6 Loan Options to Furnish Your Home

If you are preparing to move or renovate your home, chances are you’re going to need new or replacement furniture and décor. Heads up: The price tag to furnish a house can add up quickly, including expenses for sectionals, sofas, tables, chairs, beds, dressers, wall art, and various ornamentation.

Thankfully, there are several financing options you can choose to help pay for these costs, each with pros and cons to consider. Evaluate every option carefully and determine which is the right choice to fund your home furnishing goals.

How Much Furnishing a New Home Costs

It can cost about $16,000, on average, to furnish a typical home. Expect to fork over approximately $3.500 for basic furnishings in a one-bedroom dwelling versus up to $95,000 or more for upscale furniture in a three- to four-bedroom residence.

Items for the living room alone will set you back $1,500 to $31,000 or more; dining room necessaries will probably cost $1,000 to over $16,000; and in each bedroom, it’s best to budget $1,000 to $15,000-plus.

For a 2,000-square-foot home, the average cost to furnish can range from $6,000 to $20,000 for lower-end furnishings, $20,000 to $50,000 for middle-end furnishings, and $50,000 to $100,000 or more for higher-end items.

For a family of four, the furniture pieces and décor that will likely cost the most, in order of highest to lowest expense, on average, are:

• Living room furniture, including a sofa, chairs, coffee table, an entertainment center
• Dining room furniture, including a table and chairs
• Bedroom furniture, such as beds, dressers, and nightstands
• Window treatments, like curtains, shades, or blinds

To fund your furnishing dreams, you can pick from several financing choices: a home equity loan; home equity line of credit; cash-out mortgage refinance; personal loan; credit cards; or furniture retailer in-house financing.

Home equity loan for Furnishing

With a home equity loan, you are taking out a second mortgage and using your house as collateral. You can choose a fixed-rate or variable-rate home loan, typically for terms between 10 and 30 years.

Home Equity Loan Pros

• Home equity loans typically offer lower interest rates compared to other types of borrowing because your home is used as collateral, which reduces the lender's risk.
• Since the loan is secured by your residence, lenders may provide larger loan amounts than other types of loans.
• Home equity loans typically have fixed interest rates and monthly payments, which makes budgeting and financial planning easier.
• The interest paid on a home equity loan is often tax deductible, which can lower the overall cost of borrowing.

Home Equity Loan Cons

• A home equity loan carries the risk of foreclosure if you don’t make payments.
• Taking out a home equity loan adds to your total debt, which can increase financial stress and make it harder to save for other goals.
• Home equity loans often come with fees, such as origination fees, appraisal fees, and closing costs, which can increase the overall cost of borrowing.
• Some home equity loans have variable interest rates, which can make it harder to plan for the future and may cause a higher overall cost of borrowing.

Home Equity Loan Requirements

• Lenders require borrowers to have at least 15% to 20% equity in your home.
• Lenders prefer a good credit score, typically 620 or higher. A higher credit score can help you qualify for lower interest rates and better loan terms.
• Lenders want to see that you have a stable income and employment history to ensure that you can repay the loan. Be prepared to provide proof of income, such as pay stubs or tax returns.
• Have a debt-to-income ratio of 43% or lower.
• Lenders typically require a property appraisal to determine the current market value of your home and ensure that the loan amount is not greater than the value of the property.
• Lenders may require you to have homeowner’s insurance and may also mandate that you purchase mortgage insurance if your equity is less than 20% of your home's value.

Popular Home Equity Loan Lenders

Quicken Loans, Rocket Mortgage, AmeriSave Mortgage, New American Funding

Home Equity Line of Credit for Furnishing

A home equity line of credit (HELOC) works kind of like a credit card in that you don’t have to tap into your credit line until you want or need the funds.

Home Equity Line of Credit Pros

• A HELOC provides flexibility, allowing you to borrow as much or as little as you need, up to your credit limit.
• HELOCs typically have lower interest rates compared to other types of borrowing, such as credit cards or personal loans.
• Like home equity loans, the interest paid on a HELOC may be tax-deductible in certain instances.
• You can access your credit line as needed, making it a convenient option for unexpected expenses or ongoing projects.

