Remodel or Renovate Your Kitchen With a Cash Out Refinance

The market has swiftly shifted in 2022 and homeowners have begun reassessing their home projects on the horizon. In an increasing interest rate environment, and home equity still hovering at all time highs, many homeowners are moving up their kitchen remodel projects. Add to that, lagging supply chain issues being felt across the board, starting now still might mean your kitchen remodel project takes 2-3 months simply due to waiting for product like cabinets, appliances, flooring to name a few. So while there are plenty of articles about renovation and remodels we want to lay out the most important things to consider when doing your cash out refinance for this specific purpose. And of course, there’s a lot of little tidbits in here to consider as well.

1) Set a budget (and then add some margin to that)

Let’s just say that from experience we’d advise you to add 10-20% to your budget just incase things take longer, cost more by the time you begin the project, or there are decisions made underway that change the material aspects of your kitchen remodel.  If your kitchen remodel is going to take $100,000 plan on getting $110,000 – $120,000 from your cash out refinance. You want to get all the money you will need for your kitchen and leave some margin in there for anything unexpected that comes up along the way. There’s nothing worse than starting a project that only gets 90% of the way complete when the money runs out. In the end if you end up with some extra change in your pocket, that’s a way better position to be in than coming up short in order to finish the kitchen of your dreams.

Ideally you will have already met with the kitchen remodel contractors you are getting bids from at the time you apply for your cash out refinance. Remember you will be closing your current mortgage, and assuming a new loan that reflects the amount of the new loan including the cash in hand you need to complete your kitchen remodel. We recommend that you keep your total loan to 80% or less of the appraised value to avoid tacking on mortgage insurance; however, this keeps a good chunk of equity in your home. Strive to balance out what your remodel desires are in accordance with your ability to make that new monthly payment on the cash out refinance loan.

2) Plan the plan

Yes, “Plan the plan”. You will need to be keenly aware of the orderly steps that need to fall in line to get your kitchen remodel started. First things first, you need to meet with a local mortgage expert to discuss your cash out refinance and begin the loan process. This is much like any ordinary mortgage refinance, with the only real difference being the amount of money you pocket at the end of the transaction. The takeaway here is to give yourself time, plenty of time. If the mortgage takes 1 month or less to complete, and the kitchen remodel will take 2-3 months to complete you may need to allow for that whole cumulative duration to finish your project. Naturally, we are all working for better timeframes than that; however, when you are “planning your plan” it’s important to set the right expectations.

Remember, setting yourself up for the smoothest cash out refinance is best served by: organizing all your paperwork, knowing your estimated cash back amount, and giving yourself time to conduct the refinance process.

Before we wrap up, here’s some quick things to consider when you are deciding to do your kitchen remodel or renovation:

• You get the personal benefit and enjoyment of using your newly remodeled or renovated kitchen of your dreams. Don’t overlook the peace of mind and personal pride that will come from using that wonderful kitchen every day for you and your family.
• If you are modernizing or updating your kitchen you will be bringing your overall market value current. If your kitchen is the same design it’s been for 10-20 years, modernizing it will help you in overall value if (and when) it comes time to list and sell your home.
• If you are remodeling your kitchen you are most likely creating more form, function, and ultimately value. We can all tell the difference between a kitchen that was set in place by a builder and a kitchen that was remodeled with the chef in mind. The layout, use of space, utility, appliances, lighting all take form to welcome and invite you to create your best food masterpieces in this space.

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Rates & Fees Disclosure:
^‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.

^‡ Based on Mortgage Heroes internal data.