How to Finance a Kitchen Remodel

A 2022 report from the National Association of Realtors gives kitchen renovations a “Joy Score” of 9.8 out of 10, meaning the vast majority of homeowners are happy they decided to upgrade.

The same report estimates that 75% of the cost of a complete kitchen renovation can be recovered in the form of enhanced value to your home.

A project that brings this much joy and value can’t be cheap, though. Angi suggests a cost between $14,600 and $41,485 for the typical kitchen remodel with an average of $26,934. Forbes agrees, estimating $27,000. But Damian Kluk, General Manager of 4Ever Remodeling in Chicago, suggests that the actual cost will be higher if you insist on quality materials and experienced builders.

In this article, we’ll hear more from Kluk about the costs of a kitchen remodel. We’ll also hear from Josh Shaw, Contractor Account Manager at Acorn Finance, about financing options you can tap into to make your kitchen more appetizing.

What makes kitchen remodeling so expensive?

That $27,000 average price for a kitchen remodel? Kluk says that’s low, and it would require some cost-cutting that wouldn’t be worth it in the long run. “You can buy particle board cabinets from a big-box store,” he says, “and after two or three years, they’re going to start peeling.”

Kluk’s company, 4Ever Remodeling, is “a full design-build company,” which means design and construction are part of a single contract instead of separate projects with separate companies. That can cause the project to be more expensive, since it’s not just the physical labor, but also the professional design planning that precedes it. 

He says that for his company, a kitchen remodel would start at $55,000.

You might be surprised to learn that cabinets are by far the most expensive physical aspect of a kitchen remodel, accounting for over a third of the cost. Countertops come in second at 15%. Kluk recommends quartz, which is durable and high-quality and has a price tag to match, but you can save money by opting for cheaper materials. Even granite, which is just as attractive and nearly as durable, can be about half the price of quartz.

Labor is also a significant percentage of the cost, at 23%. “Nationwide, there is a huge shortage of construction labor,” Kluk tells us. “You have to pay good money so workers can install projects the right way the first time.” He requires his workers to have at least five years of experience.

Types of kitchen remodels, from minor to major

Kluk classifies kitchen remodels at three levels of intensity.

Pull-and-replace means you “remove cabinets, countertops, a little bit of flooring, upgrade the electrical, and do not change too much of the layout.”

Semi-custom involves getting into the walls so you can “change the location of the cabinets and appliances” for a significantly different layout. Kluk says this is the most popular option with his clients.

The premium option is the most expensive and drastic change, where “everything is customized.” If someone wants to transition their kitchen into an open-concept layout, where there is no wall separating the kitchen from the neighboring room, that would fall into this category.

Open concept is one of six common kitchen layouts you can fantasize about.

Another figure to keep in mind is the work triangle. It maps out the relative placement of your cooktop, your sink, and your fridge for optimized flow. It’s the most important triangle in your kitchen since the invention of the diagonal sandwich cut.

How do you pay for a kitchen remodel?

Shaw has some pointers on how to find financing for your project. “Personal loans are what we specialize in at Acorn Finance,” he says.

Personal loans

Shaw says that a $27,000 kitchen remodel would easily be in the range of a personal loan. Acorn Finance’s loans tend to cap out at around $40,000, and “the lower the amount, the higher the probability of the loan being approved.”

What about the higher costs that Kluk mentioned? “As you get up in the range of $50,000-$60,000, you might have to look at some supplemental loans,” Shaw says. “It might be harder to qualify for those larger dollar amounts.”

An unsecured personal loan has the benefit of not using your home as collateral. That means that if you can’t keep up with the payments, you will not lose your home.

The downside is that interest rates will be higher, because you’re more of a risk to the lender if they don’t have your home as a guarantee. 

Shaw estimates that, for a borrower with excellent credit, a personal loan’s interest rate would be about 13%, “which is considered low in this environment [summer 2024].” A mid-range credit score could get you a 15-20% rate, and a low credit score could trigger a rate over 20%.

Personal loans through Acorn Finance

What’s the advantage of going to Acorn Finance in search of a loan? 

“Well, we’re really quick, so you’re gonna know right away if you’re pre-approved,” Shaw says. “But we’re also built specifically for contractors, so we’ve partnered up with lenders that know we’re trying to help customers fund home improvement projects.”

Multiple lenders will see your financial needs and show you their offers in seconds, and you’ll have your pick of which one suits you.