Home Equity Line of Credit Cons

• The interest rates can be variable, which means you may have to pay higher interest rates if the market rates rise.
• HELOCs are secured by your property, so if you cannot make payments, there is a risk of foreclosure.
• HELOCs may also come with fees like application fees, appraisal fees, annual fees, and closing costs, which can increase the overall cost of borrowing.
• Taking out a HELOC increases your debt, which may make it harder to save for other goals, and some HELOCs may offer interest-only payments for a period of time, which can lead to a larger debt balance in the long run.

Home Equity Line of Credit Requirements

To qualify for a HELOC, prepare to have:

• At least 15-20% equity in their home.
• A good credit score to qualify, often 620 or higher.
• A debt-to-income ratio of 43% or lower.
• Proof of your employment and income, such as recent pay stubs or tax returns.
• A property appraisal completed to determine the current market value of your home and the amount of equity available.

Popular Home Equity Line of Credit Lenders

Figure, Bank of America, Flagstar Bank, Bethpage Federal Credit Union

Cash-out Refinance for Furnishing

A cash-out refinance allows you to receive cash by taking out a new mortgage for more than the amount you owe on your existing mortgage.

Cash-out Refinance Pros

• You can receive the funds in a lump sum, providing flexibility to use the money for various purposes.
• Depending on your credit score and current mortgage rate, you may qualify for a lower interest rate than other borrowing options.
• By consolidating high-interest debt, you can simplify your finances and potentially save on interest payments.

Cash-out Refinance Cons

• A cash-out refinance increases your mortgage balance, resulting in higher monthly payments and a longer repayment term.
• This option involves closing costs, which can add thousands of dollars to the total cost of borrowing.
• Because the cash-out refinance is secured by your home, failing to make payments can lead to foreclosure.
• Your new mortgage usually comes with a longer repayment term than the original mortgage, which means you may pay more in interest over time.

Cash-out Refinance Requirements

• To qualify for a cash-out refinance, prepare to meet these stipulations:
• Typically, lenders require at least 20% equity in your home, although this may vary.
• Have a credit score of 620 or higher, although some lenders may require a higher score.
• Prove a steady source of income to show the ability to repay the new mortgage, which is evaluated by your debt-to-income ratio.
• Pay for an appraisal to determine your home's value and the amount of equity available.
• Have sufficient funds to cover closing costs, which can add thousands of dollars to the overall cost of borrowing.
• Have a loan-to-value ratio of 80% or less, which compares the new mortgage amount to the appraised value of the home.

Popular Cash-out Refinance Lenders

Caliber Home Loans, Guaranteed Rate, SoFi, Veterans United

Personal Loan for Furnishing

A personal loan is a type of loan that rarely requires collateral and can be used for various purposes, such as paying for home furnishings.

Personal Loan Pros

• You have the freedom to use personal loan funds for various purposes, giving you flexibility.
• Many personal loans come with fixed interest rates, allowing you to know exactly what you’ll be paying each month.
• Because personal loans are unsecured, you do not need to provide collateral, like your car or house, to qualify.

Personal Loan Cons

• Personal loans are unsecured, so lenders consider them more risky and may offer higher interest rates compared to secured loans like mortgages or auto loans.
• Many personal loans come with origination fees, prepayment penalties, or other fees that can increase the total cost of borrowing.
• Personal loans often have shorter repayment terms compared to secured loans, resulting in higher monthly payments.

Personal Loan Requirements

To be eligible for a personal loan, count on fulfilling certain criteria, such as:

• Have a minimum credit score of 600-700 for approval; borrowers with higher scores may qualify for better rates and terms.
• Aim to have a debt-to-income ratio of 36% or less.
• Demonstrate sufficient earnings and employment history.
• Prepare to comply with minimum and maximum loan amounts, which can vary from lender to lender.

