Setting a Realistic Budget for Home Renovations
Planning a home renovation can be intimidating and exciting all at once. With careful planning, you can reach your house goals without burning out or, most importantly, without busting your budget. If you’re wondering how to come up with a realistic budget that will get the job done how you envision it, be sure you do the following things before jumping into your home renovation project.
Estimate renovation costs
The first step of any home project should be to research and get a feel for the time and financial commitment involved. Perhaps you have a renovation idea in mind but hesitate due to the unknown costs involved. Figuring out a ballpark estimate up front can help you prioritize the project and decide when would be a good time, financially, to jump in. If a project will actually cost less than expected, maybe you can move forward right away. On the other hand, if it will be pricier than anticipated, knowing that from the beginning can help you budget and save appropriately.
DIY vs. professional
Depending on the complexity of your renovation project, consider if it’s something you’ll be able to tackle on your own or if you should enlist the help of a professional. For example, flexing your creative muscles and learning to lay ceramic tile may be realistic, but figuring out electrical wiring is usually something best left to the pros. If your home renovation project has many smaller tasks (such as a kitchen remodel), perhaps you can handle some of the simpler items yourself and hire help for the larger tasks in order to save some cash.
Get quotes from contractors
If you plan to work with a contractor for some or all of the project, you’ll want to do your due diligence by shopping around for quotes before committing. Be very specific about the work you want done, down to the type and quality of materials to be used. It’s also a good idea to ask them for a rough timeline for the project from start to finish and request to speak to previous clients for honest reviews of the contractor’s work.
Keep in mind that cheaper may not always best when it comes to a home renovation. Saving money can be nice, but not at the expense of cutting corners or taking months to complete.
Take out a home remodeling loan
Certain home projects can cost a pretty penny, like kitchen or bathroom upgrades. Fortunately, these types of renovations tend to increase the value of your home so the investment can pay off if or when you decide to sell. With that said, the steep cost of remodeling your home may lead you to consider a loan to finance the project. There are several methods for borrowing money for this type of project, including:
HELOC, or home equity line of credit – This may allow you to borrow against your home’s equity (within a specified limit).
Home Equity Loan – This is also called a “second mortgage” and it can allow you to take out cash for the whole project up front.
Refinance – This may decrease your monthly payment if the current interest rates are better than when you purchased the home or if you choose to stretch your mortgage out for a longer loan term. The money that you save each month could be set aside for your renovation project.
Cash-out Refinance – If you’ve lived in the home a while and have substantial equity, you could refinance your existing loan for an amount higher than what you owe. Doing this means you could pay off your original mortgage and have cash left over to be used for renovations.
In any case, taking out financing to complete your home remodel is a big step and one that should not be taken lightly. It’s a good idea to consult with a mortgage lender to discuss your options and weigh the pros and cons.
Considerations to make
So you now have a good idea of how much a renovation will set you back financially and you’ve thought about how you’ll pay for the project – there are still a few things to think about before moving forward to ensure you’re making the right decision at the right time.
Determine the impact on resale value
It’s realistic to consider completing some home projects simply for your own comfort and experience. However, before tackling a big project that will set you back thousands, you may want to determine how much value it will add to your home. If it’s something that costs a lot but doesn’t add much value, perhaps you can find a way to cut costs while still improving your home’s appearance and function.
Avoid draining savings
You may have enough money saved up to complete your renovation without financing it, but be sure you aren’t dwindling your savings or investments down to zero in order to tackle this project. You should always have an emergency fund available and aim to maintain savings of at least six months’ worth of expenses in the event of job loss or other unplanned financial crises.
Account for unexpected costs
Inevitably, the budget you set for your home remodel could be pushed to the limit and there may be unplanned expenses that pop up along the way if there are issues beneath the surface that you were unaware of before beginning the project.
It’s a good idea to tack 10-20% on top of the estimated project cost in the event those unexpected expenses do occur.
If you’re working with a tight budget, it’s still possible to accomplish your renovation and achieve the look and function you desire in your home. You can often find lower-cost alternatives to your favorite flooring, lighting, countertops, and cabinetry so you don’t necessarily have to sacrifice looks despite pinching pennies. Sometimes all it takes is a coat of paint or new hardware to transform a space, so before ripping out cabinets or lighting, see if you can salvage what you already own.