There’s no denying that the thought of home renovations can be exciting. Imagining a newly expanded kitchen, luxury bathroom, or any other significant remodeling project, can keep you daydreaming for hours. And while that is all well and good, it won’t make the actual renovations any easier or cheaper. When it comes down to the business of bringing your daydreams to life, considering the cost is a surefire way to bring yourself back to reality.
Saving up for home renovations can be daunting, especially since everyone knows that even a relatively small project can spiral into something much larger and more expensive. Having a savings plan and knowing all of your funding options is vital before making any renovation decisions. DCU is here to help you with tips on understanding the cost of renovations, adjusting your existing budget, searching for contractors, and finding the best loan and credit options.
Establishing Cost Expectations
It isn’t always easy to estimate the cost of remodeling since variables like local markets, material availability, your home’s condition and labor costs can be wildly different based on where you live. That being said, doing a little research on the following key factors will go a long way toward coming up with a solid cost estimate for beginning the budgeting process.
- Materials: The cost won’t be set in stone until contractors get involved, but decide on and find the prices of the materials you want to use for your renovation. Include everything you can think of, from cabinet hardware to flooring to appliances.
- Labor: Contractors likely won’t be advertising their labor pricing on their own website, but looking up labor costs for your project type in your area can give you a ballpark estimate.
- Scope: Defining the parameters of your project will help keep your estimates realistic. For example, knocking down or building walls can be expensive, so knowing early on what you are willing and not willing to include in your renovation will keep a spur-of-the-moment decision from costing you big time later on.
- Surprises: Even after getting contractors involved, there are often surprise costs during renovations. Researching every little thing that can go wrong or break won’t be much help for your budget or your brain, but anticipating some surprise expenses will help keep your expectations and budget realistic.
Make Adjustments to Your Current Budget
Once you have settled on the rough expected cost of your home renovation, it’s time to take a look at your budget and figure out where you can start saving or setting aside money for the project. While cutting down your entire entertainment fund isn’t necessary, tightening up your spending will make the process even faster. Some tips on the best ways to save money for your renovation include:
- Reduce entertainment costs. While this is rarely a huge chunk of money all at once, limiting your nights out to the movies, sporting events, concerts and even the streaming services you pay for can be a good place to start saving money for your renovation.
- Eat at home more often. There’s no need to abandon restaurants altogether, but making the effort to cook and eat most of your meals at home will let you allocate more money to your remodel.
- Simplify your vacations. Avoiding airfare and hotel stays can keep a lot of money in your pocket!
- Specify your savings. Setting up a savings account specifically for your home renovation will make it easier to understand how close you are to your goal amount. Opening a high-yield savings account (or something similar, like a Certificate of Deposit) will grow your money as you save, meaning you’ll be able to hit your goal faster!
Look for competitive (but quality) contractors
Don’t settle on the first contractor you meet with. Get bids from a few well-reviewed contractors who have done work in your area so you can compare prices. Don’t forget to ask for timeline estimates to ensure neither you nor the contractor are rushed into rash decisions or cutting corners.
When searching for a contractor, make sure to check that they are up to date with insurance, certifications, and licensure. This will go a long way in weeding out contractors who could leave you high and dry with an unfinished project or shoddy workmanship.
Once you have decided on your contractor, you’ll know the exact amount of money you’ll need to save or borrow for your home renovation.
Utilize financing responsibly
Saving until you can pay for your home renovations in cash can be rewarding, but it can also take longer than you’d like. Using a combination of good budgeting habits and a loan is a reasonable way to achieve your renovation goals on your schedule.
There are many different loan types you can apply for, such as a personal loan or home improvement loan, but a fixed-rate home equity loan or home equity line of credit (HELOC) are two excellent options for homeowners. Both fixed-rate home equity loans and HELOCs allow you to borrow against your home’s equity to pay for large purchases — like home renovations. In general, interest rates for fixed-rate home equity loans and HELOCs are hard to beat, but no matter what loan option you choose, make sure you find the combination of terms and financing amount that is best for you and your family.
Home equity loan
A home equity loan gives you a set amount of money upfront. This option works well if you know exactly how much your renovation will cost and what percentage of your project you’d like to pay for with savings vs. with the loan. Home equity loans are paid back over a fixed term at a fixed interest rate and monthly payment.
Home equity line of credit
HELOCs are more flexible, giving you a credit limit that you can borrow against during a defined draw period. While harder to budget for, if there is some doubt about the cost of the project or if you are considering doing additional work, a HELOC gives you the ability to pay without needing to apply for an entirely new loan. When the draw period ends, the repayment period begins. HELOCs have variable interest rates that will fluctuate over time.
Learn more about the differences between Fixed-Rate Home Equity Loans and HELOCs!
