Budgeting 201

Guide to a Home Renovation Budget

November 28, 2023

If you’re considering a home renovation, congratulations!  It’s exciting to dream about changing your home to meet your vision.

The “thinking about it” stage is also the perfect time to create a home renovation budget, ensuring your renovation meets expectations and stays within the amount you can spend.

Unless you’re a pro, how to budget for home renovations is likely new to you. You’ll want to plan your home renovation, detail it out, and do your research. Thankfully, there are plenty of great resources out there to help you.

In this article, we’ll look at the benefits of budgeting for home renovations, a budget’s key components, and a step-by-step plan to create the budget. We’ll also cover budgeting strategies and financing options.

Benefits of Creating a Home Renovation Budget

The best way to prepare for a successful home renovation is to start by creating a budget.

We’ve all heard the scary stories of projects that go way over budget, take months longer than expected, or become a nightmare.

But a house renovation budget can set you up for renovation success from the beginning. Since creating a complete renovation budget requires answering lots of questions and deciding on lots of details, the process itself can be helpful, allowing you to work through lots of challenges up front and on your own time.

A renovation budget can also give you better control over the project and any necessary changes, whereas realizing you have a problem during the renovation can add complications, like a later project completion, costs for contractors or rework, unavailable materials, and lots of stress.

Have you considered how to renovate a home on a budget?  If you’re doing your home renovations on a budget, creating a document with all your budget details is very important, as it is the best tool to keep you from accidentally overspending.  You’ll want to create a budget you can stick to.

It may not sound like fun to create a detailed renovation budget. But it’s much better than running into problems later – or worse, unexpected debt.

Key Components of Home Remodel Budget

To put together your budget, you’ll want to be sure to include ALL your costs, from permits to materials to labor.

Be sure to include…

  • Labor (approximately 20 to 35% of a project’s budget)
  • Fixtures & finishes – includes paint, knobs, lighting, faucets, sinks, tile, flooring, etc. & any shipping
  • Appliances – include installation, delivery, & disposal if applicable
  • Living expenses during renovation, if applicable

Some experts suggest creating a spreadsheet to track the budget, with sections for each part of the project. You may be able to use a budgeting app to track your project budget.  You can use resources like HomeAdvisor to help you estimate labor costs, or you can figure it generally at the high end (35% of the budget) and then add elements back into the project if you’re able to save on labor.

You’ll want to choose all the fixtures and finishes now. Note the source/product brand and the product number, color, and quantity needed – determine prices now and add them to the budget. Include taxes and shipping costs.

Materials may also include paintbrushes, grout, paint, tape, sandpaper, or drop cloths. If you want the contractor to cover your carpets in plastic, seal off areas under construction, and do other protective work, be sure to include those items too.

This is also when you’ll want to choose your appliances. See if you can get the seller to deliver, install, and take the old appliance(s) at no charge. Places like Habitat for Humanity’s ReStore may also be willing to take old appliances for reuse.

Lastly, if being displaced from your kitchen or other remodeling space means you need to live elsewhere, rent furniture, rent an appliance, or anything of the sort, be sure to include this in the budget now.

To ensure your cost estimates are as accurate, check with several vendors. Use online resources to understand pricing for services and bulk materials.

And remember, you should always add a 15% to 20% contingency amount. That means taking 15% to 20% of the amount you’ve decided you can spend and setting it aside; the resulting number is the amount you can plan your project budget with. The contingency amount is there to protect you if the project runs over cost; it should be set aside up front, not included in your spendable amount. Consider putting the contingency money in a separate savings account for safekeeping, so you can’t unintentionally or impulsively spend it before you need it.

Step-by-Step Guide to Creating the Budget for Home Renovation

To plan a home renovation and create a comprehensive budget, follow these steps.

