How To Budget & Fund A Home Remodel Project In 2023

 Considering a home improvement project? Congrats! It is always lucky to have the chance to modify your home to make it more appealing and valuable for your needs. 

The project budget is one of the initial phases in any successful redesign. Project management and design are crucial components of the process, along with deciding how much to spend and how to finance it. 

Read on to learn valuable tips to properly budget and manage your home remodeling project. I'll cover this and more in the post.

Budget

If you want to keep your remodeling or design project in check, a budget is a need. Set a budget for your project in advance. Put your expenses in order of importance: "must haves," "nice to haves," and "not a priority." Then, before the contractor arrives brandishing a sledgehammer, make a rough estimate of how much each of those items will cost from beginning to end. 

I begin by making a spreadsheet and entering line items for each component of a project. Cost estimates (for labor and some things) and any fixed expenses, such as materials, are entered, and once I get hard numbers, they are replaced. 

You must determine the square footage of individual project components to estimate the costs of the materials if you intend to source any of the items yourself (this can be a cost-saving measure depending on your labor position and how you source). Measurements must be taken for tile, flooring, paint, and other materials to calculate—either in real life or on your scaled layout. 

Once you've made your spreadsheet, make frequent updates to keep track of your budget and cash flow. 

Always include an extra 10%–20% to account for expense overruns. Remodeling the kitchen in an antique house? Many would contend that 20% is more suitable. Remodeling the landscape? You're likely fine with 10%. The idea is that you don't want to be operating on such a tight budget that, (surprise!) when your contractor opens up a wall and discovers dry rot or rusted piping, you won't have a safety net to handle it. 

Once you've decided on a budget, follow it. Avoid the temptation to go over budget mid-project by saying, "Oh, it sure would be nice if (insert pricey upgrade)." Budgets blow up in this way. Don't do that until you can really, genuinely afford it. (Also, read the bullet point above again for a strong argument against it.

Remodel return on investment (ROI)

It's crucial to calculate the return on investment for your project. You should always assess the value you intend to gain out of a renovation and how it will affect the total worth of your property, even if you are lucky enough to not be overly cost-conscious. 

Do some study to find the remodels or design projects in general that offer the best value for your money because this is not an easy task. 

Consult with neighborhood-aware local realtors to determine what kind of renovation could be reasonable. If you needed to sell your property, a 60k master bath remodel probably wouldn't make financial sense for a 200k home. Keep your neighborhood and home value in mind when making improvements. 

On the other hand, it would undoubtedly be well worth the expense to repaint a living room with mint-pistachio green walls and a red ceiling. (Yes, someone once decided to do this to my living room.)

From a financial perspective, even if you believe "I'll never sell this home," you should always have a Plan B exit strategy in case Plan A fails. (And many people I know would counter that you ought to have a Plan C.) 

You should always have a strong departure strategy in place since you never know what life will throw at you (hello, 2020!). even if you believe you have found your "forever home" and don't necessarily view it as an investment.  

How will you pay for your remodel/design project?

How do you intend to finance a significant makeover if you're starting one? There are numerous options, including cash, loans, or lines of credit tied to home equity, refinancing, or taking out a personal loan. Depending on your circumstances, having cash on hand or using home equity loans or lines of credit may be among the most prudent financial moves. 

Cash: As long as you have enough money to complete your project, using cash involves no risk. Ideally, the renovation you do will increase the value of your house more than the money you spend on it. 

Example: Your house is worth $400k, but there is still $150k owed on the mortgage. You decide to invest $50,000 cash in a significant kitchen remodel to help finance it because your home has $250k in equity. 

The project might increase the value of the home by about $32,500 as the typical return on investment for a kitchen makeover is about 65% of the remodel cost. (65% of 50k = 32.5k)

Your home now has 282.5k in equity and a market value of $432.5k. Your property's equity has grown by 32,500 dollars, and you get to enjoy a new, gorgeous kitchen that cost you $50,000, but if you were to sell (or borrow against the equity with a HELOC or home equity loan), it would have only cost you 17.5,000.

Home equity loans and home equity lines of credit, sometimes known as HELOCs, are two distinct products; one is a loan and the other is a line of credit, both backed by home equity, and both can benefit from having their interest tax deductible within specific limits. 

Example: Your house is worth $400k, but there is still $150k owed on the mortgage. You decide to get a home equity loan or a HELOC to pay for your kitchen renovation because you have $250k in home equity. 

The project increases the home's value by $32.5k because the typical ROI on a kitchen makeover is around 65% of the remodel cost. (65% of 50k = 32.5k)

Your home now has $232.5k in equity, and its market worth is $432.5k. Despite borrowing $50,000 to pay for the project, the equity in your home has only diminished by $17.5K, and you get to enjoy your brand-new, gorgeous kitchen.

