How to Create a Budget for Home Renovation

May 2, 2023

Making a friendly budget for a home renovation is challenging, especially if you are doing it for the first time. You have to keep in mind a lot of things before you start renovating your house, and making a budget is one of the first things that you should look for.

If you are wondering how to create a budget for your home renovation, then you have come to the right place. In this article, we are going to talk about creating a budget for renovating your home.

1. Prioritizing Projects

Naturally, if one of the rooms in the house is out of sync and producing problems, you should prioritize that project. If you are feeling a strong urge to renovate a certain location, go for it first. However, if all else is equal, consider beginning with popular remodeling projects that add the greatest value to your property and provide the most satisfaction to homeowners.

If increasing house value is your primary goal, prioritize projects that will net you more money when you sell your property than you spent on them. Renovations such as new roofs and wood flooring, for example, paid renovators 6-7% more upon resale than they spent on the renovations. New roofing also ranked first out of 20 renovation projects in terms of assisting with a sale.

If you are more concerned with enjoying the results of your renovation project than with whether or not it will earn back the full dollar amount you spent on it once you sell your home, you could choose projects such as a cooking area or closet reconstruction, both of which earned the most out of 20 projects for homeowners who were satisfied with their renovations.

2. Collect Contractor Bids

After you plan the projects, it is high time for hiring a contractor. Ask around or do an online search for at least three reputable contractors in your region. Request project proposals and timetables from each, then compare prices.

You need to keep these in mind while choosing a contractor:

  • Complete interviews and verify references.
  • Be precise about your project as well as your remodeling budget. If your contractor understands you're on a limited budget, they'll be more willing to discuss additional costs, time delays, and project adjustments with you.
  • Make sure the contractor fully knows your requirements and how you want to prioritize project components.
  • Discuss how you will handle any unforeseen challenges and how this will influence the project's budget.

If neither of their estimates fit inside your renovation budget, scale back the job until you're satisfied with the price. Utilize your list of wants and needs to eliminate portions of the project that you previously regarded as unnecessary. Once you've chosen your contractor, ask them to review the plan for the project and your renovation budget to determine if there are any hidden fees.

If one contractor's bid is significantly lower than the others, reject it. Cheap labor sounds enticing, but it opens the door to mistakes that might cost you more money in the long run. Negotiate with your selected contractor using competitive bids.

Don't be swayed by the lowest bid—you can find yourself paying for a shady individual who takes many breaks for lunch a day and abandons you with a half-finished project. However, if the contractor checks out and the bid is within your budget, go for it.

2. Outline Cost Estimates

Bring out your calculator—this is the exciting part! Now that you've picked which renovation to tackle, first calculate the total cost of the job, including all labor and supplies. This will require some investigation, so get a cup of coffee and settle in.

Remember that you won't be able to receive an accurate price unless you speak with genuine professionals. However, doing some research online will provide you with rough figures that will allow you to be realistic about what you can accomplish with your budget.

For example, if you're remodeling your kitchen, your budget might look something like this:

Kitchen Renovation Budget Items Renovation Item Cost Percentage of Budget
Installation and labor $3,910 17%
countertops $2,300 10%
Cabinetry and hardware $6,670 29%
flooring $1,610 7%
Appliances and ventilation $3,220 14%
Windows and doors $920 4%
Lighting $1,150 5%
Walls and ceilings $1,150 5%
Design $920 4%
Other $230 1%
Total $23,000 100%

This can help you understand where your money is going for your renovation job. It can also show you how to save money in some areas while splurging in others. For example, instead of getting new flooring, you may save money by getting expensive marble worktops.

Note: Don't overlook setting aside money for minor expenses. Paint brushes, tape, sandpaper, drop cloths, hand tools, and other equipment may be required. While none of these items are particularly expensive, they can rapidly add up to $100 or more when you want a large number of small items.

4. Ask for Loans

If you think that you do not have enough money on hand to renovate, then you can start asking for loans. However, if you borrow, you must consider how much a bank will offer you and how much the funding will add to your monthly expenses.

Loans are classified into three types:

  • Refinancing with cash out
  • Home equity financing
  • A HELOC is a home equity line of credit.

A home equity line of credit is the best way to borrow money for a home improvement out of the three options. With a HELOC, which is a loan backed by the equity in your home and is eligible for a lower interest rate than other loan types, you can write off the interest paid on your taxes. A HELOC comes with a checkbook from which you can withdraw money as needed up to the loan's maximum amount because it is a line of credit rather than a lump sum loan.

The drawback is that the minimum payment on a HELOC is only the interest for that month; no principal is required. Paying simply the minimum owing on a credit card, for example, is a prescription for debt.

To Conclude:

Now that you know how to create a budget to renovate your home, go and sit with a pen and paper and start doing the first step of it. We wish you all the very best.

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