Basement finishing financing

If your basement is more like a cavern than a cozy nook, getting a loan for basement finishing may be on your mind. But with the cost to finish a basement dependent on so many different factors, you’ll likely want to explore different types of basement renovation financing before you decide on the best option for you.

Where can I get basement renovation financing?

From secured options that use your home as collateral to contractor financing and personal loans, here are five ways to get a loan for basement finishing:

1. Personal loan

• Best for: Borrowers with average credit scores and reasonable incomes

You can take out a personal loan for basement finishing to cover any costs that may come up. Your interest rates will typically be higher than with home equity loans, but you may be able to get a better deal if you make a high income and have an excellent credit score. Your credit score will go down significantly if you default on payments, but on the plus side, you won’t risk losing your home.

Compare personal loans

2. Home equity loan

• Best for: Borrowers who want to use their home to secure financing

A home equity loan is a fixed-rate loan that uses the equity you have in your home to secure your basement renovation financing. You’ll get a lump sum of money upfront and pay it back over a set term. Typically, interest rates on home equity loans are much lower than other types of loans.

Apply for a home equity loan for basement finishing

3. Line of credit (home equity line of credit or personal line of credit)

You can secure a line of credit against your home (home equity line of credit) or take one out as unsecured financing (personal line of credit). Any line of credit you choose will allow you to borrow a revolving pool of financing for your basement renovation that you can tap into whenever you need to. The best thing is that you only have to pay interest on the money you take out of your “wallet”.

4. Contractor financing

• Best for: Borrowers who don’t want to apply for external financing

Your contractor might offer basement financing backed by a bank or private lender. You can often borrow larger amounts with this type of financing but you could end up paying higher interest rates if your contractor decides to add a margin on top of the rate being charged by the lender. This is why you should compare your contractor’s financing to financing from other banks and private lenders to make sure you’re getting a good deal.

5. Credit card

• Best for: Borrowers who need to pay for smaller expenses

While it’s not a good idea to pay for the entire cost of finishing your basement with a credit card, it can be useful for smaller expenses such as materials or fixtures. Look into credit cards with 0% APR introductory periods to spread the costs out over several months without paying interest.

How to get a loan to finish your basement

You can get your hands on basement financing by filling out an application with the following sources:

• Banks. Many banks will happily give you a loan for basement finishing if you have good credit. Just be aware that basement financing from the bank often comes with higher interest rates and more strict eligibility requirements. Providers include BMO, TD Bank, RBC, CIBC, Scotiabank, Canadian Western Bank and National Bank.
• Credit union loans. Credit unions are a good place to look for basement financing loans if you’re already a customer or are prepared to become one. Credit union loans for basement renovation financing will often be more flexible and less expensive than those on offer from the big banks. Providers include Meridian, Servus, Vancity, Connect First, Conexus, First West, Steinbach, Alterna Savings and Coast Capital Savings.
• Online lenders. You can fill out an application for basement financing from an online lender. These loans may be easier to qualify for and you could be eligible for larger amounts. Just make sure you work with a reputable lender to avoid scams. Providers include Loans Canada, FairStone, Mogo Loans and LoanConnect. Compare online lenders for personal loans.
• Your contractor. You may be able to ask your contractor about basement financing if they offer third-party loans. Just make sure they aren’t marking up your interest rates or charging unnecessary fees before you sign on.

What are the eligibility requirements?

The eligibility requirements to apply for basement financing will vary depending on which lender you go with. You may need to meet the following requirements to get approved:

• Canadian citizen or resident. You’ll typically be required to show a government issued ID to prove that you’re a Canadian citizen or permanent resident.
• Canadian bank account. You may need to provide banking details so that your basement financing loan can be deposited into your account.
• Decent credit score. You’ll usually be required to have a credit score over 650, especially if you want to get decent interest rates on your loan for basement finishing.
• High income. You should be able to demonstrate that your income is high enough to make your repayments and also cover all of your other debts and financial obligations.
• Steady employment. Your lender will typically want you to show that you’ve been with the same company for a reasonable period of time, usually at least three months.

What documents do I need to provide?

