Bathroom Remodel Financing: Understand Your Options

Let’s talk about bathrooms. Whether you want to upgrade your shower or completely redo everything from top to bottom, a well-done renovation can improve your home’s aesthetic appeal and increase its value.

But assuming you don’t have the cash, what’s the best way to pay for it? In this article, we’ll explain the different financing options available to you and when each might make the most sense. That way you can make the best choice for your financial circumstances.

How Much Does Bathroom Remodel Financing Cost?

The answer depends on how much you plan to spend and the type of financing that you choose. On average, bathroom remodels cost $11,965. Most projects fall somewhere between $6,626 – $17,509.^[1]

However, in addition to the construction costs, you also have to pay for the financing. At a minimum, you’ll usually owe interest on any type of financing you receive. You may also owe closing costs or loan origination fees, depending on which type you choose.

What’s the Best Way To Finance a Bathroom Remodel?

Realistically, there’s no objectively best way to finance a remodel. The right option will come down to your circumstances and what type of renovation project you’re considering. Ideally, you’ll end up choosing an option that allows you to afford the improvements and increase the value of your home, while potentially building your credit in the long run.

When choosing the “best” option for your circumstances, one of the most important questions you’ll have to ask yourself is whether or not you want to tap into your home equity. There are advantages and disadvantages that come with doing so.

Bathroom Remodel Financing That Uses Home Equity

One of the biggest reasons to consider leveraging your home’s equity is that it will typically allow you to borrow a larger sum of money. This increases your spending power and the type of upgrades that you can put back into the house. 

On the flip side, equity financing options come with closing costs. These can be substantial, especially compared to options that don’t require equity. These options also take longer for lenders to process, so if you want to move fast, these might not be the best options.

Your home will also be used as collateral when applying for these loans. In other words, if you can’t repay what you borrow, you could end up losing your home.

Home equity line of credit

A home equity line of credit (HELOC) allows you to utilize your equity in a way that’s similar to a credit card. If your lender approves your application, you’ll be approved up to a certain limit.

There are two distinct phases with HELOCs. The first phase is the “draw” phase, where you can spend as much or as little as you’d like up to your limit. During this phase, you’ll only owe interest on what you borrow. The draw phase usually lasts up to 10 years.

The second phase is the repayment phase when you’ll be responsible for repaying what you borrowed. This phase is structured to be longer than the draw phase and may last up to 20 years.

Because of the flexibility in what you can charge, HELOCs are a good option if you’re unsure how much a project will cost or if you’re considering tackling multiple home improvement projects.

Home equity loan

Home equity loans are similar to HELOCs, but you’ll receive a fixed amount in a lump sum instead of a credit limit. The maximum value of what you can borrow will be dictated by what your home is worth and how much equity you have.

An important thing to remember with both HELOCs and home equity loans is that you’ll need to pay closing costs. This can be a substantial amount depending on the value of what you’re borrowing. Processing times for these loans also tend to be longer than for something like a personal loan.

Cash-out refinance

Cash-out refinances allow you to replace your current mortgage with a loan that has a higher balance than what you owe. Your lender will give you cash to make up the difference.

One critical thing to keep in mind with this option is that you’re receiving a completely new mortgage. That means that you will also receive a new interest rate. Depending on what market conditions are now versus when you first secured the mortgage, that could translate to a big difference in your monthly payments.

Bathroom Remodel Financing Without Home Equity

If you don’t have enough equity built up to qualify for some of the previous options, or you don’t want to tap into it, don’t worry. There are plenty of alternatives to choose from.

You likely won’t qualify for high loan amounts. However, most of these options don’t come with closing costs and operate on significantly faster timelines.

Personal loan

A popular financing option, personal loans may be easier to qualify for than loans where you need a certain amount of equity built up, especially if you’ve recently purchased your home.

Personal loans usually range in value from about $2,000 – $45,000. The funds can also be disbursed quickly, sometimes in as little as one business day. There are also very few restrictions on what you can use the money for.

Lenders will review information like your credit score, debt-to-income (DTI) ratio and your income history as part of your application for the loan.

Credit card

Don’t forget that you also have the option to swipe for your new bathroom and charge it to a credit card. That said, credit card interest rates are some of the highest ones you’ll see. If you do carry a balance, the costs can expand quickly.

It’s also worth considering a 0% intro APR credit card. These cards work by offering promotional periods during which you won’t pay any interest. These promotional windows are generally short, especially compared to other loan terms, but if you can afford to pay off your balance before the window expires, you’ll save a great deal on interest.

FHA loan

You can also consider applying for a loan from the Federal Housing Administration (FHA). There are two primary options: the FHA 203(k) loan and the FHA Title 1 property improvement loan.

FHA 203(k) loans allow you to either purchase a home that needs upgrades or refinance an existing mortgage to make renovations. Known as the “federal fixer-upper” loan, it comes as either the limited FHA 203(k) or the standard FHA 203(k). You would decide which one to apply for based on the estimated cost of your upgrades.

The FHA Title 1 loan operates like a secured personal loan where your home is used as collateral. There are also more restrictions with this option, specifically with the type of upgrades you can make. 

Bathroom upgrades can meet the criteria, but it’s best to speak with your lender before applying.

Contractor or company financing

Many contractors and contracting companies also offer their own financing options. They usually achieve this by partnering with a local lender, for example, a regional bank. The specifics of this agreement will depend on who they partner with, but it’s worth looking into, especially as they might be running a promotional offer you could take advantage of.

Should You Get Bathroom Remodel Financing?

Whatever type of financing sounds most appealing to you, there are big-picture advantages and disadvantages to financing a renovation project. We’ve put together some of the most important pros and cons for you to weigh when making your decision about whether or not to proceed.

Tips for Choosing the Best Financing Option

If you do think financing is the best way for you to get that new bathroom for your home, here are some tips to keep in mind that will help you both decide on the right option and find the best deal possible.

• Find out how much equity you have in your home. Regardless of whether or not you want to tap into your home equity, it’s good to know where you stand. Your equity percentage will either open up more loan options or let you know that you need to consider equity-free alternatives.
• Get an estimate for how much the job will cost. Any lender will want to know how much money you want to borrow. To answer that question properly you need to know what the renovations will cost. Talk to contractors and do your due diligence. And keep in mind that once the project gets underway, costs could still exceed initial estimates.
• Talk to multiple lenders. Different lenders will charge different fees and interest rates for the same type of financing. Taking the time to shop around and find the best deal could save you big over the life of your financing agreement.

Final Thoughts on Bathroom Remodel Financing

A good toilet and polished grout may not be top of mind on everyone’s dream house, but when push comes to shove, upgrading the bathroom could add a lot of value in addition to the improved user experience while you’re living there.

There are plenty of financing options to choose from whether or not you want to tap into your equity. Our best advice is to take your time and do your due diligence. Make sure you have an idea of how much your renovations will cost before looking to secure financing.