How to set (and stick to) a remodel budget

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Financing Options for a Remodel

The very first step of a remodel is to decide how much money you’re willing and able to invest in it. A good rule of thumb is to spend no more than 10 to 15 percent of your home’s value on any single room. Any more, and the remodel likely won’t add to the value of your home in proportion to what you spent.

You can finance your renovation in a number of ways:

Cash. If you’ve got it on hand, you can avoid paying interest and service fees by handing over cold, hard cash for your reno job. You may have the money in savings, or it may come from a tax refund or an investment in stocks, art, or other things you can sell to finance the remodel.

Personal or unsecured loan. If you need between $15,000 and $50,000 to pull off your ideal remodel, consider applying for a personal or unsecured loan, which won’t require collateral. These loans offer quick approval and fast payout, but they carry higher interest rates since they’re unsecured.

Secured loan. If you need more than $50,000, a secured loan is probably the way to go. A secured loan requires collateral, which can be a car, your home, real estate you own, or another high-value asset. Since the loan is secured, the interest rate is far lower than that of an unsecured loan.

Low- or no-interest credit card. A small remodel may fit on a low-interest or zero interest credit card, and if you have the means to pay it off before the interest rates kick in or go up, you’ll pay the same as cash or a little more. If you don’t pay it off by the end of the terms, the higher interest could add up quickly, making the renovation far more expensive than you intended.

Cash-out refinance. If you have equity in your home, you can refinance your mortgage and draw some of that equity out in cash. However, the interest rates for a cash-out refinance are often higher than average.

Home equity line of credit (HELOC). A HELOC lets you borrow money against the available equity in your home, which is used for collateral for the line of credit. You can draw on your line of credit like a credit card, using only what you need. A HELOC typically has a drawing period of ten years and a repayment period of 20 years, which starts at the end of the drawing period.

Reverse mortgage. If you’re 62 years old or older and have either paid off your home or have an outstanding mortgage that’s less than 50 percent of the value of the home, you may qualify for a reverse-mortgage. You can receive a large one-time sum, or you can establish a line of credit to draw from.

Once you’ve figured out where the remodel budget will come from and how much you have to spend, set aside 15 to 20 percent of those funds for those expensive surprises that almost always come up during a renovation. Now, with the remaining funds as your budget, it’s time to ballpark the cost of what you have in mind.

Estimating Remodeling Costs

The average cost of remodeling a space of less than 1,000 square feet is $18,347, according to HomeAdvisor. How much your remodel costs depends on a whole bunch of factors, including:

• Where you live.
• What room you’re remodeling.
• How extensive the job is.
• How many and which professionals you’ll need to hire.
• The materials and finishes you choose.

You can use a resource like the Remodelling Calculator to get started, but the more accurate your estimate is for your remodel, the better the chances of staying within your budget and avoiding unhappy surprises. Keep in mind that if your plans involve any structural changes, you’ll need to hire an architect. A designer can help you maximize your space and minimize your costs, help you prioritize your needs and wants to stay within the remodel budget, and provide plenty of options for materials across a range of price points.

If you’re going the DIY route, price everything individually, from the professionals you’ll need to hire and the Flooring Options you’re considering to the appliances, fixtures, and furniture that speak to your heart. Visit with contractors, and compare prices for materials and furnishings locally and online.

Once you have a solid estimate, it’s time to upgrade or downgrade your plans. If you’re over-budget, you’ll have to scale it back. If you’re under-budget, you’ll need to decide if you want to go farther with your renovation.

Staying Within Your Remodel Budget

If you remain flexible and stay on top of the reno, the chances of meeting your remodel budget are pretty good. That 15 to 20 percent you socked away will soften the blow when you find out you need new electrical wiring or mold remediation. Here are some other ways to stay on top of your remodel budget during your renovation.

• Keep track of every dollar spent. Small, seemingly inconsequential but unplanned purchases can add up to big money.
• Do your research, and choose reputable, knowledgable contractors. Cutting corners here can cost you big.
• Save wherever possible. Do the demo yourself, scour your local eco store for reclaimed building materials, and buy things in bulk or on sale when you can.
• Monitor the budget as you go, and make changes to the plans as needed. If it seems like you’re going to need to add some money for plumbing, you’ll want to figure out where it’s coming from.
• Resolve to stay strong. It can be tempting to add to the budget to accommodate a gorgeous refrigerator that just hit the market or go for the hand-hewn hardwood floors. But doing so can have dire financial consequences. Don’t let your eyes get bigger than your stomach.

Your reno doesn’t have to break the bank. By setting a realistic remodel budget, socking some of it away for little catastrophes, and planning and monitoring your renovation carefully, you’re looking to come out ahead in the end.