Is your basement a dark, dusty place where no one ventures? If youâ€™re tired of your basement being useless space, you may be considering a basement remodel or renovation. Unfortunately, the costs of upgrading your basement can be substantial, and it may be difficult to fund a renovation out of pocket.
You may be tempted to borrow money for a basement upgrade, but taking a loan to remodel a basement often isnâ€™t the best choice. Saving up to pay cash is a better approach because the interest on a basement renovation loan makes your project much more expensive.
If youâ€™re not sure whether a basement remodel is worthwhile, or if youâ€™re considering financing an upgrade to your underground living space despite the downsides, thereâ€™s a lot you need to know â€” and weâ€™ve got the answers to your questions.
According to the 2017 Remodeling Impact Report by the National Association of Realtors, the typical cost for a basement renovation is about $40,000. And the typical portion of that cost that you can recover when selling your home is about $25,000. It means you recover only 63% of what you spent, which doesnâ€™t make the project a good investment.
And if you borrow money to upgrade your basement, the return on investment will be lower because youâ€™ll pay a lot for a loan.
Our loan interest calculator shows how much your interest payments add to the cost of a basement remodel or renovation project, based on the amount you borrow and the interest rate you pay. If you borrow $40,000 at a 10.00% rate for a five-year term, youâ€™d pay $850 in monthly payments with a total of $10,993 in interest. Your finished basement would cost you $50,993, which is more than double the typical amount you might recover when selling your home.
Because interest adds so much to the cost of a project that already has a negative return on investment, you typically shouldnâ€™t take out a basement loan unless:
If you must borrow, look for ways to keep costs as low as possible. You might be able to finance some materials at no interest or low interest from a home improvement store or might be able to reduce project costs by scaling down your plans or doing some of the work yourself.
If youâ€™ve decided to borrow money because you have a pressing need to remodel or renovate your basement, shop carefully for the best source of financing. There are dedicated home improvement loans or loans intended specifically for finishing a basement, but youâ€™ll have a wider selection of lenders if you opt for a general personal loan that allows you to use the money for anything you want.
You can choose from many personal loan lenders, including online lenders, local and community banks, credit unions, and peer-to-peer lenders. Some of the best options for home improvement loans include:
You also can check out this guide to some of the best personal loans available to compare rates and terms and find the most affordable basement remodeling loans.
Another way to borrow money to remodel or renovate your basement by taking out a home equity loan or line of credit.
This kind of loan is an option only if you have equity in your home â€” many lenders wonâ€™t offer financing if the combined balance of your existing mortgage and the new loan would exceed 80% of your homeâ€™s value. To apply for a loan, you likely will need to pay for a home appraisal to ensure that youâ€™re not borrowing too much.
Home equity loans usually have lower interest rates than personal loans or basement remodeling loans, and the interest might be tax-deductible if you itemize expenses on your returns.
The big downside is these products are secured loans with your home serving as collateral, so your asset could be foreclosed on if you canâ€™t repay your loan. Many home equity loans also are repaid over a long time, so you pay a lot in total interest charges, even though the rate is low. Still, you may decide these risks are worth it to get lower rates and take advantage of the loan interest tax deduction.
The best way to finance your basement remodel or renovation is with cash. But if you borrow money for the project, you should take the minimum amount possible and compare loan terms carefully. As you evaluate financing options, consider:
If you need to upgrade your basement and canâ€™t wait until youâ€™ve saved up cash to pay for it, searching diligently for the best lender is the most responsible financial decision you can make.
Here are the top personal loan lenders of 2018!
|Lender||Rates (APR)||Loan Amount||Â|
|1 Includes AutoPay discount. .
|7.73% â€“ 29.99%||$1,000 – $50,000|
|6.28% â€“ 15.62%1||$5,000 – $100,000|
|6.87% â€“ 35.97%*||$1,000 – $50,000||Visit Upgrade|
|8.00% â€“ 25.00%||$5,000 – $35,000|
|4.99% â€“ 29.99%||$10,000 – $35,000||Visit FreedomPlus|
|5.99% â€“ 18.99%2||$5,000 – $50,000||Visit Citizens|
|15.49% â€“ 34.49%||$2,000 – $25,000||Visit LendingPoint|
|5.99% â€“ 35.89%||$1,000 – $40,000||Visit LendingClub|
|5.49% â€“ 18.24%||$5,000 – $75,000||Visit Earnest|
|9.95% â€“ 35.99%||$2,000 – $35,000||Visit Avant|