Can I Get a Loan to Remodel my Kitchen or Bathroom?

Whether it is to update the look or improve the function, many people have the desire to remodel their kitchens or bathrooms. The problem is, few of us have the cash on hand to pay for such a remodeling up-front. This leaves us searching for other ways of obtaining the finances for a remodel--namely, borrowing. So, can you get a loan to remodel your kitchen or bathroom?

There are several ways to get a loan for the purpose of remodeling. The most common method of doing this is with a Home Equity Loan, or a Home Equity Line of Credit. If you currently have a mortgage, is is best to go and speak with your current lender, and see what their rates are. Many banks will give some kind of discount or incentive to current clients. Also, they already have your information on-hand, so the process may be simpler.

What is a Home Equity Loan?

A home equity loan is when you borrow money from the bank based on the percentage of your house that you own. That is your equity. Most lenders will lend you up to 80% of your equity. This means that if your house is worth $150,000, and you still owe $90,000, then your equity is $60,000. So a bank would normally lend you up to 80% of that, which comes to $48,000.

A home equity line of credit (HELOC) is similar to a home equity loan. The main difference is that the loan comes in one set amount, all at once. A HELOC is a credit account that you can withdraw from as you need it, and only make payments on the amount you use.

How do I get a Home Equity Loan for Remodeling?

The first thing you should do is get some estimates from builders. Find out how much your kitchen or bath remodel is going to cost. Don't just talk to one remodeling contractor; take your time and get estimates from 2 or 3, and make sure you research their reputations. When you settle on a remodeler, you will probably want to add 10% to their estimate, just in case, and then you can go speak with some lenders.

Just as you did with the remodeling contractors, you are best-off shopping around for your home equity loan. Find out what the total closing costs will be (the fees for opening the loan), and what the interest rates will be. Make sure you understand the difference between a fixed-rate and an adjustable-rate mortgage, so that you know what you are getting into. Ask lots of questions, since there is always more fine-print than we can fit in this article.

You can talk to banks, credit unions and mortgage brokers in order to find a loan for your kitchen or bath remodel. Some remodelers will even lend you the money themselves, and you make payments to them. Or, other remodeling contractors can recommend respectable lenders to you. Watch out for lenders that try to lure you in with low initial costs and an introductory interest rate, and then later gouge you with unreasonable interest and payment hikes. Once you've picked out a lender, it's time for the next step.

What does the home equity loan process look like?

You will need to begin with some paperwork, just as you would expect. The bank will run a credit check on you, and begin their process. You will need to be patient, as this might not move as quickly as you would hope.

The bank will need to appraise your home, to be sure of its value when they give you the line of credit. This will cost several hundred dollars, so you should be expecting that. Most banks, however, can roll that fee into your loan, so you don't need that cash up-front. The lender will also need to check your credit score. The better your history of making payments, the better your borrowing terms will be.

Once your paperwork is finished and your appraisal and credit check are done, the loan request will be sent to the underwriters, who examine the package to see if lending to you is a safe investment. Once it is approved, you will need to sign the closing documents.

At that point, the money is there for you to use! Schedule your work with the kitchen and bath remodeler of your choice, and get ready for the transformation!

New Life Kitchen & Bath specializes in quality remodeling at an affordable price. We are happy to provide you with a free estimate for your kitchen or bath remodel, and we can also help get you started towards the financing package you need to make the project happen. We serve the Central Coast region, including Nipomo, Santa Ynez, San Luis Obispo, Arroyo Grande and Santa Maria.