There is a lot to consider when deciding to renovate your house. One of your priorities should be financing and budgeting. It is crucial to know how much you can afford to spend and how to allocate the money.
The greatest challenge of renovating will be staying on budget. Many renovators get heartbroken when they realise that they should spend more than planned. Facing a budget blow-out is a stressful situation; no wonder it’s one of a renovator’s greatest nightmares.
The good news is, with proper planning and coordination, you can keep your budget in check and ensure the success of your home renovation.
Here, let’s look into all the things financing and budgeting-related, plus expert tips to help you avoid budget blow-outs. May these tips help you tackle the renovation project that you’ve set your heart on and still be ready to handle unforeseen surprises.
How much are you willing to spend?
This question is one of the hardest to answer, but you’ll easily know the answer by first asking yourself:
Are you renovating your forever home or are you renovating to sell?
It is easier to see how long the string is when you know the purpose of the renovation.
Homeowners who are renovating their own homes often maximise their budget, and are often okay with overspending a few thousand dollars to get the look they want.
On the other hand, homeowners who are renovating to sell tend to spend conservatively to avoid overcapitalising or spending more than how much you can sell. To avoid this, try to allocate around 5% of the current value of your property as your renovation budget. Go for projects that will give you the biggest return on your investment as well.
Either way, it is crucial to establish how much you are willing to spend on your renovation (unless the sky’s the limit on your budget).
How to fund your home renovation
Now that you know how much you are willing to spend, it’s time to find ways to raise capital. According to Your Mortgage Australia, there are lots of loan options for renovators. You can fund your renovation project through:
- Home equity loans – The most common and is often the best option because several banks allow renovators like you to borrow up to 80% of the house’s value.
- Mortgage refinancing – Here, you swap an existing loan for a new one, ideally a better deal or something more suitable to your current financial situation. If you are going to refinance your mortgage, keep in mind the other fees you need to pay.
- Construction loan – This type of loan works like a home equity loan, but some lenders release funds in stages.
- Personal loan – Unsecured personal loans often have higher interest rates than a mortgage and are payable up to seven years. Secured personal loans, on the other hand, are payable over a longer period of time at slightly lower interest rates than an unsecured loan.
- Credit card – You can use your credit card to purchase the things you need to renovate your house. Consider applying for a low-interest credit card before your renovation, also plan how you want to pay off these credit card debts.
- Bank overdraft – Line of credit or equity line loans are great because interests are charged on the amount you still owe, not on the total loan amount.
- Cash – There are homeowners who save up for their dream renovation. Others borrow cash from relatives and friends to complete the fund needed.
- Renovate now, pay later – Dreamspace provides customers with a flexible design now, pay later payment solution where you can start your project today with no deposit, no interest and no repayments until your design project is complete.
Establish your budget
After raising the capital of finding the source of funds comes the greatest challenge of renovating: budgeting and staying on budget.
As a renovator, it is a challenge to allocate the money wisely so you can complete the reno without running out of funds.
No worries, you can overcome this with a little shift in mindset during the planning phase. Focus on how you want to spend on your renovation first before tallying the total costs, then work backwards in case you need to cut costs.
Here’s where working with design specialists such as architects and building designers becomes an advantage during the early planning and budgeting stages. These design professionals can design according to your budget, and provide you with advice that will truly help you save time and money.
Always disclose your budget to your designer so they can properly design to budget and help you plan how and where to spend the money.
To double-check future construction costs, request a preliminary building cost estimate from one of our Project Consultants. We will roughly calculate how much you need to renovate so you know how much you have to spend in advance.
Set aside contingency funds
As you may know, renovations are complex and full of surprises.
Unforeseen issues might come up and most of them will incur extra costs. You must prepare for these. Have a buffer to avoid sacrificing your original plans or taking more money from your savings.
Without a contingency fund, there is a possibility of delaying the project due to the lack of funds.
The best practice is to prepare around 10-20% of the total project cost for incidental expenses and repairs.
Most of these surprise costs get discovered during the construction phase. However, a good designer can help you pinpoint issues that might arise in the future.
Experienced design and construction professionals can give you a heads up regarding possible underlying problems to help you anticipate extra costs so you can avoid going over budget.
Tips to avoid costly renovation mistakes
Almost all renovators want to cut costs and avoid budget blow-outs. Here, let’s look into the most common issues and mistakes that first-time renovators make, plus some tips on how to avoid them:
Plan your demolition job carefully. Identify which parts should stay and which parts to knock down to make way for the renovation. You wouldn’t want to damage or take down a part of the property that you need to fix and rebuild later.
Make sure that your demolition is carried out well. When not done properly, you might end up doing more damage than intended. You might end up wasting serious money to fix demolition errors.
No two renovation projects are the same. It is crucial that you conduct a property inspection from the onset to know how much work needs to be done and what possible issues need to be addressed. Anticipate the problems so you can include the rectification into your renovation plan.
On the final home design
Many rookie renovators make the mistake of changing their minds regarding the new home’s structural design. Changing one or a few things on your plans means more work and will incur extra costs. The related works will likely get affected too.
Always finalise the scope of work before working on the planning drawings and before construction. You can still change your mind, but with minute details like paint colour or a piece of furniture.
On monitoring the expenditure
Keeping your budget on track throughout the renovation process is an essential part of planning your renovation. It is crucial to monitor your spending to avoid running out of money.
Prepare a detailed and realistic budget breakdown, so you’re less likely to exceed it during construction.
Take note of where every dollar gets spent on your project. Many homeowners list down how much money they plan to spend on big-ticket items, but forget to factor in the little costs. These add up quickly and often surprises the renovator.
So… how much should I prepare to renovate my house?
The final cost of your renovation will depend on several factors.
Here at Dreamspace, we have three ways to help you answer this question and ensure you’re building within your budget:
First, determine how much your renovation costs when you ask us to quote your project.
This preliminary design quote will pretty much give you an idea of how much your renovation costs.
Then, take advantage of Dreamspace’s Building Cost Estimation Calculator, which you can use to roughly calculate the final costs.
This calculator will help you monitor your total project costs as the project progresses and will ensure that your plans are still within your budget.
Lastly, get build tender estimates from Dreamspace’s Partner Builders via the project coordination dashboard as well! Here, you’ll see how builders roughly calculate how much your project will cost. Feel free to get two to three estimates; we’ll help you compare quotes from various builders before coming up with a decision.
When you register to Dreamspace, you’ll be equipped with all the tools you need to anticipate the final costs and keep your reno within your budget. Make use of them as you plan and coordinate your renovation with design and construction professionals.
Expert advice to renovators
Whether you are renovating your home to:
- improve its look and feel
- improve its functionality
- improve your quality of life, or
- increase the property’s resale value
Know that you don’t need to spend so much to get the home you want. However, you need to allocate funds on the right home improvement projects.
Budget wisely; know where it’s wise to splurge and save.
Work with design and construction professionals to save you from the hassle as well.
When planned and executed right, a home renovation that costs around a few thousand dollars might give you the biggest return on investment.