New Year’s Home Resolutions: Planning & Budgeting for a Home Renovation
Updated: Apr 23, 2022
The process of renovating your home can be one of the most stressful and overwhelming experiences as a homeowner. Decisions regarding paint colors, decor, flooring and themes are challenging in their own ways, but larger projects introduce new sets of challenges and excitement.
You may be excited about renovating your home, or it may be your only option if you purchased your home at a higher price point than what you could sell it for today. Either way, a reasonably-priced and well-executed renovation project could be just what you need to make your home more enjoyable and livable for your family.
The sad truth is that many people have a worse experience when starting and completing a home renovation project. Selecting a space, creating design ideas, determining a budget, hiring a contractor and completing a project can be incredibly stressful and costly.
This guide is designed to help you navigate the home renovation process from start to finish and make the process smooth and enjoyable. Whether you’re new to home ownership or a longtime homeowner, this guide will help you avoid costly home renovation mistakes every step of the way.
Starting Your Renovation Project
According to a recent study by Hearth, a home improvement financing company, 45% of millennials surveyed expressed a strong desire to renovate their homes. Starting a renovation, not just as a millennial, is often the biggest hurdle to leap based on several factors:
Existing debt obligations (student loans, auto loans, credit card debt, etc.)
Lack of basic financial literacy
Little understanding of which renovation projects will maximize return on investment
Fortunately, a wealth of resources is available for anyone considering a renovation. The National Association of the Remodeling Industry (NARI) recommends consumers consider their reasons for remodeling and develop a vision for how their completed project will add value to their lives in the future.
Highest Value Renovation Projects
Understanding your potential return on investment is critical before starting a new renovation project. The simple reality is that few projects instantly increase the value of your home in proportion to their cost, but many projects lead to increased values and high returns on investment over a period of just a few years.
Fiberglass insulation in attics
Steel entry door
Stone veneer (manufactured or real)
Universal bathroom redesign/remodel
Determining What You Can Afford
One of the most critical components of any home renovation plan is a budget. The sad reality is that many people skip this stage entirely and rush into their project without a plan to pay for it.
As a result, many people exhaust their cash resources and take on high APR (annual percentage rate) credit card debt to complete their projects. The previously mentioned study by Hearth revealed that an alarming 16% of millennials are likely to refinance a home renovation project using credit cards.
Credit cards are admittedly convenient, and 0% APR financing offers can be alluring. However, financing large home renovation projects using credit cards can trigger unexpected high payments and crippling interest charges once promotional offers expire in 6 to 12 months.
Considering Financing Options
Once armed with the knowledge of how much you need to borrow, it is best to research financing options from a variety of sources. One common renovation mistake is applying for a loan with only one lender and accepting their offer right away.
Many borrowers fear that applying for multiple credit offers is too time-consuming, damaging to their credit score and exposes them to identify theft. These worries may have been relevant in the past to varying degrees, but today’s processes have largely eliminated these worries.
Starting Your Home Renovation Project
As in nearly every industry, money talks and cash is king. When starting your home renovation project and selecting a contractor, having cash in hand can help you compete for top contractors in your area, many of whom would rather be paid in cash than on credit.
The process of choosing a contractor to oversee and complete your project is far less stressful when financial concerns have been removed from the equation. With a funded loan and cash in your account, you are in a better position to take your time interviewing multiple contractors, check their references, compare bids, and check reviews with the Better Business Bureau.
Before choosing a contractor, be sure he/she is licensed in your area and has appropriate liability and worker’s compensation insurance (for subcontractors). Any history of complaints or unethical behaviors is cause for concern.
You will be working with your contractor for the length of the project, so it is also important your personalities mesh well. You want to work with a contractor who is an excellent communicator and can show you in-depth plans and timelines for completing your project.
Make Your Renovation As Smooth As Possible
Home renovation projects can be very exciting, but the truth is that they can be scary and stressful. At a basic level, any remodeling project involves trust, as a relative stranger is redesigning a huge part of your life.
The best way to make your renovation as smooth as possible is to minimize your risk exposure from the very beginning. You can avoid contractor conflict, running out of cash, taking on high-interest credit card debt and risking foreclosure thanks to home equity issues when you take advantage of sensible lower interest personal loans.
Despite sensationalist headlines to the contrary, the American Dream of homeownership is alive and well – and it doesn’t end when you buy a home. Turning your house into a home may require changes. Simply put, home renovation decisions can have a lasting financial impact for years, even decades, to come.