By Ana Durrani

Feb 9, 2023

(Getty Images)

Dreaming up a home remodel is easy, but budgeting for one can be way more challenging than it seems.

Most homeowners have their sights set on a room or section of the house they’d like to revamp. And plenty of folks play it loosey-goosey with overall decor planning, relying on a Pinterest board or (if you prefer to keep it old school) a collection of pages torn from design magazines that perfectly capture the vibe we hope to one day achieve.

But a kitchen renovation or a backyard landscaping project comes with many moving parts, and determining exactly how much money is needed to fund those improvements can be tough to calculate.

Not sure where to start? Follow this four-step guide to help you set your home renovation budget.

1. Ballpark the costs

Even the seemingly smaller home improvements, like swapping out your tub, can end up being far more expensive than originally expected. For example, some lesser-known line items for this project could include making changes to the plumbing and acquiring local permits. So it’s a good idea to ballpark the costs associated with your project ahead of time.

“By researching the project and estimates, you can set a realistic budget and understand what you can afford to do,” says Kimberly Jay, a real estate broker for Compass in New York.

She recommends consulting with different contractors and speaking with a representative at Home Depot, Lowe’s, or your local home improvement store.

Another resource is Remodeling magazine, which compares the average costs for 22 remodeling projects with the value those projects retain at resale in 150 U.S. markets.

2. Figure out how much money you have to spend

If you already have cash set aside for the project, you know where you stand. But if you’re planning on financing the home improvement project with a loan, you will need to determine how much you can borrow and how that loan will affect your monthly expenses.

Milton Manolis, retail national renovation sales manager for loanDepot, says two good options are a renovation loan and a home equity line of credit, or HELOC.

A renovation loan lets you buy or refinance a home with the cost of repairs or upgrades built into a single mortgage, based on the projected appraised value of the home when the renovation is complete.

“This is a great option for purchasing a home in today’s market with limited inventory and higher prices as it allows you to purchase a home that may be in need of repairs or upgrades and turn it into your dream home,” says Manolis.

To upgrade your current home, a HELOC allows homeowners to tap into their equity without affecting the interest rate on their current mortgage.

“HELOCs are a revolving line of credit, similar to a credit card—but at a much lower interest rate since the loan is secured by your property,” says Manolis.

Manolis advises considering your short-, medium-, and long-term personal and financial goals and always working with a seasoned lending professional.

3. Get quotes from contractors

Experts recommend getting quotes from at least three contractors and asking for references and to see a contractor’s recent work. Make sure to specify details and expectations for the project. Then compare prices, services, and materials offered, and verify their credentials before hiring them.

“You might also be able to purchase some of the materials directly at a discount or closeout store. Ask the contractor if they have experience working this way,” says Jay.

Broker Mihal Gartenberg, of Coldwell Banker Warburg in New York, recommends budgeting for overages and adding up to 30% to the contractor’s quote.

“You never know what problems may arise during a renovation that will require additional labor or materials,” she says.

We’ve all seen the HGTV shows where the contractors find an entire wall of termites and have to ask the homeowners for an additional $5,000, right? This happens.

4. Set priorities and trim the project to fit your budget

The high costs of construction materials and homeowners’ concerns over inflation are likely to make budgets tighter. Experts recommend prioritizing the elements of your upcoming home improvement project that are most important to you and then adjusting the scope of the project to fit your budget.

“This may involve making trade-offs: opting for less expensive materials or appliances, hiring an experienced but not über-expensive contractor. Perhaps the expensive investment in a Wolf or Viking stove isn’t necessary,” says Jay.

Gartenberg suggests homeowners consider their long-term plan and what updates are the most urgent.

“It might be systems, cost, or aesthetics. While I always advise focusing on systems like HVAC or plumbing first, every individual has their own unique priorities and needs,” she adds.

It’s also important to chat with a contractor about what labor makes sense to prioritize. For example, Gartenberg says first-time renovators might not understand that a new roof or façade can damage the paint job on the inside of a house.

“Understanding timelines and budgets can go a long way in determining a renovator’s priorities,” says Gartenberg.