How to Set a Budget For Home Renovations
If you don’t plan your renovation budget appropriately the process can become stressful and unpleasant. So before you start envisioning your dream space, determine how much you can afford to spend, and then breaking it down into sections so that you can figure out how much of your money needs to go into each part of the project. Then you can determine the quality of the finishes you can put in the finished space.
Estimate home renovation costs
As a general rule, you should not spend 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 kitchen renovation costs. If your home is worth $300,000, for example, you’ll want to spend $45,000 or less.
Figure Out How Much You Have to Spend
Once you’ve decided on a project, the next question is whether you have the money. If you’re paying cash, that’s easy. But if you’re borrowing, you need to assess how much a bank will lend you and what that loan will add to your monthly expenses.
There are three basic types of loan options:
- A cash-out refinance
- A home equity loan
- A home equity line of credit (HELOC)
For most homeowners, the best way to borrow for a home improvement is a home equity line of credit. A HELOC is a loan that’s secured by your home equity, which means that it qualifies for a lower rate than other loan types, and you can deduct the interest on your taxes. Since a HELOC is a line of credit rather than a lump-sum loan, it comes with a checkbook that you use to withdraw money as needed, up to the maximum amount of the loan.
Get quotes from contractors
Some contractors will give you an estimate based on what they think you want to be done, and work completed under these circumstances is almost guaranteed to cost more. You have to be very specific about what you want to be done, and spell it out in the contract, down to the materials you’d like used. Get recommendations for at least three contractors from friends or neighbors. Give each contractor your project description and specific product lists and request an itemized bid. To find the right contractor ask to see their recent work, check references and look at online sites that provide peer reviews of contractors.
