No matter what we’re shopping for, few of us like sticking to a budget. But when you’re doing a major home remodeling project, knowing precisely how much money you have to spend and staying within that budget is crucial.
“As contractors, we design our projects to our clients’ budgets,” says J.P. Ward, architect and vice president of business development at Anthony Wilder Design/Build in Cabin John, Maryland. “Homeowners need to know what their budget is upfront and be realistic about what they can afford.”
Considering a big home renovation? Here’s how to set your priorities, establish a spending limit and stick to your budget.
• Determine your goals
The first question to ask is why you want to renovate, says Ridley Wills, owner and design director at Wills Co., a design-build firm in Nashville, Tennessee. Are you remodeling your kitchen because you want more counter space? Do you want to create an open floor plan? Are you tired of not having enough space to entertain guests?
“Figure out what your goals are and then figure out your budget,” Wills says.
• Be specific
Before you start crunching the numbers, decide what details you want, says Tom Miller, a Portland, Oregon, home remodeler and president of the National Association of the Remodeling Industry. “The biggest consideration is pinning down decisions and selecting materials and finishings before the job begins,” he says. “That gets you to a reliable budget.” For example, do you want hardwood floors or carpet? Black or stainless-steel appliances? Providing a contractor with a list of exactly what you want can help you formulate an accurate budget.
• Access your financing options
Unless you pay cash, you’ll need to borrow money for the project. One option is a home-equity line of credit (HELOC), which allows you to borrow money as needed up to a certain limit, using your home equity as collateral. You’ll receive an introductory rate for the line of credit that can change after a set period of time.
You also could apply for a home-equity loan in which you receive a lump sum upfront, typically at a fixed interest rate, and pay it off monthly.
Because the prime rate—the most prevalent interest rate index used to price a HELOC—is rising, the HELOC is not the “slam dunk” it used to be, says Richard Redmond, mortgage broker at All California Mortgage in Larkspur and author of “Mortgages: The Insider’s Guide.” Your best approach is to meet with a mortgage lender to explore your options.
• Consider resale value
If you plan to stay in your home long-term, “it may make sense to splurge to create your dream space,” Ward says. If you’re thinking about selling within a few years, focus on your potential return on investment.
Your return on investment is largely based on what your house is worth. (You wouldn’t want to install a $50,000 kitchen in a $200,000 home.) That being said, some improvement projects can add more value to your home than others. You can compare the average cost of 21 popular remodeling projects with the value those projects retain at resale in 100 U.S. markets using Remodeling magazine’s annual Cost vs. Value report.
• Get a “hard” quote
Although most home contractors will give you a free renovation estimate, you generally have to pay for a “hard” quote, giving a detailed outline of the project’s costs and timeline. Most contractors are too busy to give free quotes, Miller says, and “quotes also take hours of time to formulate.”
You can sign a time-and-materials contract, which bases your payment on the time spent by the contractor’s employees and any subcontractors’ employees to perform the work and for the materials used. If you’re looking to stick to a budget, you’re better off signing a fixed-price contract, in which you pay the contractor a set lump sum upfront.
• Set aside money for surprises
Wills recommends setting aside an additional 10 to 15 percent in cash for hidden expenses. “You don’t know what you’re going to find before you start tearing down walls,” he says. “Electrical work may not have been done to code. There could be asbestos or mold hiding behind plaster. You just don’t know.”
The best-case scenario: “If you don’t spend the extra money, you can put it toward furnishings.”
• Be smart about cutting costs
You don’t want to skimp on important products or materials, but there are ways to trim your budget without sacrificing the quality of the workmanship.
Here are five strategic ways to save money:
1. Opt for lower-cost finishings. Choosing different finishings, such as vinyl flooring over tile, can save money. For instance, slab granite costs $40 to $75 per square foot, compared with only $10 to $40 per square foot for laminate countertops, according to home remodeling resource Fixr.com.
2. Refurbish older items. Instead of replacing high-cost items, such as home appliances, salvage what you have if it’s in good working condition. Case in point: Refinishing or refacing existing cabinets can save you up to 30 percent compared with buying new cabinetry, according to Angie’s List.
3. Tackle small tasks yourself. You can reduce labor costs if you’re willing to do light initial deconstruction, such as pulling up carpeting or removing bathroom tile, or paint a room after the contractor completes construction.
4. Time it right. Home contractors tend to be busiest during the spring and summer, so you may be able to save by commissioning the work during fall or winter. The caveat: Some times are better than others for certain projects.
5. Resist adding things along the way. You may be tempted to tack on small items here and there, but change orders can be expensive as “asking for extra things during construction often adds to the duration of the job and the labor,” Ward says. Don’t deviate from your budget mid-project.
—Daniel Bortz | The Washington Post