Garage Financing and Loan Options

A detached or attached garage can add value to your home and convenience to daily life. A garage can be where you park your car or declutter your living spaces.

But a garage can be much more than that. You can work out of your garage to grow a side gig into a flourishing business – like Apple, Microsoft or Amazon did when they first started. You can convert your garage into a personal gym, professional music studio or playroom for the kids. You can even remodel your garage and turn it into a rental property.

Adding a garage to your property is costly, but plenty of financing options exist. If you’re ready to build or remodel a garage, here’s what you need to know about financing a garage and which loan options are available.

Why Choose Garage Financing

Garage construction projects are expensive due to the electrical and material costs required to do it properly. A single-car garage can cost $10,000. If you build a two-car garage, you’ll spend even more. An oversized garage can cost $16,000 – $40,000.^[1]

When a construction project starts, you can quickly exceed your budget if something unexpected happens. Construction may need to stop entirely if you don’t have the money to cover added costs.

Even if you have cash to cover the cost of a garage build, it’s best to be prepared for unforeseen expenses in advance. Garage financing can help you avoid unwanted delays, and the funds you borrow can be repaid over an extended time.

Garage Loan Options

There are several home improvement loans that can help you finance a garage build from start to finish.

Home equity loans

A home equity loan allows you to tap into your home’s equity and borrow from it. To qualify with most lenders, you need to have 20% equity in your house and a credit score of 620 or higher. If approved, you get a lump sum payment to use.

Home equity loans typically offer a fixed interest rate averaging around 5% – 14% and depend on the market. There are limits to how much you can borrow. You can only borrow 80% – 85% of your home’s equity. If your garage build costs more, you may need to find other sources to complete your construction project.

But you’ll want to exercise caution. You’re using your home as collateral to back up the loan. If you fall behind on payments, you could lose your house.

Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is another way to fund your garage build or remodel. Like a home equity loan, a HELOC is based on the equity you have in your home. HELOC interest rates are variable and influenced by the prime rate and the margin set by the lender. You’ll only pay interest on what you borrow.

Since your home’s equity is used to secure the loan, you’re limited by how much you can borrow which is typically 80% – 85% of the equity available in your home. Loan qualifications are similar to home equity loans and will vary from lender to lender. This loan also involves risk. If you default, the lender could seize your property.

Cash-out refinance

A cash-out refinance can help you add a garage to your mortgage by replacing your existing mortgage with a new loan for your current principal amount plus some of your home’s equity. Since you’re refinancing and taking out cash to pay for your garage build, you’ll be taking on more debt.

To qualify, you’ll need to have a credit score around 620 or higher, a loan-to-value ratio of 75%, six months of cash reserves and a debt-to-income ratio of 36%. There are usually closing costs, lender origination fees and a home appraisal fee associated with refinancing. You’ll want to ensure you can afford a more expensive mortgage.

Personal loans

A personal loan is a financing option to consider if you have a secure job and credit score.

Personal loans have a lot of different interest rates depending on the lender, so be sure to compare lenders before securing a loan. A personal loan can help finance a garage build if there’s not enough equity in your home for a home equity loan or a HELOC. Personal loans are typically unsecured, so your income and overall financial situation determine your loan limit. A personal loan may have a higher interest rate and shorter repayment term.

Federal Housing Administration FHA 203(k)

If you dream of buying a fixer-upper home and doing the work yourself, an FHA 203(k) may interest you. Also known as FHA Rehabilitation Mortgage Insurance, FHA 203(k) is a program that helps home buyers purchase real estate in need of repair. You must live in the home and not use it as a rental property. The home must also meet FHA loan standards. Additionally, your garage build needs to function like a standard garage to be approved. The approval process takes 30 – 60 days to complete. Closing costs and fees are involved.^[2]

Credit cards

You can use a credit card to fund your garage build. No application fees or closing costs are associated with using your credit card. In addition, you can pay off your credit card early without prepayment penalties. If you do decide to use a credit card, consider using a card with a promotional interest rate. But make sure you have a plan to pay off the balance on the card to avoid high interest rates after the promotional period.

But maxing out your credit cards is never a good idea. You could borrow more than you can repay each month. An unexpected emergency can put your finances at risk. You may have to miss a payment and potentially hurt your credit score.

How Much a New Garage Can Cost

Garages come in many shapes and sizes. Some detached structures and garages require a concrete slab or leveling of the foundation. The price of your construction project will depend on the size, materials, features and permits needed. A concrete slab or painting your structure will increase the final cost.

Here are the different kinds of garages and what they can potentially cost.

Put It In Park

Garages come in many shapes, sizes and types and can be expensive to build. But the good news is garage financing is available.

In some circumstances, you might be able to bundle the cost of your construction project with a mortgage.^[2] Building a garage can add value to your home and bring added convenience to daily life.