How Much Home Renovation Can You Afford?

Source: iStock

Source: iStock

This piece was written by Lending Club.

There are a lot of great reasons to remodel your home. Certain updates can add value to your home. Some home improvements can solve a problem, like a leaky roof. Or maybe you’ve outgrown your home and want to add some extra space. But how do you know if you can afford your project?

Start with an estimate of how much the project will cost.

Although there are online calculators that can help you put together a rough estimate of what your home improvement project will cost, you’ll get a more accurate estimate if you have two or three local contractors come to your home and provide an estimate for the job. Make sure you provide each contractor with a detailed description of the improvements you want to make so that you get as accurate an estimate as possible.

Source: iStock

Get a clear picture of your financial situation.

Once you have a general idea of what your project will cost, it’s time to figure out whether you can afford it. Start by taking a careful look at your current household budget; or, if you don’t have a budget, make one using a free online budget calculator or a printable worksheet.

Think about how much you have in savings and how much of that money you could comfortably put towards the cost of your remodeling project. Keep in mind that it’s smart to keep at least a few months’ salary in your savings as an emergency fund in case you lose your job or can’t work for a while.

If you don’t have a lot of savings and aren’t planning to start your project soon, you can open a savings account and start saving money to help pay for the project. One easy way to make sure you keep up with your savings plan is to have a set amount automatically deducted from each paycheck.

Luxury bathroom interior

Source: iStock

Does a loan make good financial sense for you?

If your project is a costly one, you probably won’t be able to save all the money you need in a timely manner. To make up the difference, you can take out a loan. Before you borrow, however, check your household budget to see whether you have enough money left after paying all of your current bills to make the monthly loan payments.

Next, shop around and check the interest rates and monthly payments on different types of loans from different lenders. There are several different types of loans that may fit your situation, including personal loans and home equity loans. Many lenders are happy to provide you with a quote that shows you how much you’d pay each month and what fees you’d pay as part of the loan application process.

If the monthly payments don’t fit into your budget as comfortably as you’d like, consider either waiting until you’ve saved more so you can borrow less. Or, go back to the contractors who provided the quotes and ask them what changes you could make to the project to lower the cost.

If you gather all this information before you make a final decision about remodeling, you’ll be better able to avoid overextending yourself financially.

This article is intended to provide generalized information to assist the general public in making financial decisions; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

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