Budgeting tips when renovating
You've taken out your construction loan for renovations and you're ready to start bringing your new home designs to life. But home improvement projects cost a lot of money which is why it’s important to have a renovation budget. It means you can better monitor your expenditures, and make more financially reasonable decisions.
While a budget is beneficial in many ways when doing a home renovation, there are still instances where you may go over budget along the way. To avoid over spending, we have listed five effective tips on how to stick to your renovation budget:
1. Know what you want
It’s difficult to make a budget when you don’t have a concrete plan of your home renovation. Are you going to renovate the kitchen, the bathroom, your bedroom, or the entire house? A plan will give you an idea on what kind of materials you need to spend on. The more specific and detailed the plans are, the better you can stick to your budget.
2. Be realistic about what you can afford
Now that you have created a detailed renovation plan, it’s time to find out what you can afford in regards to the materials you will use. For instance, you want the expensive marble countertop which costs $2800 per square metre, instead of the reasonably priced soapstone countertop that costs roughly around $2000 per square metre. If you can afford to buy the marble then go for it, but if you can’t it just make sense to consider the more affordable option.
3. Get at least three quotes
There can be huge variations in building and renovating a house costs. Don’t be fooled into thinking the most expensive builder will do the best job. Some people simply charge more because they always have and because they can. Others who are just as experienced will often charge considerably less.
The only way to know if you’re getting a fair price is to get a minimum of three quotes from three different builders, preferably sourced through word of mouth recommendations.
Chances are your friends, family or colleagues also got several quotes when they did their own renovations and chose accordingly.
If they’re recommending them, it also means they had a good relationship with the builder, which is a huge plus when it comes to renovating a house.
4. Don’t forget to add a buffer
As they say, expect the unexpected. Leave room for your forecast costs to blow out at least 10% to 20% to give you adequate room to play around just in case of an unexpected event. Everyone should have a contingency plan when doing a home renovation to avoid going over budget as much as possible.
5. Always communicate with your builder
You might have hired a builder, a tradie, or an architect. Their roles are significantly different from one another, so make sure you communicate with all of them consistently so all parties are well-informed in regards to your home renovation project. This will stop them making unplanned decisions that can break your budget, and to also help you be informed about the latest changes.
6. Hire the right builder
There are several things you can do to choose the right builder, such as:
- Asking for a complete quotation and comparing different builders with each other.
- Looking for relevant experience and credentials.
- Making sure that they have structural warranty and home builder’s liability insurance.
- Reading the fine print of the contract before committing to a builder.
Make sure that you monitor your renovation budget throughout the process, from beginning to end. This will allow you to keep track of your expenses and stay on budget as much as possible.
7. Take advantage of your tax return
It’s tax time and we all know what that means! More money back in your pocket. It’s important you don’t let it go to waste by blowing it all online shopping - consider spending it wisely by adding it to your renovation budget.
8. Affordable fixes
There are lots of affordable fixes you can make that will have a huge impact on the look and feel of your home. Simple things like repainting the walls, changing the light fixtures, putting in new flooring, repainting cabinetry and even changing the handles can make a big difference.
9. Consider using equity
Equity is the difference between the market value of your home and your remaining home loan balance. Put simply, it’s the value of what you currently own in your home.
If you want to fund a big-scale reno, you can use your existing home equity to top up your renovation budget by applying for a ‘Home Equity Loan’. To find out how much equity you have in your home, you may need to get a property valuation done through your lender.
They will also assess your current loan to value ratio (LVR) to ensure some equity is held as security for the loan. This can also help you determine how much equity is left after refinancing.
Applying for a home equity loan is very similar to applying for a regular home loan. Lenders will take into account your income, expenses, your credit history, borrowing capacity, and the market value of your home.
10. Consider doing some of your renovations DIY
Fancy yourself as a bit of a handyman (or woman)? If you’ve ever watched The Block, you’ll know that even the most novice renovator can easily do a bit of painting or simple tiling to save money.
Remember to always use the professionals for plumbing, electrical and structural work though, as getting this wrong can be extremely costly and dangerous if you don’t know what you’re doing.
11. Don’t overcapitalise
There is no point putting a high-end kitchen or bathroom or anything for that matter in an older home if you don’t plan on renovating the whole thing.
Even then, you need to be very careful not to over capitalise – that is, spend more money on your renovation than what your house would be worth. There is no point in doing luxurious renovations on a home in a relatively modest suburb where its value will be limited by the price of other houses in that area.
Think about the whole house too and whether your new additions will complement or clash with your home’s existing features. Timber framed windows might look great on your new extension, but cheaper aluminium framed windows might be a better choice for a more cohesive look on an older home.
Sometimes modern fixtures really only suit modern homes, so think about it before automatically going for the newest or latest look.
Are you starting a home renovation soon? You can check out our construction loan products to get you started building or renovating your dream home today!
