Choosing paint colors, flooring options, and new furniture for your dream home can be exciting. Once you’ve decided what you want to improve, consider the financial implications of your planned home renovation projects. Once you’ve decided what you want to improve, learning how to plan major renovations around the financial implications is the next step.
However, many things can push you over budget when you start planning the finer details, and costs can change drastically from what you initially planned and expected to pay, especially if you don’t have the right finances in place for unexpected expenses.
A dream home doesn’t have to be expensive, and while you need realistic expectations for how much it will cost to update your home, you can create your ideal home without spending too much money while still protecting your future finances.
Plan Major Renovations Around the Improvements That Matter Most
Don’t get distracted by too much design inspiration or contractors’ promises. First, think about the changes that will really make a difference in your life, and then start looking for the materials to make them happen. Start with the most important changes for you.
Focus on the areas of your home that cause you the most distress. Are you trying to find more storage in your kitchen? Are the bathroom fixtures outdated? Are there not enough square feet in your living room for entertaining guests? These areas will have the biggest impact. Fix what is broken, and then embellish.
Most importantly, this helps distinguish between repairs that fix problems in your current home and the cosmetics of your dream home. Replacing a leaking roof, repairing damaged floors, and identifying necessary electrical upgrades should take precedence over cosmetic upgrades.
List out all your desired changes to create a “wish list.” Then rank them by importance so you spend your money on what will deliver the most value. You may need to let go of your dream of an exotic marble countertop and choose something more practical.
Build a Major Renovation Budget That Covers More Than Materials
Before you can begin a home makeover, you need to come up with the costs to do said makeover. Cabinet, countertop, appliance and flooring costs often make up the greatest portion of home makeover costs. Then there are the costs of the contractor, permits, waste disposal and even delivery. These costs can add up quickly and often exceed original estimates.
You also need to consider how you are going to pay for the home improvement, especially if you are planning a major renovation. There are many factors to consider including paying with savings versus taking out a home equity loan or even going for cash-out refinancing. Look up the current cash-out refinance rate and compare it with your current mortgage rate. Be sure to factor in the closing costs and terms of repayment as well as the impact on your monthly household budget of a new monthly mortgage payment.
There are many factors that can create unexpected costs when you decide to tackle a home renovation, especially in older homes. In some cases removing a wall or changing a fixture can expose older plumbing or electrical systems and even at times hidden structural problems that were not observed during the initial inspection.
It’s also wise to allow 10% to 20% above the budgeted renovation funds for items that can arise (and do in many older homes) that will require immediate repair to prevent further damage. This contingency will vary depending on the home’s age and circumscriptions of the work contemplated. But it is wise to set aside some funds to cope with these latter unexpected expenses and not to have to cut back on other items that are important to the homeowner.
Your renovation budget should cover more than the physical work required. If using savings or financing a renovation, be sure to include enough in your budget to cover your normal living expenses, emergencies and other financial obligations until you can get back on track.
Decide early whether you can live in the house while the work happens. If your only bathroom or your kitchen will be out of use, or dust and noise make daily life hard, you may need temporary housing for part or all of the project. Add that cost to your budget now so it does not come as a surprise.
Know When to DIY and When to Hire Professionals
You can do many small renovation jobs yourself to improve your home and save money. Painting the walls, adding unique shelving features, redesigning and updating cabinet hardware, and even updating furniture can be cost-effective ways to add your own unique touches to your newly renovated home.
In contrast, larger home improvements, like major electrical work, plumbing modifications, and structural repairs, require experienced professionals to complete safely and in compliance with local building codes.
Check which permits your project needs before you sign anything. Structural, electrical, and plumbing work often requires approval from your local building department, and waiting on approvals can affect your start date. Ask your contractor who will apply for the permits and confirm it in writing.
Most contractors will provide you with a written estimate for the work they plan to complete. Ask several contractors to provide estimates for the work you plan to have completed. Compare the materials the different contractors use, as well as their timelines, warranties, and payment terms. Also make sure the estimates you receive include no surprises with change orders.
Ask for a written schedule that shows the order of the work and when each stage should be finished. Big projects usually run in sequence, with structural and systems work first and finishes last, so one delay can push back everything after it. Build some slack into your timeline, just as you do with your budget.
Communication is also important, and both parties should clearly state their expectations before work begins. Document all changes to a project, including any impact on budget and completion date.
Choose Timeless Improvements Over Short-Lived Trends
As you plan major renovations one thoughtful step at a time, remember that you don’t have to go for the most expensive or even the most dramatic changes. Fix what is broken first, budget beyond materials with a cushion for surprises, and pace the work over time.
Of course, you can choose interior design trends that work for costly renovations, such as flooring, kitchen cabinets, and bathroom fixtures, to create timeless improvements that stay functional and beautiful for years to come. Neutral colors, long-lasting materials, and practical functionality are great elements to focus on when designing your home to accommodate future changes.
You can still put your ‘stamp’ on your newly renovated home with relatively inexpensive changes, such as artwork, pillows, lighting, and accent walls, to name a few examples.
Even beautiful countertops and floors sometimes require special care. Likewise, some beautiful flooring is fragile and will scratch with little to no effort from busy household members.
Make Renovation Decisions With the Future in Mind
Homeowners should improve their living environment and plan for future needs while avoiding expenses that could strain a budget for an extended period. Indeed, many expensive upgrades would not benefit a homeowner who plans to move in a few short years.
For families, a renovation may include adding storage or designing flexible living spaces. People planning to ‘age in place’ will need renovations that improve accessibility, increase lighting, and create safer bathrooms.
Most importantly, your dream home does not have to be your dream home right now. Complete renovations over time. You’ll find you want to approach renovations differently as you evaluate your home’s true needs.
As you plan and go through your home’s thoughtful renovations, remember that you don’t have to go for the most expensive or even the most dramatic changes. What matters is that the renovations you choose will improve your life while you live in your home and that you can afford them.
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