Smart Budgeting: How to Set a Home Renovation Budget

There can be many reasons for home renovation. Maybe you’ve inherited your old aunt’s home and need to make it livable. Maybe your neighbors have upgraded their house, and you want to catch up with them. Or perhaps you want to increase your estate’s value before selling it for the highest cash offer.

No matter what your reasons are, home renovation is an incredible experience. Keep in mind that it’s not a walk in the park, though. It’s a marathon. Moreover, it’s an obstacle run, and you need to prepare yourself for many ups and downs along the way.

But before you start your project, you have to make sure that you know how much it’s going to cost you. Setting a budget should be one of your top priorities when planning your home renovation. It will help you in making your project more efficient, both in terms of costs and time.

Below you will find a quick guide on how to do it.

Plan Your Renovation

The first thing you need to know about home renovations is that you can’t approach one without a proper plan. The first thing you need to consider is the range of your remodeling project. You have to decide whether you want to renovate everything at once, or whether it would be better to spread things out.

Secondly, decide on your priorities and needs. For example, it might be the case that rooms in most desperate need of renovation are your bathroom and kitchen. If that’s the case, then the best idea is to renovate them first and take care of the rest of your home afterward.

The third thing to consider when creating renovation projects is the time for home improvement. Decide how much it will take to remodel every room and how long the whole operation might last.

And the last thing you need to think about is the reason why you want to renovate your house. For example, if you want to sell it, estimate your home’s value and see which part you’d have renovated to sell it for the best price. Keep in mind that it will significantly impact your decision on how much you want to spend on your project.

Considering all of these factors will help you estimate your renovation costs and decide which financing option is the best for your project. That’s why thorough planning is crucial when creating an efficient home renovation budget.

Pick the Financing Option

Once you create your plan and estimate your overall budget, it’s time to decide on your financing option. When it comes to that, there are plenty of possibilities ahead of you – more on that below.

Home Equity Loan

Often regarded as the second mortgage, a home equity loan is a sum of money you need to repay at the scheduled time. Usually, it’s several years in regular fixed monthly payments.

What makes equity loans unique is that you pay the same amount every month once you lock your interest rate. The most significant advantage is that you don’t have to worry about market fluctuation. The con is that you lose the payment flexibility.

Okay, but when should you apply for a home equity loan? Since you’ll get the whole amount of money upfront, the best idea is to apply for it when you know your renovation project’s exact cost. And bear in mind that any delay in payments will hurt you badly.

You may also want to consider equity release which allows you to release equity tied up in your home or property.

Credit Card

When it comes to financing your project with a credit card, you should only do that with minor renovations, like upgrading a bathroom or remodeling your kitchen. If that’s the case, using a credit card is probably your best option. What’s more, many banks have special offers for people who want to use that form of financing.

But if you plan on making larger home improvements, funding your project with a credit card comes with several risks. For example, if you fail to pay back your balance on time, you might face higher interest rates than usual. Moreover, you’d have to repay everything much faster than in the case of a loan.

That’s why if your expenses are high, you shouldn’t even consider basing your budget on your credit card. Unless, of course, you know you have the amount of money to pay everything back on time.

Mortgage Refinance

Refinancing your mortgage means replacing your old one with new, also giving you a new interest rate. If your new mortgage is higher than the last, you can use the extra dollars from a cash-out refinance and invest them in renovating your home.

Also, when it comes to mortgage refinance, considering it is only a good idea if you can secure a lower interest rate than what you have to pay now. If you can’t ensure it, this method of financing will do you no good. On the contrary, it might even complicate things.

Do Your Research

When establishing your renovation budget, it’s always a good idea to do in-depth research. And when it comes to doing that, there are many things you need to think about. For example, when looking for contractors, you should always seek clients’ opinions before making a choice.

Don’t forget to read internet forums or ask your friends who might’ve gone through renovation for their advice. It will help you estimate how much you have to spend on various project elements and give you a glimpse of how your renovation might look.

The next thing you should research is the cost of materials you intend to use. Their price will vary depending on the provider, so ensure you have at least a general idea of the amount of money you’ll have to spend.

Research everything, from the cost of flooring, kitchen cabinets, countertops to bathroom appliances, and window frames.

Only by doing that, you’ll estimate the overall remodel’s cost and find where you can save some money, which brings us to the next point.

Decide Where to Cut Costs

We don’t recommend trying to save money on everything you can. Don’t forget that your goal is to improve your home, not to make it worse. With that in mind, you have to think carefully about when and how you can cut your renovation costs.

See whether you can buy reused furniture. Or maybe something around your house can be used in the renovation process. The case may also be that the constructor has some leftovers from the recent projects that can be used.

Also, don’t forget that you can do some work yourself. You don’t have to hire a crew to paint every room and bring in the furniture. The good idea is to ask your friends and family to aid you with simple jobs. These minor expenses may not look significant, but they can really cut your overall costs.

Bottom Line

Planning a home renovation can be a challenging task. You ought to take many things into account, not to mention the cost of the whole project. To make sure you get everything you can from your plan, you have to prepare an efficient renovation budget.

To do that, you have to estimate your costs and determine the amount of money you intend to spend on remodeling. That includes the contractor’s fee, range of your project, and things on which you can save some money. Once you’re done with your math homework, you have to decide on your financing options.

Doing all of the above will allow you to estimate the most efficient home renovation budget, ensuring your house will look just the way you want.

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