Preparing Your Budget for Future Home Renovations
Summer means a few things, schools out, the weather is heating up, and breezy cocktails are firmly in rotation. And if you’ve been thinking of doing some renovations at your home, now could be the perfect time.
The warm weather provides an ideal opportunity for homeowners to complete renovations that might not be possible during the icy winter months.
While summer may be the perfect time weather-wise to start a renovation, your wallet may have some other concerns. Home improvement projects and renovations can cost a pretty penny.
Depending on your personal situation, accomplishing a renovation might be an expensive endeavor, one that will require some planning and budgeting.
Here we’ll review some suggestions and ideas for managing your finances so you can get ready to create the home of your dreams. While these suggestions may work for some, they might not be right for you.
If you have specific questions on making your money work for you, consider speaking with a financial planner—which SoFi Members can do at no cost.
Budgeting for a Home Renovation
Getting your financial house in order is generally the first step when undertaking a big home renovation. These tips can help you prepare so you can accomplish the repairs and renovations you need.
There’s a finite amount of money in a budget, so you may have to make a list of the repairs and renovations you’d like to complete and prioritize them.
For example, if the roof is on its way out, you may want to prioritize that above say, refinishing the kitchen cabinets. A leaking roof can be problematic, but you might be able to get away with repairing the cabinets in a few months.
Consider which projects are do-it-now and which can be saved for later. For example, maybe landscaping your backyard and renovating your master bathroom are two of your top projects.
You may consider upgrading your outdoor space now, while the weather is amenable to those repairs. On the other hand, if upgrading the bathroom is an urgent project, you may start on that project first.
Consider prioritizing projects that could deteriorate further and be more expensive to fix or that could cause additional damage if they are delayed too long.
Another way to prioritize projects is by your goal for the home. For example, is the goal of the remodel to optimize space in the house for your growing family? In that case, maybe installing a swing set and revamping the backyard is your number one.
Or are you renovating the home with the goal of selling it? In that case, you may want to prioritize projects based on what will be most likely to offer a return on your investment. SoFi’s Home Improvement ROI Estimator can help you find out the resale value of the home improvement projects on your list.
Determining the Scale of the Project
Now that you have a list of targeted projects, consider the scale of each project. Do a little bit of research on the average cost of the project you have in mind in your area. Tool’s like SoFi’s Home Improvement Cost Calculator can help you get a ballpark idea of what a project could cost.
Armed with this information, consider contacting a few reputable contractors to get quotes specific to your property. This can help give you an even better idea of how much the project will actually cost.
Ask trusted friends and family members for recommendations and be prepared with specifics for the project. It can help to request an itemized bid from a contractor for a detailed look at the costs. Some contractors may charge a fee to do a full quote—so factor in those costs as you shop around for a contractor.
Even with detailed quotes, it can help to budget for additional, unexpected costs. Consider setting aside 10% to 15% on top of the quote to prepare for any unforeseen expenses.
To get an accurate quote, you’ll have to define the specific parameters of the project. If you’re remodeling the kitchen that includes selecting the countertop materials and choosing the type of flooring. These can impact the overall cost of the project so be clear about what you want.
Revising Your Budget
Now that you have a solid idea of how much the home renovation will cost, take a look at your current budget—paying special attention to areas you can make changes or cut expenses to make room for the renovation costs. Review your current income streams—is there any opportunity to increase your income? If not, consider opportunities to cut expenses so you can funnel money to your remodel goals.
The timeline for the remodel will also inform how aggressively you choose to save. For example, if you are hoping to finish the remodel within six months, you may have to save more money each month than if you were planning 12 months out.
When budgeting for a remodel, it can be helpful to have a dedicated fund for renovation expenses. This can help you streamline your savings approach and portion of the appropriate amount of money so you’re prepared.
Using the “vaults” feature, you can easily save for your future home improvement goals without opening another account, and as you get started you can set automatic savings transfers so you’re always working toward your goal.
Tapping Into an Emergency Fund
For projects that need immediate attention, some people may consider dipping into their emergency fund. If the renovation is urgent, it may make sense to use money from your emergency fund to pay for some of the costs.
However, if the project isn’t a true emergency, consider using caution before depleting your emergency account. If you do decide to use your emergency fund to finance a home renovation or repair, make a plan for building your emergency fund back up again.
Determining Financing Options
When paying with cash isn’t an option or you want to avoid emptying out your emergency fund, there are options available to help you complete the home renovations.
Loans can help homeowners secure the funding they need to take care of home renovations, two common options are Home Equity Lines of Credit or HELOCs and personal loans.
HELOCs allow homeowners to pull a specific amount of equity out of their homes. Once approved, homeowners can use up to a certain amount of money, for a specific period of time. The amount an individual qualifies for will depend on factors like the value of the home and the outstanding mortgage on the home.
Another option that may help you accomplish your renovations in a timely manner is a personal loan. This type of loan can be used for just about any personal expense, including the kitchen remodel you’ve got your eyes set on.
Personal loans are generally unsecured, so unlike with a HELOC, you won’t have to worry about putting up your home as collateral.
The approval process for personal loans is generally relatively fast, with few or no fees. Know that the actual application process will vary by lender, but at SoFi, there are no fees and no surprises.
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