to remodel a kitchen in 2021 ranges from around $12,500 to $35,000, so you may plan to finance your project.

Here, we'll talk about some options for financing a kitchen remodel and things to consider before choosing each financing option.

How to budget for a kitchen remodel

The best way to budget for a kitchen remodel is to decide how much you can easily afford to repay and build your remodeling plan around that budget.

Here are some questions to ask yourself before applying for kitchen remodel financing:

  • How much can I afford to pay for using cash from savings?
  • How much can I afford to borrow? What sort of monthly loan payment can I afford?
  • How long do I want to spend paying off my kitchen remodel? (How long or short of a repayment term do I want?)
  • Will these improvements increase the value of my home?

Also, make sure you figure an extra 20% into your budget for overages. This means if you're expecting to spend $1,000, expect to spend $1,200. In any renovation project, things are likely to go wrong. Budgeting for those problems in advance prevents you from having to dig into your pocket to find more money.

How to pay for a kitchen remodel

The financing you pick depends, in part, on how extensive your kitchen renovation will be. For example, if you're just painting, adding a new backsplash, and replacing the hardware on cabinets and drawers, your best bet might be credit cards. If you're gutting the entire room and starting over, you're going to want to look at another financing option. Here are six ways to finance a kitchen remodel.

1. Personal loans

A personal loan is a fast, easy way to take out a home improvement loan.You can find personal loans with loan amounts as small as $1,000 and as large as $50,000 (or more). Many lenders offer plenty of time to repay the loan. What's more, you can apply for some of the best renovation loans from the comfort of home.

The below calculator can help you experiment with different loan terms and financing amounts to see what's right for you.

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Finding the best personal loan

If you choose to get a personal loan, you'll probably pay a lower interest rate than you would if you paid with a credit card. To make sure you get a good personal loan interest rate, compare several lenders.

Some lenders allow you to choose between a secured or unsecured loan. A secured loan means putting up something of value -- like stocks, fine art, or a retirement account -- as collateral. If your credit score is low, you might find it easier to get approved for a secured loan. But be careful: If you fail to make the payments as agreed, the lender has the right to take possession of the collateral and sell it.

Also ask lenders about their other fees. For example, some charge a prepayment penalty. Don't just pick the first lender you find. Shopping around will help make sure you find the best personal loan for you.

2. Credit cards

If you're planning a smaller remodel, and can pay back the money quickly, you might want to pay for your kitchen remodel with credit cards. A credit card with a 0% promotional rate is a great way to borrow money without paying interest -- as long as you can pay off the card before the higher interest rate kicks in (you'll generally have a little over a year to pay off the card). If you go this route, plan to make more than just the minimum monthly payment for the card.

3. Cash-out refinance

If you have enough equity in your house, a cash-out refinance is another way to pay for kitchen remodeling.

A cash-out refinance works like this: Say you currently owe $200,000 on your mortgage, and you set a $40,000 budget for your remodeling project. You could refinance to a $240,000 mortgage (amount you owe plus the money for your home improvements). Then, you'd get that $40,000 as cash to pay for your kitchen remodel.

4. HELOC

A home equity line of credit (HELOC) also allows you to use the equity in your loan. As a homeowner, you can apply to borrow a little at a time from your mortgage lender, up to the amount the lender approves. Once you pay a portion of the loan back, you are free to borrow it again -- similar to a credit card. This is also known as a second mortgage.

5. Home equity loan

With a home equity loan, and you put your house up as collateral. You'll get the funds for your home improvement project in a lump sum, then pay the loan back monthly.

6. Federal programs

A final option for financing home improvements involves government loans. The Section 203(k) program is offered through the U.S. Department of Housing and Urban Development (HUD). It allows you to take out a new mortgage or refinance your current one and roll the cost of home renovations into the loan. There are limits on what the funds can be used for, but they tend to cover things like bath and kitchen renovations.

Knowing how to finance a kitchen remodel can help you create your dream kitchen. Before you get started, work your budget, decide how much you can afford, and go into your kitchen renovation project with a clear financial plan.

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FAQs

  • The average price to remodel a kitchen ranges from about $12,500 to $35,000. You may spend less or more.

  • To finance a kitchen remodel, you can take out a personal loan, open a credit card with a 0% intro APR promotional rate, take cash out while refinancing your home, borrow funds through a home equity loan or HELOC, or take advantage of a federal program like HUD's 203(k).

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