If you had to write down all of the renovation ideas you might have for your home, there’s a good chance that you’ll end up with a list that’s a bit longer than you know how to take on. Any time you are considering home improvements, the easiest step is figuring out exactly what you want. When you start lining up what you want with what you can afford, it usually starts getting a little bit tougher. Here is a simple four step plan to help you set your home improvement budget:
Decide on a rough estimate. Once you know exactly what you’d like to do, get a general idea of what similar projects usually cost. One good rule of thumb, for example, is that major home upgrades like adding on or remodeling an entire room usually cost at least $100 – $200 per square foot and up. If you’re using a remodeling contractor or an interior designer to help you with your project, talk it over with them to get a general idea of what it should cost.
Figure out your total budget. Now that you know what you want and you have a general idea of what it will cost, you need to know how much you will be able to spend. This step is pretty straightforward if you’re paying in cash, but it gets a bit more complicated if you plan to borrow to fund your project. You’ll need to figure out exactly how much your bank will lend you and what type of loan you’ll want to get. The three most common loan options for home renovations are a cash-out refinance, a home equity loan, and a home equity line of credit.
The best option for most homeowners is a home equity line of credit, which is secured by the bank and qualifies for lower interest rates than most other loan types. A home equity line of credit has a very low minimum though, so you’ll have to remember to pay more than that if you don’t want to end up in debt. You should be able to pay at least 1/20th of the principal (to pay off in 10 years). If you don’t think you will be able to afford that, then you may need to adjust the scope of your project.
Choose your contractor. The first thing you need to do before reaching out to contractors is figure out the exact details of what you are looking for. Write out an itemized list of what you want, down to the type of materials and the exact products for faucets and appliances. It seems like you are picking at the details, but in reality what you are doing will ensure that all of the bids you receive will be priced using the same items.
When you are ready to take bids, get recommendation for no less than three great contractors from neighbors, friends, and family. Look online and check reviews to see who the best contractors are in your area. Give each one of them your project description with all of the details and product lists, and make sure they return an itemized bid.
Once you have received all of the bids for your project, add 20% to the total cost of each one. This extra padding allows for a contingency to cover any changes or issues that arise after the project starts. If none of the bids fit within your budget after adding the extra 20%, you’ll need to adjust the scope of your project one more time.
Double check your budget and trim the fat. It’s not a disaster if your winning bid still doesn’t fit into the budget you have available. Take a look at some of the details of your project and find some areas where you can scale it down. Your contractor or designer may have some ideas to help you lower costs, so don’t forget to include them in the planning as you go over your project and re-assess. With a little time and effort, you’ll find that happy spot where your dream renovation and your budget both fit into the picture.