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How to budget for a Home Renovation

In the wild housing market today, more homebuyers are purchasing fixer-uppers or settling for homes without everything on their wish list. If you recently bought a house that needs a little love, or you want to make some changes to your home, the crucial first step is to get an understanding of what needs to be done. You’ll want to get a complete picture of the work that you want to do and how much those items will cost.

Creating a budget for your home renovation project can be daunting and overwhelming when you begin to think about everything that needs to be done. This is particularly true for first-time homeowners or those who are embarking on a renovation project for the first time. Where do you even start in a home renovation? What kind of contingencies should you think about? How important is it to build a cushion into the budget? There are many things to consider when crafting a budget for your home improvement projects.

Depending on several factors, homeowners should expect to spend $10 to $60 per square foot on renovation projects. On average, renovating a 1,000-square-foot home costs around $19,000. As you can imagine, the price increases with the size of the home. If you are fixing up an older home, you might have to pay more for updates to things like older wiring or plumbing systems.

To get a rough idea of what your remodeling budget might look like, you’ll want to consider the value of your home. Experts suggest that you shouldn’t spend more than 10 to 15 percent of your home’s value on any single room. For example, if your home is worth $100,000, you don’t want to spend more than $15,000 on a bedroom, living room, dining room, or kitchen remodel.

When you are looking to make some changes to your home, it’s easy to know what you want. However, it can be more difficult to nail down a solid renovation budget. Fortunately, we have done some of the work for you. Let’s take a closer look at some considerations for crafting a home renovation budget.

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Figure out the financing before finalizing your budget.

A homeowner takes a look at the cash available for a home renovation project
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While you are in the process of crunching numbers for your home improvement budget, you’ll also want to think about financing. If you are paying cash for your renovations, you have a little more leeway. However, you will want to work within the confines of what you can spend and what you can afford. This will involve taking a look at your finances and savings and determining how much cash you have to spend on your project. Once you understand how much you can spend, you can begin to prioritize certain projects and dedicate funds to specific things.

If you’re going to need outside financing for your project, there are a few more steps in the process. One option to consider is a home equity loan. These loans use your home as collateral and allow you to borrow money against the value of your home. This type of loan usually offers a lower interest rate than traditional personal loans or credit cards. However, keep in mind that this means you’ll be using your home as a guarantee on the loan, so make sure to discuss the risks with your partner and financial advisor. As long as you are able to meet the terms and repayment requirements of a home equity line of credit, it can serve as a great way to finance your renovations.

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Another option is a personal loan, which may be a good fit for those who don’t have enough equity in their home to secure a loan. Personal loans are unsecured loans, meaning that you don’t have to use your home or other possessions as collateral. However, they typically have higher interest rates and shorter repayment terms compared to home equity loans. With a personal loan, you will be approved to borrow a specific amount of money to pay for your home renovation. Before you apply for a personal loan, you will want to consider your finances and credit score to determine how much you can borrow and how much you can afford to pay back.

Many homeowners also opt to use a credit card to pay for renovations. While this may be the most straightforward option, it could take longer to pay back, and high-interest credit card debt can quickly add up. Whatever financing option you choose, make sure to factor in the annual percentage rate (APR) and any fees associated with the loan to accurately calculate your total costs and ensure that you’re comfortable with the repayment terms. By doing your due diligence to figure out your financing options before finalizing your renovation budget, you can avoid any unpleasant financial surprises and bring your dream renovation to life.

Create a detailed renovation budget.

A homeowner calculates the costs of a potential home renovation
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Once you get an idea of what you can afford to spend and how you are going to secure the funds, you will want to nail down your budget. The most important part of budgeting for your renovation is to get a full idea of what you want. You can create a list of things that you want to accomplish and then separate things into different categories by project. You’ll want to be realistic about your budget and prioritize which projects are most important to you. It may be tempting to go all out, but it’s essential to stick to a budget that works for you. You should consider your goals for the project, the requirements of the work, your needs versus your wants, and any items you are willing to splurge on.

Create a detailed plan with cost estimates.

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Whether you’re planning a small or large home renovation project, it’s important to create a detailed plan with cost estimates before jumping into the actual work. After setting goals for the remodeling project, your detailed plan should include all of your anticipated costs. This will ensure that you craft a complete renovation budget. For example, if you are renovating your kitchen, determine if you need new appliances, countertops, cabinets, or flooring. You could build a spreadsheet that outlines each portion of your project and the estimated cost for your remodel’s labor and materials. Labor usually accounts for around 25 to 35 percent of the total cost of a project. You’ll want to be detailed with your plan and include everything from fixtures and finishes to any new furniture you plan to put in the room.

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Additionally, there is a good chance that there are some hidden issues that might arise during your project. This is especially true if you are updating an older home. Anything from mold and rotting wood to plumbing problems could throw a curve ball in your plans. It’s important that you factor in 10 to 20 percent of your total budget for unforeseen expenses.

Find a good contractor.

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The key to having a successful home improvement project that sticks to your budget is to hire a good contractor. Working with the right person can make a big difference in your renovation project. A professional contractor can help you determine the feasibility of your ideas and provide you with valuable advice and expertise. You’ll want to provide potential contractors with detailed goals and plans for your project and request an itemized bid. When you work with a resource like Alpha Living, you can find the best local contractors for home repair and improvement. With a few project details and your contact information, you can connect with reliable local home remodeling companies quickly. When you work with a quality home renovation professional, you can ensure that financial requirements and project goals will be a top priority.

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Creating a detailed renovation budget is crucial to the success of your project. By researching the costs, prioritizing expenses, and shopping around, you can ensure that you stay within your budget while still achieving your renovation goals. And remember, while it may be tempting to splurge on fancy finishes, it’s important to weigh the cost of each decision against your overall budget.

Every renovation project is different, and there is no one-size-fits-all budget template. However, when you make a plan for your funding, create a detailed outline of your project and expenses, and work with a quality contractor, you can budget for success. With a solid budget in place, your home improvement project will make your home sweet home that much sweeter.

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