How to Budget for Home Renovations? The easy part is knowing what you want to remodel and why — whether you’re trying to keep up with your growing family, add office space, or increase your home’s value.
But figuring out how to renovate without breaking the bank can be tricky. Here are five key steps in planning your home renovation project.
1. Estimate costs
As a general rule of thumb, you should spend no more on each room than the value of that room as a percentage of your overall house value.
For example, a kitchen generally accounts for 10 to 15 percent of the property value, so spend no more than this on a renovation. If your home is worth $200,000, for example, you’ll want to spend $30,000 or less.
2. Consider loan options
If you’re borrowing money for the project, assess how much the bank will lend you (be sure to shop around!), and determine what type of loan would work best for you. If you have a one-time project, then a home equity loan might make sense. If, however, you need access to money over a period of time to fund ongoing home improvement expenses, then a home equity line of credit is preferable.
3. Get quotes from contractors
Some contractors will give you an estimate based on what they think you want done, and work completed under these circumstances is almost guaranteed to cost more. You have to be very specific about what you want done, and spell it out in the contract — right down to the materials you’d like used. Get quotes from several contractors, tossing out the bid from the one who gives you the lowest estimate. Going with this choice could be asking for problems, as low-priced contractors are known to cut corners — at your expense.
4. Stick to the plan
As the renovation moves along, you might be tempted to add on another “small” project or incorporate the newest design trend at the last minute. But know that every time you change your mind, there’s a change order, and even minor changes can be costly. Strive to stick to the original agreement, if possible.
5. Account for hidden costs
Your home may look perfect on the outside, but there could be issues lurking beneath the surface. In fact, hidden imperfections are one of the reasons renovation projects end up costing more than you anticipated.
Rather than scramble to come up with extra money after the fact, give yourself a cushion upfront. Factor in 10 to 20 percent (or more) of your contracted budget for unforeseen expenses, as they can — and do — occur. In fact, it’s rare that any project goes completely smoothly.