5 Key Steps to Set a Home Renovation Budget That Works for You
Are you in the process of settling into a new home and looking to give it a facelift? Or, perhaps you’ve been residing in your humble abode for some time and are now considering a change. The first step is to identify your remodeling objectives, such as accommodating a growing family, creating a home office, updating outmoded features, or enhancing the overall value of your property. Although you might be eager to embark on a kitchen or bathroom renovation, devising a budget-friendly plan for your home remodeling endeavor can be challenging. To simplify the process, here are five essential steps to follow when setting a home renovation budget project.
1. Estimate home renovation costs
It is generally recommended to keep your renovation costs for each room in your home within its respective value as a percentage of your overall house value. This means that if your kitchen accounts for 10 to 15 percent of your property value, you should not spend more than that on kitchen renovation costs. For instance, if your home is valued at $200,000, you should limit your kitchen renovation expenses to $30,000 or less.
It is worth noting that contrary to popular belief, kitchen renovations do not necessarily offer the highest return on investment. In fact, every dollar spent on a kitchen remodel only increases the value of your home by approximately 50 cents. On the other hand, a mid-range bathroom remodel typically provides the highest return on investment.
2. Consider home remodeling loan options
If you plan on borrowing money to fund your home renovations, there are a number of loans out there to help with just that.
If you’re looking to save some money on your monthly mortgage payments, refinancing could be a good option for you. Depending on your current interest rate, you may be able to refinance at a lower rate or for a longer loan term. This can help you free up some cash to put towards your home renovations.
Another option to consider is a cash-out refinance, which allows you to refinance for more than you currently owe and receive the excess in cash. You can use a refinance calculator to determine if this is a good option for you.
If you’re not ready to take the leap into refinancing, a HELOC may be a better fit. It works like a credit card with a set limit that you can borrow against. This can be a good option if you only need to borrow a smaller amount for your renovations. A home equity loan is not the same as a HELOC. With this loan, you need to withdraw all the cash at once. Homeowners often call it a “second mortgage” as they take it in conjunction with their primary mortgage.
Refinancing, getting a HELOC or taking out a home equity loan are all big decisions, and it can be tough to know which one makes the most sense for you. As with any new loan, consult with a lender to see which option is best for your situation.
3. Get home renovation quotes from contractors
It is important to be clear and specific when discussing your project with contractors. Some may give estimates based on assumptions that could lead to higher costs in the end. Make sure to include all details in the contract, including materials. It’s wise to get quotes from multiple contractors, but don’t always choose the lowest bid, as it could indicate a contractor who takes shortcuts, resulting in additional expenses down the line.
4. Stick to the home remodeling 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 home renovation costs
Your household might appear flawless from the outside, but there might be underlying concerns. This is why renovation projects are often more expensive than expected due to hidden flaws. To avoid the chaos of finding extra funds later on, it’s better to prepare beforehand. Allocate 10 to 20 percent of your budget for unforeseen expenses as they are inevitable in most cases. In reality, it’s uncommon for any project to go without any hiccups.
