The Home Renovation: Know Your Abilities & Limitations

When taking on a major home improvement, start with a budget that makes sense.

Questions We Answer In This Article

• When is the right time for home remodeling?
• How much should you spend on a home renovation?
• What else is there to know about house renovations?
• Are home improvement loans a good option?

Maybe it started as a little daydream after you flipped through the latest issue of your favorite home décor magazine. The thought of those gorgeous green soapstone countertops in your kitchen just wouldn’t go away. Then you found yourself showing the spread to your spouse with a wistful sigh, saying, “Wouldn’t that look amazing?” Before you know it, you’re both talking excitedly about new ideas for a dream kitchen.

This is the moment of conception for your home renovation, and it’s full of possibility and promise. But this conversation of the future has to return to the present day before spinning out of reality’s orbit. As with any big life decision, it’s important that you first undergo a thorough reality check to make sure it’s the right big life decision. When it comes to home renovations, the reality check takes the form of a sensible budget.

When is the right time for home remodeling?

While it’s always fun to dream about your home remodeling project, there are any number of situational and financial considerations you have to make before the visions of future bliss are fully formed.

There are certain times in life when a home renovation isn’t wise. For instance, if you’re between jobs, providing full-time care for a loved one, or expecting to pay college tuition in the near future, the timing probably isn’t right to absorb the life disruption and dent in the bank account. Further, you must honestly assess your financial picture, because taking out home improvement loans when $50,000 of high-interest credit card debt is staring you in the face might not be a good idea.

But if the timing and money are right for a home renovation, the next step is to write out your ‘musts’ and ‘maybes’. This two-column list captures the elements of the house remodeling that you have to have, as well as those things that you’d like but could do without. Once the list is complete, it’s time to do the math.

When is the right time for home remodeling?

The scale of your house renovation should be dictated by the scale of the home itself. According to Home Advisor, the typical cost for a home remodel is anywhere from $18,439 to $75,850, a rough reflection of differences in square footage among surveyed properties.

There are standard remodeling rules of thumb regarding how much to spend on each room. In general, you never want to spend more money improving a room than the room’s value as a percentage of the total home value. For example, consider the two most popular target sites of home improvement:

• Kitchen: A kitchen usually represents anywhere from 5%–15% of the home’s total value. Therefore, if you own a $400,000 home, look to spend between $20,000 and $60,000 on the upgrade.
• Bathroom: To revamp the throne room, your budget should be 3%–7% of total home value. Spend between $12,000 to $28,000 on the bathroom renovation in a home valued at $400,000.

Once you know your home’s current value, contact at least three contractors to get bids on your project, including both ‘musts’ and ‘maybes’ in your request. If the number is on the high side, get out the red pen and slash away at the ‘maybes.’ If the total falls in the sensible range go with the contractor you feel most comfortable with and set your renovation schedule.

What else is there to know about house renovations?

Another rule of thumb when it comes to home renovations is to simply be prepared. Projects can go over budget for any number of reasons, so you’ll want to incorporate a contingency fund. Set up your budget with 10%–20% extra to absorb unforeseen costs.

Also, you need to have a general understanding of your neighborhood and your home’s relative value within it. In general, if your home is more valuable than most nearby homes, a remodel has the potential to be a bad investment. The upgrade won’t have a significant impact on your home’s value because appraisers rely on sale prices of surrounding properties (called comparables, or ‘comps’) to determine the dollar figure, and not so much the quality of your new soapstone countertops.

Are home improvement loans a good option?

If you don’t have all the cash you need to cover expenses, we offer a number of renovation loan products and strategies to make it work. They include the FHA 203k loan (rehab loan), cash-out refinancing, home equity line of credit (HELOC) and home equity loan. 

Contact one of our expert mortgage lenders today to see which loan product is right for you!

This article is for educational purposes only and does not constitute financial or mortgage advice. Loan programs, rates, and guidelines may change at any time. All loans are subject to credit approval and underwriting. For guidance tailored to your situation, consult a licensed mortgage professional.