How to Budget for Home Improvements and Repairs

Paint and ladder

Guest Post by Mission Federal Credit Union

Anyone who has started a large home project knows that budgeting properly is everything. Your budget ultimately decides how much you can do, how quickly you can do it and at what price-point. Your budget will be one of the driving forces behind the contractors you hire to do the work and the materials they use to finish the job. Everything comes down to the amount of money you’re willing to spend.

Yet, budgeting for home improvements or repairs can feel like an uphill battle. Even when you think you know how much a project will cost, it inevitably goes over budget, over your timeline, and sometimes over your stress threshold. How can you set a practical budget for home repairs or improvement, while still being realistic about the surprise costs that can arise? Here are ten tips to help you set your expectations and budget:

1. Start with a preferred budget and set a maximum cap for unseen issues

It’s always possible to do more and spend more money, but that’s not practical for most people. Start by going through your finances and deciding what you’re willing to spend and where your limit is. It’s easy to be allured by the possibility of all the new updates, but you don’t know exactly what things will cost until the work begins. For that reason, stay on the conservative end of your budget and make it clear that you won’t go above a certain price.

2. Research the best way to pay for the work

Few of us have the cash at hand to pay for renovations or home repairs outright. You’ll probably need to pay with credit or a loan, so think carefully about which options work best for you. You might be able to use a credit card depending on the project. Keep your credit card limit and the interest rate in mind before deciding to max out your card. If you’re a homeowner, you could consider taking out a home equity loan or a HELOC (Home Equity Line of Credit), both of which allow you to borrow against the equity you’ve built in your home. A home equity loan is ideal for items like a new roof, solar panels or all new hardwood flooring, because you know approximately how much it will cost before you start the work. A HELOC, on the other hand, works well for ongoing repairs and a bathroom remodel (pricing out each towel and accessory can get tedious) because you only borrow money as you need it. Look for great interest rates to keep costs as low as possible and consider exploring credit union home loans, like those from Mission Federal Credit Union, for their competitive rates and terms.

3. Consider a Home Warranty

Another option to take care of the cost of home repairs is purchasing a home warranty. Costing typically between $300 and $600 per year with a $50-$100 service fee per trade service visit, you can get coverage for all of your major home systems and appliances. Especially if you have an older home, a home warranty may be worth it and could save you money in repairs. Here is a list of common systems and appliances that top-rated home warranty providers usually cover in their basic warranty plans:

  • Heating system
  • Electrical system
  • Plumbing system
  • Plumbing stoppage
  • Water heater
  • Whirlpool bathtub
  • Oven/range/stove
  • Cooktop
  • Dishwasher
  • Built-in microwave
  • Garbage disposal
  • Ductwork
  • Garage door opener
  • Ceiling and exhaust fans

A home warranty can not only provide peace of mind that you won’t have to pay out of pocket for these pricey repairs, but it can also save you money and free up more money for your desired home improvements. It’s important to note that home warranty companies often allow you to customize your own plan, so you can select the specific home systems and appliances that you want coveraged.

4. Be clear about what you want

Before you meet with a contractor, list your must-have items and your would-like-to-have items, knowing that you may have to sacrifice your wants for your needs depending on your budget. When you’re first meeting with a contractor, be clear about your project goals and expectations. Your largest goal might be to update your kitchen with new appliances and replacing the countertops, while replacing or refinishing the kitchen cabinets might be lower on your list of priorities. Consider all the possible updates you might want to make and let your designer and contractor know where your stopping point is, both in terms of time and money.

5. Consider where you’re willing save money

You’ll also want to consider areas in which you’re willing to forego “top-of-the-line” products to save money. Are you willing to refinish the cabinets rather than replace them? Can you live with the existing faucets or replace them with faucets from your local hardware store and not the designer showroom? Are you able to recycle existing items to save on materials? Also ask the contractors where you could jump in to help complete the work. You might be able to save money by helping with demo, painting, or installation of small items.

6. Finalize the details before the work starts

Many surprise costs arise when you haven’t made decisions about materials or finishings. If you know exactly what you’re buying — hardwoods versus laminate, granite versus polished concrete — and what you’re willing to pay for it, you’ll have a much clearer idea of the total cost.

7. Get a hard quote rather than an estimate

An estimate may give you a rough idea of what a project will cost, but the actual cost can vary quite a bit from the estimate. A hard quote, on the other hand, details the various expected costs and time required for each step of the job. Because of the amount of work that goes into a hard quote, you’ll likely have to pay a fee. However, it’s worth it to have a clear idea of what you’re getting into so you can adjust as necessary. 

8. Stick with a fixed-price contract

Generally, there are two kinds of contracts for home improvements and repairs. There’s a time-and-materials contract, which allows for increases in cost of materials and extra time required for labor on more difficult projects. Contractors usually prefer this kind of contract, because it allows for flexibility and often means the contractor can charge more in the long run. A fixed-price contract, however, begins with a detailed budget agreed upon by both parties. This budget then requires that the contractor carefully consider all costs and materials required to add to the budget. Then, once work has begun, any additional work and costs outside of the original budget must be discussed.

9. Communicate regularly throughout the project

It’s easier to be surprised by costs and timelines when you’re not in regular contact with the people completing the work. Make sure you’re speaking to your contractor regularly so you’re up to date on the project’s progress and know where you stand on your budget.

10. Be prepared to go over budget anyway

Renovations and home repairs rarely stay precisely on budget. There’s almost always a surprise of some kind once the work begins — a problem with electrical, dry rot in the framing, evidence of a leak — so plan on spending a little more than the quote estimates. If you put some money aside under the assumption that you’ll need it, it won’t be as jarring when you have to use it.

11. Keep your end goal in mind

Let’s be honest — it can be tough to live through a home renovation project. Remember why you’re doing the work and what you hope to achieve at the end of it to keep your spirits and patience on the right track. Picturing the “why” of your project will also help you make smart decisions throughout the process. It’s easy to get wrapped up emotionally in the project details and delays. Knowing that your new larger bathroom will help simplify your life, even if the perfect wall mirror is out of budget, will help you choose a mirror that’s just as nice and fits within your budget. 

As you get started on your project, remember that home repairs and improvements can be difficult to budget for precisely because it’s hard to know what you’ll find once you start construction. Be open and honest with your contractor about your budget cap and work with them to keep costs on budget, and remember that communication throughout the entire project is key.

Even after all that, it’s best to plan to overshoot your budget just a bit anyway. Whether you use a Home Equity Loan, a HELOC or another form of credit to pay for improvements in your home, it’s a good idea to meet with a mortgage lender to make sure you choose the right loan for your needs. For home repairs, consider researching top home warranty companies to decide if a home warranty is right for you.

Know your limits and remember your ultimate goal for each home project — to make your home an awesome place to live!

The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided.

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