Are you planning to renovate your home? If so, you will certainly want to take steps to ensure your costs do not get out of hand. By following these simple steps, you should be able to get the results you want without getting yourself in financial trouble.
Step #1: Consider the Value of Your Home
The value of your home should be used as a guide to help you determine where to cap off your renovation budget. Since the kitchen accounts for 10 to 15 percent of the value of your home, for example, your renovation should not go beyond this amount. Therefore, if your home is worth $200,000, your renovation should cost no more than $30,000.
Step #2: Explore Loan Options
If you will be taking out a loan to cover the cost of your remodel project, you will want to take some time to explore the options that are available to you. Some loan options to consider include:
- Refinancing: You may be able to refinance your mortgage at a lower interest rate or for a longer term loan, which could reduce your monthly payments so you have more money available for your project.
- Cash-Out Refinance: If you have built equity in your home, a cash-out refinance may be an option. With a cash-out refinance, you refinance your home at an amount that is higher than what you owe. You then pay off the original mortgage with the new loan and use the leftover cash to put toward your remodeling project.
- HELOC: A home equity line of credit, or HELOC, is similar to a cash-out refinance in that it is based on the equity you have built in your home. The difference is that you are extended a line of credit in the amount of equity you have earned. You can then borrow against this line of credit in the same way you use a credit card.
- Home Equity Loan: With a regular home equity loan, you take out a flat loan in the amount equal to the equity you have built-up. This type of loan is frequently referred to as a second mortgage.
Meet with a lender to discuss all of these options so you can determine the one that is best for you.
Step #3: Get Quotes
Next, you should contact some contractors to get an estimate based on what you think you want to have done. Make sure the estimate includes the full scope of your work, including the materials that you plan to use, in order to get a more accurate quote. Even with the very specific quote, however, you should still plan for hidden home renovation costs. Remember, even if your home looks perfect on the outside, there are likely to be issues hiding beneath the surface. These issues can drive up your costs significantly.
Step #4: Stick to the Plan
Home renovation costs are often driven up by homeowners who fail to stick to their plan. As the project moves forward, resist the temptation to add on another “small” project or to incorporate a last minute plan. Even minor changes can be costly. Stick to the original plan if you want to stay on budget.