Budgeting for Remodeling Projects

Ok you have decided to remodel parts of your home – creating the dream kitchen or bathroom is very exciting however paying for the remodel is an important concern that you have to look at.  Here are some tips for your financial plan for major remodeling to consider:

  1. Get everything in writing before you make any decision. It‘s vital for you to nail down the payment terms and be vigilant in enforcing them.  A good contractor will work with you towards a reasonable payment plan that includes a fair amount for a down payment and payments that are tied to the progress of the work.  If you can negotiate a provision in your contract that allows you to withhold a final segment of your last payment until you are completely satisfied with the job.
  2. Financing options – if you cannot pay for the remodel up front there are a few options you can look at. Look into a home equity line of credit, home equity loan or cash-out refinance. A home equity line of credit is a revolving line of credit – sort of like a credit card that typically requires at least 20 percent equity.  A home equity loan or second mortgage is usually a fixed rate and fixed term loan based on the equity in your home and paid in monthly installments. Cash-out refinancing is the refinancing of your existing mortgage loan.  This is a loan for a larger amount than your current loan, and the homeowner gets the difference in cash.
  3. You should shop around for the best terms.  It is not necessary to go with the bank that holds your primary loan.

You should assume a 10 percent buffer zone for unexpected costs – you should always expect the unexpected. Having a contingency budget is advised as it will save you many headaches that come with additional costs.

Remember home improvements that enhance your home living experience is always a good thing and most probably will raise the value of your home when it comes time to sell.

When looking for contractors it is very important to get recommendations.  Contact your Realtor – they always have lists of contractors that are reliable and trustworthy.

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