There are two ways to go about setting a renovation budget. The first is to determine how much you can afford to spend. The second is by working backwards from the end result you want to achieve.
If you’re paying for your home improvement project with your existing cash, you may need to cut or seriously scale back certain current expenses and tap into your savings. If you plan to borrow — giving you a larger budget to work with — using the equity in your home, you have three main options. You could secure a Standard Home Equity Loan, open a Home Equity Line of Credit (HELOC), or refinance your existing mortgage and take cash out.
Begin with the End in Mind
When it comes to cost, there’s a big difference between renovating a small bathroom and adding an entirely new room to your home. In order to determine your renovation budget you need a clear idea of the end result. You can do this using a technique known as creative visualization. For example, to visualize a new kitchen, search through home improvement magazines for pictures of kitchens with the features and look you want. This will help you hone in on the requirements that are most important to you.
Remember, while you’re working with an “unlimited” budget at this point, be realistic about the space you’re working with. Once you’ve determined the extend of the renovations and the improvements which are most important to you, you can begin to identify the specific line items in your budget. Save the results of this exercise. They’ll be helpful in describing to a contractor what you have in mind.
Calculating Renovation Costs
Now that you’ve formulated the vision for your kitchen, it’s time choose the materials and determine the extent of the work. This is where you reconcile your dream design with reality and begin to define your renovation budget. You’ll want to sit down with an interior designer and/or an experienced and knowledgable contractor to get a real sense of the scope of work.
A large project like this is best handled by a licensed contractor. A good contractor will coordinate the resources, order the materials, and schedule the work. And, because a kitchen renovation is so disruptive for you and your family, having a single point of contact is much easier than trying to manage the project yourself.
Take time to interview multiple contractors and check references. Ask to see samples of the work they’ve done and talk directly with the clients they’ve worked for. Were they happy with the work? Did the project stay on schedule and within the budget? What, if anything went wrong, and how was the issue resolved?
You have many choices when it comes to materials. Quality and price are the determining factors to consider. If you don’t have an unlimited budget, you’ll want to shop around for the best deals and be willing to compromise if necessary. For example, you may be able to afford more expensive appliances if you decide to reface your existing cabinets instead of buying new ones.
Funding Your Project
Home renovation is a great way to add to the value of your home. But, in order to remodel that kitchen, you’re going to need cash. As mentioned earlier, there are three primary ways to fund your project.
- A Standard Home Equity Loan is essentially a second mortgage using your home’s equity as collateral. The loan is for a fixed dollar amount, generally with a minimum of $10,000.
- A Home Equity Line of Credit allows you to withdraw cash as needed it and pay interest only the amount of money you’ve withdrawn.
- A refinance of your current mortgage to take cash out.
Each of these funding methods has different features and benefits as well as equity requirements. As with any loan, your credit rating plays a critical role in the interest rate available to you.
The Bottom Line
Home improvements, upgrades, renovations. whatever you choose to call it, there’s no end to the possibilities if you have an unlimited budget renovation budget. For those of us
working with limited resources, this doesn’t mean you can’t make the kind of improvements you want. With careful planning, smart shopping and a willingness to compromise, you can set a renovation budget and stick to it.