The kitchen is one of the most important aspects of a home, and therefore it’s not a surprise that it’s a very popular remodeling project. Since the kitchen is commonplace for gathering and used daily, it makes sense why you might want to update yours or design the kitchen you’ve always wanted if you’re building your home from scratch. There are a few ways to finance your dream kitchen and taking a look at a few of these options can help you get organized to begin your big project!
Considerations for Buyers
Depending on your style preferences, materials, and who you hire, how much you spend on a kitchen update will range. On average, a moderate kitchen remodel price tag starts at $25,000. Of course, you can opt for a budget-conscious upgrade and pay only a few thousand dollars to make smaller cosmetic upgrades to the space. On the other end of the spectrum, a more extensive or high end kitchen remodel will up the price to $60,000+ to include top-of-the-line materials, appliances, features, and customizable options for a luxurious kitchen, should that fit your allotted budget.
Budget and Organize Your Project Plans
First and foremost, determine how much money you have available to spend on this remodeling project. Some considerations that can help outline your budget for a kitchen upgrade include:
● Have you saved any money for upgrades?
● Are you profiting from selling your home or breaking even?
● Are there other home upgrades you plan to complete soon that you’ll need financing for?
● How quickly do you want to pay off this project?
Asking yourself these questions can help you set project expectations. Remember, there might be small issues you encounter along the way that might require some extra funds. Rather than maxing out your budget down to the penny, try to leave yourself some wiggle room.
A Loan for Larger Projects
It’s very typical to take out a loan for a kitchen remodel due to the nature of the project. The good news is that with upgrades such as replacing cabinets and countertops, updating flooring, and investing in quality appliances, you can dramatically increase the value of your home. This is a worthwhile investment for your lifestyle and will be beneficial in the long run! It’s helpful to review resources that outline the average costs of kitchen cabinets in 2022, as well as the typical range for floor materials and countertops to get a better idea of how much you might be spending. Once you have a better sense of what you’ll be doing, it’s time to determine the best type of payment plan and learn about the loan options available to help support your needs.
Learn How to Utilize your Home’s Equity
Home equity loan
Tapping into your home equity is an easy way to be able to afford the projects you want to complete without having to dive into much deeper debt. You can take out a home equity loan, which will allow you to borrow a lump sum of money against the equity in your home with a fixed interest rate to be paid back over a certain period. The amount you can borrow depends on your current mortgage, credit score, income, and other factors. A home equity loan is basically like a second mortgage and should be treated as such with a plan of action to pay it off, as your home will be used as collateral in the event you cannot pay the loan off.
Home equity line of credit (HELOC)
Another common loan is a HELOC, or home equity line of credit. This is more like a credit card in the fact that it’s not a lump sum, but a revolving line of credit which you can borrow money from. Once you pay back the money borrowed, it becomes available to you once again. Just like a home equity loan, a HELOC can be treated as a second mortgage in which your home can be used as collateral if your monthly payments are not made in time. A HELOC comes with variable interest rates and, unlike equity loans, can be used for pretty much anything.
The bottom line between these two types of equity loans is that if you have an accurate understanding of how much money you need to borrow for the project, a home equity loan might be the way to go. If your project requires more flexibility and the financial requirement might change during the length of a project, a HELOC might align better with your needs.
Before moving on, it’s important to note that these aren’t the only options when it comes to borrowing from your home. Of course, there’s an option to use credit for a smaller project that you plan to pay off in a couple of months. But, say you need a much larger loan that’s more comparable to a mortgage payment and you want to tackle some major home improvements to increase the value of your home, then a cash-out refinance might be the thing for you.
The more of your home you’ve paid for, the more equity you have – meaning the more money you can convert to cash if you refinance your mortgage. The benefits of this include consolidating to one payment, lowering your interest rates, boosting your property value, and possibly getting a tax break. Of course, not everyone maintains enough equity for this type of loan, which means the other options would be better suited. That said, if you are looking for a low-cost way to complete some bucket list projects and you’ve already paid a great deal on your mortgage or are close to owning your home, this might be just the answer.
Considerations for Builders
If you’ve been searching for a home, attending open houses, and doing your research to find a great place to invest in, but simply aren’t finding anything that aligns with your desires, you might consider building. With a fluctuating housing market, this can certainly be your best bet to ensure you get as close to what you want as possible. Of course, if you’re starting from scratch, you’ll have the benefit of designing your home as you want, including your kitchen.
Construction loans are short-term financing options available for builders to cover costs for the duration of the build and then get converted or refinanced to a standard long-term mortgage loan once building is completed. If you desire to build your dream home, but don’t currently have the funds in your bank account for every aspect of the home, a construction loan can help you get started.
Although this seems like a no-brainer, there is some preparation work required to get approved for this type of loan. It’s a good idea to become familiar with the different types of construction loans available for borrowers and how they each work. In addition to a credit check and a reliable income requirement, you’ll also need to provide a detailed plan outlining cost estimates and a company that’ll be working on the project. With this type of loan, rather than receiving a lump sum payment, the builders receive a series of disbursements or “draws”. Oftentimes the money goes directly to the builders or contractors instead of into your pocket.
Whether you are building from scratch or ready for a complete kitchen overhaul, a home project requires much financial preparation and organization. By doing your due diligence in the early stages of your project, you can have the kitchen of your dreams, while also maintaining financial stability and peace of mind about your long-term plan in the process.