Is your home a little…tired? Are you house-hunting and finding properties you love except…they need some work? The solution is renovation. If you want to improve your current home, you probably already have ideas, from the important-but-mundane (new roof) to the more-frivolous-but-fulfilling (spa bathroom). If you are buying a home, the home inspection will reveal the necessities and your own taste will tell you if the bathroom needs an upgrade. Now, how do you decide what to do, set a budget, and pay for it? Here are your next steps for planning and budgeting a renovation.
Need or Want? There will be things you’ll need to address (leaky roof, broken entry steps), and things you want to have (luxury fixtures in a new master bathroom, professional kitchen). The needs, as unexciting as they may be, must take priority. If you don’t replace the roof, the leaks will ruin your hardwood floors.
Return On Investment. As you consider your remodeling budget and what splurges to add, consider whether they are worth it. Certain projects may add value to your home (although you are unlikely to recoup your entire expenditure), others will not. That doesn’t mean you shouldn’t add an outdoor kitchen, but you need to realize it’s not going to pay for itself when you sell.
Keep Track. Budgeting means planning and tracking. You can go old school with paper, put a spreadsheet template on your computer (scroll down on the template website to see the examples), or choose an app for your phone. Whatever method you choose, the key to success is to be thorough and keep it up-to-date.
How To Budget. Now that you have your priorities in mind, you need to start budgeting. Begin with a rough idea of what your renovation will cost. Talk to designers (free consultations are usually available at home improvement stores), search online, and ask friends who’ve remodeled recently. Get estimates for roofing and exterior work, like stucco or siding. Don’t forget to include the cost of demolition and waste removal. Plug the numbers into your spreadsheet, and add 20% for unexpected items. Your priorities will probably change as you see the costs, so start replacing ballpark figures with actual prices, always keeping the additional 20%. Be as detailed as possible. When you ask for quotes from contractors, you need to know exactly what you want, down to the kitchen tile and bathroom faucet.
Beware The Scope Creep. Most people who’ve remodeled have experienced the urge to say, “as long as we’re doing this, let’s add that.” Don’t do it. Expanding the scope of work will blow your budget, extend the length of time your home is under construction, and add stress to an already stressful process. If you start with a half-bath renovation, end up living in the garage for several months with your two teenage daughters and a fridge and microwave for a kitchen, you may have gone too far.
Do It Yourself. Depending on the project, and your skill set, you may be able to do some of the renovation and save money. Leave certain work, like electrical and plumbing, to licensed professionals. Even demolishing an interior wall comes with dangers (oops – was that the HVAC duct I just broke?). However, if you are taking out a refi renovation loan, or purchase + renovation loan, you cannot DIY.
Pay For It. As mentioned above, there are loans specifically for renovations. You can purchase a home and include the renovation funds in the loan. You can refinance your existing home with a loan for renovations only. These loans have strict requirements, including the amount you can spend on renovations, what items are allowed, who can do the work, and how/when the funds will be disbursed. If you are going to take out a renovation loan, whether purchase or refi, it’s critical that you work with a loan originator who understands the programs. At First Choice Loan Services Inc., we not only have experienced mortgage loan originators, we also have a dedicated in-house renovation team to handle your renovation loan.
Ready to make a good home better? Get your financing in order and start planning!