Basement Remodeling Loans: Are They Worth It?

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Is your basement a dark, dusty place where no one ventures? If you’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 isn’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 you’re not sure whether a basement remodel is worthwhile, or if you’re considering financing an upgrade to your underground living space despite the downsides, there’s a lot you need to know — and we’ve got the answers to your questions.

Are basement loans worth it?

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 doesn’t make the project a good investment.

And if you borrow money to upgrade your basement, the return on investment will be lower because you’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, you’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 shouldn’t take out a basement loan unless:

  • You have a major safety issue: If you need to fix a problem that jeopardizes the health or safety of your family or the structural integrity of your house, borrowing to renovate your basement is worth it.
  • You need the space: Consider whether you have a need or a want. If you’d like extra bedrooms for your kids, borrowing for a basement remodel probably isn’t worth it. But if you have a sick family member moving in who needs a quiet place to convalesce, the calculation is different.

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.

Options for borrowing for basement remodels and renovations

If you’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 you’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:

  • Avant personal loans, which allow you to borrow between $2,000 and $35,000 for a period of two to five years at APRs ranging from 9.95% to 35.99%.
  • Earnest personal loans, which allow you to borrow between $5,000 and $75,000 for a period of three to five years at APRs ranging from 5.99% to 17.24%.
  • SoFi personal loans, which allow you to borrow between $5,000 and $100,000 for a period of three to seven years at APRs ranging from 5.99% to 17.88%.

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.

Home equity loans for basement remodels

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 — many lenders won’t offer financing if the combined balance of your existing mortgage and the new loan would exceed 80% of your home’s value. To apply for a loan, you likely will need to pay for a home appraisal to ensure that you’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 can’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.

How to choose financing for a basement remodel or renovation

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:

  • The interest rate: The higher the rate, the more interest you’ll pay.
  • Fixed or variable APR: Variable interest rates may start out lower but can fluctuate. Fixed-rate loans charge the same interest and have the same monthly payment over time.
  • The loan amount: You don’t want to work with a lender that won’t give you a large enough loan or will require you to borrow more than necessary.
  • The repayment term: A longer repayment term reduces monthly payments but raises the total overall cost of your loan.
  • Qualification requirements: Many lenders will approve you for a loan only if you have a good credit score and proof of reliable income.

If you need to upgrade your basement and can’t wait until you’ve saved up cash to pay for it, searching diligently for the best lender is the most responsible financial decision you can make.

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

RATES (APR)loan amount
5.99% – 17.88%1 $5,000 to $100,000
5.69% – 35.99% $1,000 to $50,000
6.98% – 35.89%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
5.99% – 29.99%4 $7,500 to $40,000
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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 17.88% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 4, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 3.08% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
    See Consumer Licenses.
  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Includes AutoPay discount. Important Disclosures for Opploans.

Opploans Disclosures

Direct Deposit required for payroll.

Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

  5.  

    Rates and terms vary by state.

3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by WebBank, Member FDIC.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

Published in Big Money Decisions, Loans

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