Unless you’ve built your home from the ground up, chances are there are some renovations and improvements you’d like to make. Maybe you want to re-do your home office so you have a bigger space to develop your business. The biggest hurdle in turning your house into your dream home is the cost of renovations. Here are 5 finance rules that you’ll want to follow before getting started on your upcoming home improvement project.
1. Set a Realistic Budget
One of the biggest mistakes that homeowners make when renovating their homes is not setting an upfront realistic budget. We all dream of having glistening new granite countertops, spotless hardwood floors, an updated exterior and the latest smart home technology. But, what you want and what you can comfortably afford are likely two different things.
The first thing you’ll want to do when planning a renovation is to determine what you can afford. From there you can pick and choose which renovations fit into your budget. While you may want a brand new kitchen, you need thousands of dollars to achieve that goal. Instead of a complete kitchen makeover, you can swap out cabinet hardware, repaint your cabinets, and install new lighting fixtures to change the look and feel of the room.
Undergoing renovations without a set budget is risky. What if you don’t have enough money to finish the project? What if you take out too big of a loan that leaves you strapped for cash for years to come?
Instead of dealing with a potential headache later on, sit down and figure out a budget before starting your project.
2. Consider Your Return on Investment
Unless you plan on living in your home forever, you should always consider your return on investment when deciding on certain home renovations. For example, you’re likely to have a much higher ROI by renovating a popular room in the home like the kitchen or master bedroom. By keeping ROI in mind, you have some assurance that when you sell your home, you can recoup some of the costs.
As you live in your home, be sure to knock out projects that improve your home’s value including:
- Bathroom makeover
- Embracing open floor plans
- Energy efficient appliances
- Fresh neutral paint
While there are some home improvement projects that you’ll want to do for your own wants and visions, it never hurts to know that the improvements you’re making will pay off in the future.
3. Saving vs. Borrowing
After creating a budget, the next financial rule to follow is figuring out how you will pay for your home renovations. If possible, it’s best to pay for your renovations after saving up for them. Setting aside a few hundred dollars a month can add up quickly! Of course, not everyone has the means to save up as quickly as they want renovations to be done, and in this case, borrowing money to pay for home improvements is a possibility.
One of the top options for home is a home improvement loan. Quick home improvement loans are strictly used for home projects and are offered by traditional as well as online lenders. If you go the route of borrowing money to pay for your project, be sure to shop around. Interest rate, APR, and the agreed loan terms all matter when choosing the right loan for your needs.
4. If Borrowing, Pay More Than the Minimum
Many consumers are guilty of paying the minimum payments on their credit cards and loans. While this is convenient because you pay the same amount each month and the payment is typically affordable, a good chunk of your money goes towards interest. Just take a look at your mortgage statements, chances are you’ve paid thousands of dollars towards interest and other fees!
If you take out a home improvement loan to pay for an upcoming renovation, adjust your budget so that you can pay more than the minimum payment. Even paying an extra $20 or $30 a month can save you a significant amount of money on interest.
5. Pay Attention to Repayment Period
Another mistake that homeowners commonly make is signing up for a home improvement loan that goes beyond the span of the renovation. For example, let’s say you want to take out a loan to cover the costs of repainting your home from top to bottom. If you take out a home improvement loan that has a repayment period of five years, chances are you’ll have to repaint your home within those five years, otherwise you’re paying for something that will need to be redone in the future.
Conclusion
There’s no better feeling than having a vision for your house and turning it into reality. Home improvement projects are some of the most exciting parts of owning a home. Further, if you hope to sell your home in the future, it’s important to maintain the upkeep and renovate so it’s at its best condition. But, before you spend money, time, and effort on a home project, be sure to follow these five finance rules.
What is the next improvement project that you would like to start on your home? Leave us a comment in the section below.
