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 6.99% to 18.24%.
- 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 6.26% to 14.87%.
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.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** 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.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|