How To Budget For Home Remodeling Projects

From on November 20, 2013 in Tools and Tips

‚ÄčAny home remodeling project, whether it be a bathroom makeover, a kitchen facelift or a whole new room, is a large undertaking. While it is easy to determine what will be updated, it can be more challenging to figure out how to pay for it all. The following four steps can help a homeowner create a workable remodeling budget.

Get a Rough Estimate

There are a variety of ways to estimate the cost of a remodel. Typical upgrades, such as with a family room or bathroom, cost from $100 to $200 for each square foot. Homeowners can also consult with the National Association of Homebuilders to obtain estimates. The magazine Remodeling provides a report that shows the cost of common remodels versus their actual value. At this first stage, it is only necessary to get a basic estimate and not nail down the final cost.

Determine How Much Can Be Spent

This can be the trickiest stage of a remodeling project. Knowing roughly how much the job will cost is one thing, knowing how much money is actually available is another. Most homeowners find taking out a loan, called HELOC, against the home’s established equity is the best way to finance a remodel. The two major advantages of a HELOC are a lower interest rate and the ability to write off the interest on a tax return. This type of loan acts as a credit line, which means it can be used as needed up to the loan limit. The drawback to a HELOC is that a minimum payment only goes toward interest, which can quickly leave a homeowner in debt. It is best to establish a payment schedule that will allow for more than the minimum payment or to scrap the project.

Get Contractor Quotes

When the rough estimate cost of the project and the available funds are in line, it is time to move forward and get quotes from contractors. This phase should begin with the homeowner choosing exactly the upgrades and materials that are wanted, so contractors can price the job more accurately. If an interior designer or an architect is involved with the remodel, those people should be part of the selection process. Going to showrooms and looking through magazines can also be helpful. Finally, the homeowner should request a detailed bid from at least three different contractors, preferably those recommended by family, friends and neighbors.

Go in Phases and Priortize

Once a contractor has been chosen, the homeowner should allow for up to 20 percent over the bid in contingency costs. If this extra expense is still within the budget, then the project can go forward. If not, then some parts of the project will have to be scaled back or removed. The contractor can he helpful in making suggestions to reduce the cost of a remodel, such as not replacing appliances in an updated kitchen or doing the project in the winter when the remodel demand is slow. In the end, once a firm bottom line is reached on the budget, the work may begin.

Homeowners considering a remodel can make the process go more smoothly by following the financial tips above and always consulting with a professional, licensed contractor. If you need to find one, we can help.