Popular Personal Loan Lenders

LightStream, Upstart, Discover Personal Loans, Upgrade

Credit Card for Home Furnishing

A credit card is a form of revolving credit that enables you to borrow up to a predetermined limit to make purchases or withdraw cash advances. You must pay back the borrowed amount, along with interest and fees, over time.

Credit Card Pros

• Credit cards are widely accepted and offer a hassle-free method of making purchases without the need to carry cash.
• You can build your credit by using a credit card responsibly.
• Many credit cards offer rewards like cashback, points, or miles for making purchases.
• Credit cards can function as a backup source of funds in an emergency.

Credit Card Cons

• Credit cards almost always have higher interest rates than other types of loans, including personal loans or home equity loans, which can lead to high finance charges and increased debt.
• Because they are convenient to use and readily available, you can be tempted to overspend, increasing your overall level of debt.
• Credit cards may carry fees, such as annual fees, balance transfer fees, cash advance fees, and late payment fees, which can increase the overall cost of borrowing.
• Making late payments or having high credit card balances can negatively affect your credit score, making it harder to get other loans or credit in the future.

Credit Card Requirements

Credit card issuers typically have several requirements that you must meet to be eligible for their card, including:

• A minimum credit score of 600-700 for approval, although some cards are available for those with lower scores.
• You must be at least 18 years old and a legal resident of the country in which the card is being issued.
• You need to have a steady source of earnings to show your creditworthiness and ability to repay your debt.
• Some credit card issuers may consider your debt-to-income ratio (DTI) when evaluating your application, although this is not always a requirement.

Popular Credit Cards

Capital One Quicksilver Cash Rewards Credit Card, Citi Diamond Preferred Card, Chase Freedom Unlimited, Better Home Card

Furniture Retailer In-house Financing

Often, the best option to fund your furniture and decor purchases is in-house financing offered by the retailer where you buy the goods.

Furniture Retailer In-House Financing Pros

• Convenient and easy to apply for if offered
• You may qualify for discounts or incentives on furnishings

Furniture Retailer In-House Financing Cons

• The interest rate charged may be higher than for other forms of financing, especially if you don’t pay off your balance during a promotional period offered.
• The retailer may impose a lower borrowing limit than you need.

Furniture retailers that offer in-house financing

Ashley Furniture, Value City, Wayfair, Bob’s Discount Furniture

“The retailer may offer fairly reasonable terms and great introductory rates with in-house financing. Sometimes, by being loyal to a big furnishing retailer, you can get massive discounts the more you purchase. And if they know you are using in-house financing, they may even offer more discounts,” says Brandon Mushlin, creative strategist with BuildBuyRefi.com powered by The Federal Savings Bank.

Tips for Furnishing on a Budget

You can save big bucks on home furnishings by following these tips:

• Choose used furniture. “Shop for used furniture from thrift stores, consignment shops, or online marketplaces like Facebook Marketplace or Craigslist,” suggests Dustin Singer, a real estate investor/home flipper.
• Price around online. Many online retailers offer great deals and furniture, and you can often find free shipping options as well. Just be sure to read reviews and check return policies before making a purchase..
• Shop at discount stores like Target and IKEA.
• Prioritize essential furniture pieces. “Skip non-essential items like an ottoman, and focus on the basics,” Singer adds.
• Capitalize on discounts and sales.
• Purchase floor models and clearance items. 
• Ponder renting furniture. “This could be a good option for those who need furnishings for only a temporary period or who want to try out different styles before making a long-term commitment,” explains Singer.
• Refurbish and repurpose older furniture as DIY projects.

The Bottom Line

Don’t get in over your skis overcharging or borrowing too much for furniture, unless you have a plan for responsible repayment that will avoid fees and penalties. Research your loan choices carefully, and compare rates, terms, perks, borrowing limits, and other factors thoroughly before pulling the trigger on a funding means for your furnishings.