Remodeling Instead of Moving? Develop a Realistic Remodeling Budget

Many people are electing to remodel their houses rather than move. If you’re thinking about starting a remodeling project, you should first develop a budget. After all few things cause more quarrels and tension than money. Luckily, developing a budget for your remodeling project does not need to be nerve-wracking or start a family war in your living room. Remember these simple tips from The National Association of the Remodeling Industry (NARI).

Determine What You Afford

This establishment alone can strike fear into a remodeling homeowner's heart. The truth is, not many homeowners enjoy establishing a remodeling budget—and many simply don't. How do you start off on the right foot? You can begin by taking these three easy steps:

1. Keep a reserve
2. Keep change orders to a minimum.
3. Remember that a phrase like "while you are at it, will you...?" will add cost.

Keep a Reserve

Once you determine how much you can afford to spend on a remodeling job, decrease that amount by 10-20%. This reserve should be put away to cover any change orders or incidental charges accrued along the way, which will prevent a frantic scramble for additional funds at the end of the project.

Say No to Unnecessary Change Orders

It is easy for a homeowner to say, "A little more on this fixture doesn't matter. It's very little money." Unfortunately, having that attitude also makes it easy to overextend a prepared budget.

While it's rare that any remodeling project proceeds without a single change order, homeowners can keep them to a minimum by sticking to their original plans. A change order is a written document detailing any requests to alter, change, or remove any items found in the contract or project. There are three key origins of a change order:

1) The homeowner initiates one because they have changed their mind about the design or a specific product.
2) Unexpected damage (from termites, for example) was found.
3) A code violation is uncovered that affects the project.

While You're At It...

A phrase like "while you are ___, could you just ___" can annihilate a budget. While it's tempting to a homeowner to have their remodeling contractor complete handy work, it's good to remember that any work not specified in the original contract will have an additional cost attached to it.

Financing

Some homeowners obtain financing for a remodel, especially for larger projects. There are various financing plans readily available to homeowners, among the most popular being the home equity loan, which bases the loan amount on the equity in the home.

Federal Housing Administration (FHA) loans specifically for home improvements are available through many banks and lending institutions. The FHA requires that the contractor be approved by the lender; but proceed with caution; that in itself does not guarantee the contractor's work. Other financing options include personal loans and credit card loans.

Whichever financing a homeowner obtains, it's recommended they stick to it. If the budget is "x" and reserve fund is "y," don't be afraid to tell the contractor that these are the budgetary parameters.

A professional remodeling contractor is familiar with the many financing options available and can frequently be of assistance in putting a homeowner in touch with various options, but it's recommended that homeowners do their homework on the available options.

 Article provided by CU Village.com through its Financial Resource Center content product.