Did you know the average home renovation typically falls between $18,446 and $75,684? That’s no small investment, which is why it’s important to assess your financial health to determine what you can actually afford before jumping into a major improvement project.
Whether you’re looking to reconfigure your plumbing or plan to redo your entire kitchen, here are a few financial considerations to keep top of mind while planning out your next home update:
- Your Budget
Unless you’ve been planning to renovate for a while, chances are you’ll need to borrow money to pay for repairs and home updates. Think about what you’d like to renovate, and ballpark the labor and material costs. If you need to relocate during the project, you’ll want to factor in living expenses, as well. That way, you’ll have a good sense of how much you should expect to spend.
As home improvement projects tend to go over budget, it’s also important to cushion your estimates to ensure you’re prepared for any unexpected expenses. Consider building in a 10% to 25% buffer to your budget so you can assure that you won’t spend beyond your means.
- Your Credit Score
A poor credit score may impact your likelihood of being approved for certain financing options, such as personal or home equity loans, which help ease the financial burden of renovations as you can pay them back over time.
Typically, you need a FICO score of at least 620 to be approved for a home improvement loan. If you have a lower score, you may still be approved for a loan, but you’ll likely have to pay a higher interest rate. In general, the higher your credit score, the better chance you’ll have of securing financing for your renovation, so be sure to boost your credit score before applying.
- The Potential ROI
If you’re planning on staying in your home long-term, home improvements can greatly enhance your quality of life. However, if you’re looking to sell your property in the near future, you should consider the potential return on certain projects. For instance, if you’re only able to recoup a small fraction of your investment upon resale, it probably wouldn’t make sense to renovate your home.
Not every home renovation is guaranteed to offer a high return, either. If you’re looking to maximize your ROI, you may want to consider cost-effective renovations like replacing your garage door, installing new siding, or completing a minor kitchen remodel.
- Where You Can Cut Costs
If you’re keen on sticking to your budget, you should explore ways to cut costs on renovations. Keep an eye out for sales on materials you may need, pay in cash to circumvent interest expenses, and consider purchasing refurbished furniture pieces and appliances.
If you have the skills and spare time, you should also consider DIY home improvements. These might be simple projects such as repainting cabinets, installing a kitchen backsplash, and adding new window trim. Taking on these simple DIY improvements will help you cut down on labor costs while still improving your home.
- Contractor Bids
You’ll need to hire a contractor for the projects you decide not to DIY. Though many contractors will bid for your business, you should take time to compare their qualifications and quality of work before accepting the first or lowest offer you receive. This will help you ensure you hire a contractor that’s best suited to meet your needs.
Gathering your options, cross-checking references, and verifying licenses and certifications will help you select a contractor that’s able to deliver high-quality work at a reasonable price. A qualified contractor will also be able to work around your budget and make informed recommendations based on your needs.
Home improvements are serious monetary and time commitments. By taking into account all financial considerations and planning ahead, you can assure a smooth renovation that won’t break the bank.