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By Kate Streit
Deciding to remodel your home is a big undertaking. Whether you plan to DIY it all, hire professionals or go for a blend of both, a home renovation will take considerable time, effort, planning and money.
Before you jump into such a large-scale project, it’s important that you set a clear budget. And remember —it’s essential to plan for unforeseen costs. Something is bound to not quite go according to plan along the way, so a good rule of thumb is to allocate 20% of your budget for unexpected expenses.
Once you have an idea of your total remodel costs, you can get to work on figuring out how you’ll finance your new and improved home. Here’s how to make it happen.
When saving for a specific goal like a home renovation, it helps to be very clear about what you’re saving for. It’s a lot easier to stash away extra cash when you know it will result in a tangible reward.
With that in mind, consider naming your supplemental savings account in honor of the goal, like “Revamped House Fund.” Each time you put in a deposit, you’ll get excited thinking about how great your new digs will be.
A high-yield savings account is a great way to quickly amass the nest egg you’ll need to launch your renovation.
If you get biweekly paychecks, months when you get an “extra” paycheck can be perfect for adding to a savings goal. On a biweekly schedule, “bonus” paychecks should come in January or July or May and October in 2020.
Check your calendar and plan so you can put most, if not all, of this extra money in your renovation fund. Because you’re used to living on two paychecks a month, you won’t feel the “sacrifice.”
When you decide to renovate your home, you don’t have to go all or nothing. Focus in on a few major areas that could use a refresh, and you may want to consider those home improvement projects that offer the biggest return on your investment.
Whether you’re planning to sell in the near future or it’s a more distant possibility, certain projects —like minor kitchen revamps and manufactured stone veneer —will offer the biggest bang for your buck. When the time comes, you’ll be glad you thought ahead about the payoff potential of your investment.
A HELOC, or home equity line of credit, is a loan that leverages the equity in your home. A HELOC is a great option if you’ve built up a good amount of equity and could use some major repairs or renovations.
You can borrow the amount you need when you need it, much like a credit card, so you can adjust if the scope of your project changes. Make sure to do your research about the different HELOCs available, and pick the one that makes the most sense for you. There are both fixed-rate and variable rate HELOCs, and there are also interest-only HELOCs.
If you haven’t built up enough equity or otherwise don’t quality for a HELOC, a personal loan is an alternative.
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