Additionally, up to a certain amount in 2020, you can deduct the interest paid on home equity proceeds used to "buy, build, or substantially improve a taxpayer's home that secures the loan," according to the IRS. However, for the most recent information, consult your accountant or tax advisor. 

Even if you have cash on hand, it could be wiser to borrow money at a low-interest rate rather than utilizing it, especially if you can invest that cash in something that would yield a better return than the loan's interest rate in the long run, like a down payment on a rental home that will generate income. If, however, you choose to spend your $50,000 on Nordstrom and Vegas, well, then utilize the money for your remodeling or design project. 

Consider expenditures like interest rate, loan origination fees, and loan term if you're taking out a loan. Additionally, find out when you will receive the loan's funding. With your contractors, you'll need to put down deposits, and you might need to pay for some materials upfront.

Here are a few possible options for loans for house improvements.

Controlling remodel costs: Finding quality work for a reasonable price

So now that you've found out how to finance the project, it's time to discover the people who have the necessary abilities to make it happen. Where do you look?

 Ask for recommendations from a list of friends who have recently had building work done.

Ask a plumber who they recommend for carpentry, electric work, tiling, etc. if they come over to fix your sink. Tradespeople can share a wealth of practical knowledge and information with one another. Call and inquire even if they are not fixing your sink. 

Finding high-caliber construction-related work can be easy with the help of community boards like Next Door. This is probably a go if you read a post looking for a tile layer and six people comment on how much they enjoy the tile work done by a specific person or business. Contact the persons who provided suggestions and inquire with them. The majority of people are glad to share their experiences with you, good or bad. 

Whenever you are considering hiring someone, get recommendations. Call someone and pose inquiries. 

For any work that has to be done, get three quotes. You'd be amazed at the cost variance from time to time, but of course, this needs to be closely contrasted to how well the project manager handled the task at hand and how well you thought the work was done. 

All three are crucial because a low price won't be low if the work is subpar or the contractor only shows up every three days while juggling other jobs, delaying your project's completion date.

Working with budget constraints

Let's return to budgeting for design. Do not let the thought of creating and adhering to a budget intimidate you. You and your project are kept in check by a budget. You don't want to imagine a magnificent overhaul in your brain just to find out later that it isn't financially feasible, have your hopes dashed, and be forced to start over or, worse, overpay. 

Contrary to popular belief, I genuinely think that budgetary restrictions can improve a project. Because you make decisions early on knowing how much you have to spend, it streamlines your design process. This prevents you from wasting time on "pie in the sky" possibilities and keeps your decisions grounded. (And develop a crush on them.)

What a budget does is force you to be resourceful and find ways to turn what you might originally see as lemons into lemonade. 

I won't go on a tirade here, but I've always felt that design restrictions, whether financial or imposed by building/historical codes and ordinances, etc., may frequently improve a project. 

Example: You spent a lot of time and work decorating your room. You may have imagined your ideal kitchen to feature white-painted custom cabinets with exposed, vintage-style hinges, in-line drawers, and doors. However, when you receive quotes, the bespoke cabinet estimate leaves you in sticker shock and it simply won't work. Now what? 

You could choose "off-the-shelf" cabinetry in place of custom cabinetry. How much of a difference do painted kitchen cabinets actually make in the end? You'll be astonished to see how frequently the stunning kitchens of many of your favorite Instagram influencers in home décor use mass-produced cabinets if you look into their origins.)

You manage to locate a great deal on a stunning vintage china hutch on Craigslist that you'll use in place of built-in cabinets to hold your dishes and glassware, where they will be on display and enhance your kitchen's ambiance rather than being hidden away. You also find simple but beautiful hardware for them that looks expensive but isn't. 

Even if you choose to use pre-fabricated cabinets in place of handmade ones, the Your white cabinet kitchen has a very similar overall impression, and you stayed inside your budget. 

Additionally, replacing certain cabinets with the vintage china hutch piece will, in my opinion, result in a more fascinating and unique kitchen for less money (i.e., one that doesn't appear cookie-cutter). Win-Win! 

Decorating with Good Bones: 10 Ways to Redesign Your Home on a Budget is a related article. 

This DeVOL Haberdasher's kitchen is a luxurious take on a "downstairs" kitchen. Even so, it continues to give me ideas for how I could create a stunning kitchen without going overboard by using straightforward Shaker-style cabinetry, retro open shelving (which is less expensive than full uppers), and a free-standing hutch for storage and display.  

Renovation Budgeting Conclusion

So there you have it: advice on how to set a budget for your home improvement project as well as examples of financing options.  After the dust clears, I hope you attack your home project with vigor because the gorgeous outcomes will make all the effort worthwhile!

What renovation, building, or design projects are you preparing for or executing? What limitations—financial or otherwise—must you deal with?