Or which ones. One way to get the “supplemental loan” Shaw mentioned earlier: If your project cost is out of range of most personal loans, you could conceivably select a couple simultaneous loans to cover that $55,000 dream kitchen. 

Personal loan from a bank

The main disadvantage of going to a bank for a personal loan is fewer options. “When you apply through Acorn Finance, your application’s going to be viewed by all of these lending partners rather than, say, going to an individual bank,” Shaw says. “You’re gonna get a little bit more competition for your business.”

Otherwise, you can expect the same interest rates and terms from a bank loan as the ones you’d find through Acorn.

Personal loan through a contractor

Some contractors offer financing to their clients. But contractors aren’t lenders, so how does this work?

The contractor must work directly with a bank to get qualified to offer the loan. There are strict requirements the contractor must meet (longevity, experience, business health) in order to do this, so a contractor that can offer financing is probably a good business to approach for your home project.

4Ever Remodeling doesn’t offer loans directly, but they work closely with a lender that offers fixed-rate installment loans. “Anything over $100,000,” Kluk tells us, “we recommend the client gets a construction loan through them.”

Home equity options

Equity is the amount of your home’s value you actually own. 

Current market value – remaining mortgage debt = equity

If you own around 20% of your home’s value in equity, you can leverage it to fund your kitchen remodel. Typically, these options allow you to borrow 80-90% of the equity you own.

For example, the average homeowner owns about $200,000 worth of equity. Borrowing 85% could open up $170,000 toward your new kitchen.

There are three typical ways to access this money: 

• home equity loans
• home equity lines of credit (HELOCs)
• cash-out refinances

These options are “secured,” meaning you are putting up your home as collateral, so your interest rates will drop “maybe a couple percentage points lower,” Shaw estimates. With excellent credit, “if you’d get a 10-13% rate on an unsecured loan, maybe you’re looking at 7-10% on a home equity option.”

The main difference between these three options is how you get the money—and how you pay it back.

Home equity loans

You receive a home equity loan in a lump sum and pay it back monthly as a second mortgage alongside your current one.

Home equity line of credit (HELOC)

Instead of a lump sum, a HELOC is a revolving line of credit from which you can borrow as much or as little as you need during the “draw” period. You can even pay back what you borrow and then borrow it again.

At some point, usually after ten years, you enter the “repayment” period and pay back whatever you still owe as a second mortgage.

A HELOC’s flexibility means if your $27,000 kitchen remodel blooms into a $55,000 project, you can borrow more without renegotiating the loan.

Cash-out refinancing

Instead of a second mortgage, a cash-out refi creates a brand new one: a loan for what you currently still owe plus whatever extra cash you’d like to access. Your mortgage payments will now repay that cash as well as continue to pay for your home.

Government assistance programs

The United States Department of Housing and Urban Development (HUD) offers a couple options to help with home repairs and modifications. HUD does not pay out these loans themselves, but the loans can be obtained through approved lenders.

203(k) rehabilitation mortgage insurance program

This loan arrives as a fixed-rate refinance of your existing mortgage through a government-approved lender, or as a new mortgage if you’ve already paid off your home. There are two versions. The “limited” version makes up to $35,000 available to homeowners for upgrades. It’s great for smaller projects, like plumbing repairs or cosmetic remodeling of your kitchen.

The “standard” version is for larger projects like structural repair or full kitchen remodels. There is no upper limit on the amount, but it must be above $5,000.

Title I property improvement loans

These loans “must substantially protect or improve the basic livability or utility of the property.” If your planned kitchen remodel is to make it more stylish, this is not the loan for you. On the other hand, if you need to improve the plumbing or fix the electrical wiring, this loan can help.

No collateral is required if the loan is under $7,500. The loan is fixed-rate, and the repayment schedule can be anywhere from six months to just over 20 years. 

Credit cards

Credit cards are easy to use, but paying back the debt can quickly become an upward struggle.

Annual percentage rates (APRs) can go up to 35% for someone with a lower credit score, but if your score is good, you could find a card with a 0% introductory APR for the first year or two. If you can pay off the renovation costs within that period, it’s like having an interest-free loan. If not, you could be in for a whiplash-inducing shift to an APR in the mid-20s or higher.

How can Acorn Finance help?

Begin your kitchen remodel financing journey with Acorn Finance, and within moments they will show you a range of personal loan offers from a network of high-quality lenders — loans you’re pre-qualified for. Select one that fits your needs, budget, and schedule. Once approved, you’ll have that money within days, ready to start creating your new kitchen.