  • Decide How Much to Spend. Start with the amount you can comfortably spend then subtract your contingency. The resulting number is the amount you should budget with.
  • Determine Financing. If you’re going to borrow money to finance your renovation, now is the time to finalize that decision.
  • Choose Projects/Priorities. Ask yourself why you’re doing the renovation. Most people undertake renovations to make their homes function better for them or to increase the value of their homes. Once you understand your “why,” create a list of everything you’d like to do, then separate that list into needs and wants.
  • Research Costs. Next, create a detailed plan that includes the expected costs to accomplish your project needs. Once you have this ballpark, you can determine if there are funds remaining for any of your “wants” to be included.
  • Choose Contractors. Find local companies with many good reviews on multiple sites (Angi, HomeAdvisor, Google, etc). As you evaluate them, ask each contractor for five or more references. Interview their references and visit those projects, if possible. You can find lots more advice on evaluating and choosing a contractor online, so do your research.
  • Solicit Bids. Ask at least three companies for an estimate on your project. Prioritize past performance and communication skills, not just the estimated price, to select the best partner for your job. If one bid is much lower than the others, disqualify it.

Home renovation budget templates and tools are available online these days for creating your renovation budget. These can be very helpful provided you don’t get overly attached to them. Compare several templates to understand what might work best for you, and don’t be afraid to create your own version with the best elements of different templates. Start with templates and tools from reputable sources.

Smart Budgeting Strategies

Look for tips and tricks to optimize your budget, like finding cost-effective materials. If you can’t tell the difference between an inexpensive option and a pricey one, or the difference doesn’t bother you, choose the affordable one. More tips:

  • Consider scratch-and-dent appliances or discontinued models (just ensure you buy extras for any discontinued items, like tile, knobs, or flooring, just in case you estimate incorrectly or an item is flawed).
  • Consider doing your own demolition to save money. If you do this, be sure to ask the contractor to show you if they need anything special done to prepare the space. It’s better to ask than to make assumptions and create a new problem to be fixed.
  • Photograph and donate used materials or appliances, which you can then deduct on your taxes.
  • Think about ordering fixtures and finishes yourself where it makes sense.  Items delivered directly to your home may get less wear and tear from being shipped multiple times. You may be able to get free shipping. Plus, you know the materials are on-site when they’re needed.
  • Do your own painting. If you’ve never painted or don’t trust your shaky hands, watch a few instructional videos from the pros before deciding to paint it yourself.
  • Shop for used items. The ReStore and other used furniture/remodeling stores, Facebook Marketplace, craigslist.com, and other resources may be helpful if you’re willing to buy used. Sometimes you can even afford something a little nicer by buying used.

There are lots of little ways to save.

Financing Options

There are lots of ways to finance a home renovation. It’s always best to save up cash if you can since you won’t have to pay any interest or add debt. You could even use your tax refund for cash funding.  But there are alternatives for those who need to finance their renovation.

Options may include:

  • Installment loans (also known as personal loans)
  • Home equity line of credit (HELOC)
  • Home equity loan (also known as a second mortgage)
  • Cash-out refinance
  • Credit cards
  • Government loans

To choose the best option for you, you’ll want to have this information ready:

  • Your credit score
  • Your total project budget
  • The monthly amount you can afford in your budget
  • How much cash you have from savings, if any
  • The percent equity you have in your home
  • How much time you need to pay off the renovation amount
  • How quickly you need the funds

All these elements will factor into which financing option is right for your renovation. Keep in mind, that you may or may not qualify for all these options, since eligibility is affected by your credit score and other factors.

See How to Finance Your Home Renovation for a detailed explanation of financing options.

Your renovation budget is a major tool in keeping your renovation on track and eliminating extra stresses. While it may require work to put one together, it’s worth it.

Apply For an Installment Loan

Home Renovation Budget

How do I calculate my budget for a home renovation?

Refer to the section above called “Step-by-Step Guide to Creating the Budget for Home Renovation” for more information.

How much should you save for a home renovation?

There’s no single answer to this question because it’s important to consider your unique challenges and financial situation. While it’s ideal to save up the entire cost of a renovation, this may be difficult for large projects or people with financial challenges.

Can you spend too much on a renovation?

Yes! Experts say you should think about remodeling expenses as a percentage of your property value. According to Forbes, remodeling for a single room shouldn’t cost more than 10% of your house’s value, though kitchens sometimes cost 15%. Generally, you want to remodel in ways that add value to the home so you can recover your money when you sell.

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