Basement Financing: How To Pay for Finishing a Basement
- Basement financing options include home equity loans and lines of credit, cash-out refinances, home improvement loans and contractor financing.
- The best option for you will depend on your home equity, credit score and willingness to use your home as collateral.
- You can save thousands on your basement loan by shopping around for the right lender and saving up for part of the remodel in cash.
What are my basement financing options?
Finishing or remodeling a basement can cost upwards of $75,000 depending on the size and extent of the project. If you don’t have that kind of cash on hand, you’re not alone — many people turn to basement financing to bridge the gap between their bank accounts and their dream basements.
Basement financing means using a loan or line of credit to cover the cost of your remodel. The table below shows common basement remodel financing options and explains which one(s) could suit you best.
| What is it? | Pros and cons | What lenders typically look for | Get started | |
|---|---|---|---|---|
| Home equity loan | Loan secured by your home equity Secured by: HomeRepayment: Equal monthly installments | ✅ Lower rates than personal loans✅ Interest could be tax-deductible if you use it to improve your home/basement❌ Risk foreclosure if you don’t pay❌ Typically pay 2%-5% of loan amount in closing costs | Credit score: 620+Debt-to-income ratio Your debt-to-income ratio shows how much of your monthly income goes to debt payments. : Up to 43%Loan-to-value ratio Your loan-to-value ratio compares how much you borrow to your home’s value. : Up to 85% | Check out the best home equity lenders |
| Home equity line of credit (HELOC) | Flexible funding with a line of credit (like a credit card) that you can withdraw from over and over again during draw period Secured by: HomeRepayment: Variable payments during repayment period | ✅ Lower rates than home equity loans or personal loans✅ Can make multiple withdrawals ❌ Risk foreclosure if you don’t pay❌ Typically pay 2%-5% of credit line in closing costs❌ Potential for large balloon payment | Credit score: 620+Debt-to-income ratio Your debt-to-income ratio shows how much of your monthly income goes to debt payments. : Up to 43%Loan-to-value ratio Your loan-to-value ratio compares how much you borrow to your home’s value. : Up to 85% | Check out the best HELOCs |
| Cash-out refinance | Trading in your home equity for a cash payout with a new, larger mortgage Secured by: HomeRepayment: Equal monthly installments are part of your mortgage | ✅ Potentially lowest rates among featured financing options✅ Not a second mortgage — replaces old mortgage with larger mortgage in exchange for cash payout✅ Could get lower rates with refinance if market rates are down or your credit has improved❌ Typically pay 2%-6% of your loan amount in closing costs and fees ❌ Higher odds of foreclosure when you borrow against your equity | Credit score: 640+Debt-to-income ratio Your debt-to-income ratio shows how much of your monthly income goes to debt payments. : 45%-50%Loan-to-value ratio Your loan-to-value ratio compares how much you borrow to your home’s value. : 80%Home equity: 20%+ | Check out the best mortgage refinance loans |
| FHA 203(k) loan | Home renovation mortgage insured by the Federal Housing Administration Secured by: HomeRepayment: Monthly installments rolled into your mortgage | ✅ Qualify with bad to fair credit✅ Not a second mortgage — loan is rolled into your primary mortgage ❌ Must pay one-time and annual mortgage insurance costs❌ Must put down 3.5%-10% of what you borrow | Credit score: 500-580+Foreclosures: None in past three years | Learn how to get an FHA loan |
| Home improvement loan | Personal loan used for home improvement projects like basement remodels Secured by: Your promise to repayRepayment: Equal monthly installments | ✅ Less risk to your home✅ Lower rates than credit cards✅ Quick/less paperwork — no home appraisal necessary❌ Higher rates than options secured by your home❌ Risk your credit, collections and legal consequences for nonpayment | Personal loan requirements vary by lender | Check out the best home improvement loans |
| Contractor financing | Loan or line of credit your contractor helps you get | ✅ Streamline your loan search process through your contractor✅ Could qualify for many of the above loan types — HELOCs, home equity loans and home improvement loans❌ Your contractor may not partner with lenders that offer construction financing | Varies by type of loan and lender | Talk to your contractor |
If you’re not sure which basement finishing financing option is best, consider the best options based on what’s important for you:
- Lowest rates: Cash-out refinance
- Qualifying with bad credit: FHA 203(k) loan, home improvement loan
- Qualifying with low home equity: Home improvement loan, FHA 203(k) loan
- Easiest/least paperwork: Home improvement loan, contractor financing
- Don’t want to lose home: Home improvement loan
Compare some of your options:
How much does basement financing cost in 2025?
If you plan to use a loan or line of credit to finish your basement, you’ll pay two costs — the cost of the remodel and the cost of the loan. Here’s how to get a rough estimate for each.
Basement finishing cost
The cost of a basement refresh varies by the size of your basement, the extent of your project, where you live and your contractor’s pricing. Here are the average costs by type of project:
- Basement finishing Basement finishing is converting an unfinished basement with concrete walls and visible beams into a finished, livable space with walls, lighting and finished floors. : $15,000-$75,000 on average
- Basement remodel A basement remodel is more extensive than basement finishing and involves major changes to the structure or layout. : $25,000-$75,000+ on average
To save money, get quotes from multiple contractors. But before you go with the cheapest option, read reviews and ask for referrals — you don’t want shoddy craftsmanship in your dream basement.
Basement loan cost
Use the estimates above to get a rough idea of how much you’ll pay for your basement project, or get quotes from contractors to get a more accurate idea of the cost.
Then, plug your quote or estimate into a LendingTree loan calculator to see how different basement financing options would affect your monthly payment and total loan cost:
Should I finance my basement remodel?
Once you know how much your basement remodel financing will cost, the next question is whether financing makes sense for your financial situation. Ask yourself the following questions to help you decide.
How’s my credit?
Start with your credit score. If it’s good or excellent, move on to the next step. But if it’s fair or poor, improving it first could save you thousands in interest. Borrowers with bad credit can end up paying thousands more in interest than those with very good credit on the same loan.
Taking the time to improve your credit before you borrow is like writing yourself a check for hundreds or thousands of dollars. If you don’t know where your credit stands, try tools like LendingTree Spring that show you your score for free with no impact to your credit.
Am I willing to wait?
If you can wait, save up to pay for part of the project in cash. Borrowing less means paying less money in interest, which could lead to big savings.
Still, it’s understandable if your project has to happen now. Make sure you take the time to shop around for affordable contractors and consider doing the project in stages, so you won’t have to take out a huge loan all at once.
Can I afford the monthly payments?
Yes: If you’ve taken the time to calculate how your basement loan payments will fit into your monthly budget, then it’s time to find the right financing for your project.
No: This isn’t what you want to hear, but it’s just not the right time to finance your basement remodel. Save up money, improve your credit and check your budget and rates again in a few months.
You’d compare a few contractors before hiring one — treat your loan the same way. Getting multiple quotes can save you real money. In fact, people save an average of $1,659 by shopping for a personal loan on LendingTree.
Frequently asked questions
A finished basement can increase your home’s value — in fact, home improvement projects are one of the top ways to build equity in your home. Estimates vary, but you can get as much as 70% of a return on your investment into your basement when you sell your home.
Financing a basement remodel or finish can be a good idea as long as you can comfortably afford the monthly payments and are confident that your remodel will add value to your home.
Create a budget or use a personal finance app like Monarch Money or YNAB to make sure your basement loan payments fit into your financial plan.
Banks, credit unions and online lenders finance basement finishing. Find the best lenders for basement financing by clicking on the links in the column titled “Get started” above.
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