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How to Budget For Your Next Home Renovation

In 2020, Americans spent much more time than usual working, eating and entertaining themselves inside their homes. That’s due in no small part to the COVID-19 pandemic. One study by the U.S. Bureau of Labor Statistics found Americans spent 10 waking hours a day at home in 2020; in 2019 it was less than eight hours a day. That meant Americans also had more time to scrutinize their spaces — which has led to a serious home improvement boom. Spending for nearly every kind of home improvement and renovation project, from painting and other minor facelifts to a complete home renovation, grew nearly 3% to $420 billion in 2020, and it’s expected to grow another 4% by the end of 2021.

father and daughter painting a wall in home

Home renovation costs
Even basic home renovation projects don’t come cheap:
  • Living room: $2,500-$5,000 for design work, painting and flooring
  • Bedrooms: $1,500 to $5,000 for flooring, trim and moldings, ceiling fan and painting
  • Kitchen: $5,000-$20,000 for mostly cosmetic renovations like updating countertops, light fixtures, flooring, backsplash, refacing cabinets and painting
  • Bathrooms: $2,500 to $15,000 for a standard bathroom remodel; renovating a master bath costs $10,000 to $30,000
Again, these are ranges for what are considered just basic room renovations. Some estimates put whole house renovation costs at $15 to $60 per square foot on average. Remodeling only a kitchen or bathroom runs $100 to $250 per square foot.

Something else to note: A 2019 U.S. Houzz & Home study showed that over 70% of homeowners who remodeled their homes went over budget. Which is why budgeting for these costs is a crucial place to begin any home renovation or home improvement project.

How to budget for home renovation costs
  1. Have a firm plan. You may think you’re just replacing the bathroom vanity. But then the fixtures in the shower won’t match, so those have to go. But you now notice the cabinets need updating. And now, everything clashes with the flooring. Your budget just ballooned thousands of dollars.Start by writing down all the home renovation projects you want to complete and price them. Then get at least three bids (more isn’t a bad idea). Once you know the costs, rank them according to priority and begin a detailed budget of the project you want to start first. You can get a good idea of costs with an online remodeling calculator.
  2. Create a realistic timeline. Getting bids and estimates takes time; getting the work completed also takes time. Usually, it takes longer than you expect. Talk with people who have completed similar projects, and ask them about their experience. Talk with your contractor about how they schedule for projects. Availability of materials may significantly impact the timeline, too.
  3. Set your ceiling. Home renovations can add value to your house. But you definitely don’t want to over-improve by making renovations that won’t return the investment. A good rule of thumb is to spend no more on each room than the value of that room as a percentage of your overall house value. A kitchen usually accounts for 15% of the home’s value, so if your home is worth $200,000, spend no more than $30,000 on your renovation.
  4. Decide how you want to pay for your home renovations. If you’re doing some small cosmetic updates, like painting your rooms and changing out wall plates, you’ll probably just save money and pay cash. A personal credit card could also be a good choice. But you have lots of options to help you pay for renovations. The key is figuring out which works best for your project and your budget:
    1. Saving up for smaller home remodeling projects is a good way to stay on budget — and if you don’t have immediate plans to remodel or renovate, your money can grow as you put together your home renovation strategy. Open a separate and dedicated savings account at your bank and transfer a set amount into it with every paycheck.
    2. A zero-percent annual percentage rate, or 0% APR credit card may be a good option to keep you from dipping into cash reserves you’ve saved for emergencies. But pay close attention to how long the 0% APR is offered to you. Once that promotional period ends, you’re paying the usual APR on the card for any future purchases. For some cards that can be as high as 25%.
    3. A cash-back credit card can maximize your rewards, but be sure to read all the fine print. Some cards require you to pay the balance in full every month to get cash back.
    4. Home equity loans might be the way to go if you need a lump sum of money and have at least 20% equity in your home. These types of home loans, also known as second mortgages, may offer you a competitive interest rate, and interest may be tax-deductible.
    5. A home equity line of credit is a bit different than a home equity loan. You might choose this type of loan if you need less than $25,000. Typically you can borrow the money as you need it and pay as you go. Learn more in "How Long Does it Take to get a HELOC?"
  5. Do some of the work yourself. Labor costs can account for approximately 35% of your renovation budget. One way to stay on budget with your home renovations is through “sweat equity.” Look at where you can do some of the labor on your own, whether it’s removing cabinets, setting the bathroom tile or doing the painting yourself.
First National Bank and Trust Company can help. Our team members have helped many homeowners finance their home renovation and remodeling projects. They’re here to help you learn your options and choose the best option for you. Find a branch in Southern Wisconsin or Northern Illinois, or contact us to learn more.