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ACU Blog  / Dollars and Sense: How to Create a Home Renovation Budget
30 April 2021 / 4 minute read

Dollars and Sense: How to Create a Home Renovation Budget

Home improvement projects increase the value of your home, but it is important to establish a budget for the project and stick to a plan.
Couple preparing a renovation budget which reviewing a house architecture sketch of improvements.

You probably won’t be deciding where in your community the schools or shopping centers will be built. Similarly, you likely can’t exert power over whether or not your neighbors maintain their home or beautify their lot. In short, you can’t always control the external factors that determine your home’s value. But you can control the general attractiveness of your own home.

Home improvement projects can be a tremendous tool for increasing the value of your home. However, given the size and relative complexity of these projects, it is very easy for the cost to quickly spiral out of control. That’s why it’s so important to establish a budget for the project before it begins and to do everything you can to adhere to that plan.

Here are some constructive tips for building the best possible home improvement budget.

home improvements made easy

Know your own budget first

No home improvement project should ever be embarked upon without first gaining an understanding of how it will impact your month-to-month finances. Ideally, you would identify a particular home improvement job as a goal several months in advance and create a saving account – separate from emergency, college or retirement savings – to earmark money for the project. If you are planning on financing the work either through a credit card, personal loan, or home equity line of credit (HELOC), be aware of what your monthly payments will be and how that impacts your monthly bottom line.

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Mind your p’s: practical and pragmatic

It’s important when picking your home improvement projects to focus on what will be most attractive to the general population of home buyers. You may love the idea of a nook to store your 180-gallon fish tanks, but to a potential future buyer, that addition may make the house look lopsided and unwieldy. Many times the improvements that will help your home sell quickly and for top dollar later are pretty unglamorous today. A new water heater or fixed roof may seem pretty mundane now, but it can make a huge difference in how secure a future buyer feels about the property in the future. Even if you are just fixing the place up for yourself, try to always prioritize safety and efficiency over aesthetics when choosing which projects you will fund. Many websites offer national cost-vs.-value averages for different projects, so take advantage of this information in deciding which jobs to prioritize.

Know exactly what you want

Trying to figure out what a “kitchen remodel” will cost you is only going to provide you with a very wide and ultimately counterproductive idea of what you can expect to pay. For bigger jobs like this, break them down into each item that will be replaced or refurbished. Using the kitchen example again, research what kind of countertops, flooring, cabinets, etc. you want so you can either communicate effectively with a contractor or know what you can expect to pay for materials you source on your own.

Let the competition begin!

To figure out if what you have saved or are planning to finance for your project matches what it will actually cost, your best option is to get bids from contractors who specialize in remodeling or in the particular project you are interested in. Even if you are planning on doing the project yourself, it can be extremely educational to see what a professional estimates for materials, labor, permits, cleanup, etc. Demand that the estimate be as detailed as possible. And don’t stop at just one. Not only are potential contractors competing against the possibility of you doing the project yourself, they are also competing against other professionals out there. Use this to your advantage to come up with a number that fits within your budgeted amount.

Understand overage

Know that whether you do the job yourself or hire a contractor to do the work, you are almost always going to run into some aspect of the project that pushes the cost beyond initial estimates. Count on your costs ending up anywhere from 10-25% above initial estimates. If this goes beyond what your budget has shown you can afford, it’s wise to wait until you can bulk up your earmarked amount a bit or scale back the scope of your current project.

Unearth savings

If you hire a professional to do your home improvement, that doesn’t necessarily mean you have to leave the sourcing of materials up to them. Consider hiring a contractor who will let you shop for supplies on your own. This will allow you to comparison shop more vigorously than a contractor might have time to. It can also open up the possibility of getting high-quality supplies at a deep discount from a nonprofit like a Habitat for Humanity ReStore outlet. If you are going with a big box home improvement store, be sure to ask about upcoming sales. Lastly, if you are using a contractor and can wait a bit, try to do your home improvement project in winter when builders are more desperate for work and will in many cases drop their bids.

As mentioned above, home improvements are one of the few things you can control about the value of your home. So be sure to do just that and TAKE CONTROL of the process rather than letting it become series of money pits. As long as you create a plan ahead of time and do your best to stick with it, you can have a rewarding process and more desirable property.

home improvements made easy

Ten ways to avoid home improvement budget killers

  1. Don’t add “while we’re at it” jobs that weren’t a part of the original budget/plan.
  2. Stay away from cheap materials or corner-cutting measures that will just mean paying more later.
  3. If you are doing the work yourself, learn the entire process before you start instead of using a “learn as you go approach.”Let your contractor know you aren’t interested in the top-end, luxury versions of goods and materials.
  4. Check service rating websites before hiring your contractor.
  5. If you are doing some pre-home sale upgrades, give yourself plenty of time so you don’t have to pay for rush work or overtime.
  6. Consider refurbishing certain items instead of tearing them out and replacing them.
  7. Exercise your creative abilities and look for ways to use materials found at architectural salvage stores.
  8. To avoid paying to store in a locker any work-blocking household items, have a plan ahead of time for housing in-the-way furniture during the project.
  9. Ask your contractor – you don’t want to miss out on potential savings because you failed to communicate.
  10. Check all your financial options before choosing how to finance your project. 

Take a moment to finalize your budget, run your numbers through a Home Improvement Loan Calculator to see what your potential monthly payment may be, and always consider speaking with a loan expert at your local credit union or bank to help you find the right solution to fit your needs and budget. Here are Allegiance we offer Home Improvement Loans to fund your home renovation projects. 

For more information on creating a home renovation budget and tips for which projects will increase your home's value, review our "Home Improvements Made Easy: Your Complete Guide to Using Home Improvement Loans the Right Way". 

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