You may need the following documents to apply for basement financing:

1. Bank statements. Lenders will often want to see how much money you make each month and what your monthly bills look like.
2. Tax returns. You could be required to show your personal tax returns to verify your annual income.
3. Credit history. You’ll typically need to authorize your lender to check your credit score.
4. Collateral. You may be required to submit information about the collateral you want to use to secure your payments if you’re applying for a secured or home equity loan.

Can I get a loan to finish my basement with bad credit?

You may be able to get a loan to finish your basement with bad credit if you’re willing to accept higher interest rates. You can apply for a bad credit loan from many online lenders, but it’s often very expensive and you may have difficulty getting approved, depending on how low your score is. In these cases, it could be better to try to build up your credit score before you apply for basement financing.

How much does finishing a basement cost?

The average cost to finish a basement could range from $1,000 up to $40,000 but this will depend on your square footage, your choice of upgrades and the cost of materials. It all depends on how much work you want done. If you’re starting from scratch, here are a few of the most common expenses:

• Framing and hanging drywall. Contractors can charge from $7 to $18 per square foot for labor and materials
• Insulation. Insulation can cost anywhere from $1.40 to $3.50 per square foot, with extra costs added on for labour and installation.
• Plumbing and electrical work. You will typically pay several thousand dollars for any serious plumbing or electrical work you need done.
• Flooring. You’ll usually pay a few thousand dollars to install new flooring in your basement, depending on your basement’s size and the materials you use.
• Painting. You may pay only a few hundred dollars to paint your basement, depending on how big it is. Professional painters will cost more.
• Pouring new foundation. Installing a new foundation can cost upwards of $10,000 to $15,000, depending on the size of your basement.

It’s a smart idea to set aside extra funds for unexpected expenses as they come up. This will allow you the flexibility to continue your project without needing to renegotiate your finances or re-apply for new funds. You may also want to take a line of credit out for more than you actually need to cover unexpected expenses as they arise.

4 ways to save on the cost of finishing your basement

Finishing your basement may not be the most expensive home improvement project, but there are still ways to keep your costs down:

• Do it yourself. You may want to leave the structural components to the experts, but you can still try your hand at small jobs such as painting or installing light fixtures to save money. And if you’re really looking to cut costs, you can manage the project yourself rather than hiring a full-time contractor.
• Build an open layout. Limiting the number of walls you build — and choosing an industrial open ceiling — can save money. The fewer rooms you have, the less you’ll spend on framing, wiring, drywall and paint.
• Choose standard options. Standard materials and fixtures will go a long way in reducing your costs. In addition, avoid expensive features like a wet bar or home theater. These require specialized work that can quickly increase your budget.
• Shop for used furniture. If you need to furnish your basement once it’s finished, you can comb through your local thrift stores for gently used furniture. You might even be able to find fun statement pieces or a neat DIY project without breaking the bank.

While affordability is important, don’t skimp on the essentials. You’ll want to hire experienced electricians and plumbers, and invest in systems that will prevent mold and mildew issues later on down the road.

Bottom line

There are several financing options at your disposal to pay for your basement project ranging from a home equity line of credit to a consumer credit card. Make sure you decide which one is best for you based on your personal financial situation and the overall scope of your project. If you need a larger sum than your personal savings and credit card can handle, you might want to explore your personal loan or home equity loan options instead.

Frequently asked questions

• Does a finished basement add to my home's value?

  Yes, a finished basement can add to the value of your home. Keep in mind that basements are not usually counted in a home’s square footage but a finished basement can be highlighted separately in a listing.

• Is finishing a basement a good investment?

  It can be — aside from adding to your home’s overall value, your return on investment could be greater depending how much money you put into it, your design choices and the materials you use.

• How long does it usually take to finish a basement?

  Most professional contractors estimate it can take around 4-8 weeks to finish a basement. This time-frame can vary depending on the size and scope of your project.

• Can I get a 0% interest loan to finish a basement?

  It will be difficult to get a 0% loan to finish your basement unless you get it directly from your contractor. However, even then, they’ll typically build your interest into your overall costs. If you want to pay 0% interest, you could consider paying on your credit card and then transferring the balance to a 0% interest card. Just be prepared to pay your card off in around 6 – 8 months.