Budget for a Remodel


Budget home remodel in a living room
Image: Anne Canright


Follow this four-step plan to arrive at the answer.

1. Ballpark the Costs


2. Figure Out How Much You Have to Spend

Once you've zeroed in on a project, the next question is whether you have the money. If you're paying cash, that's easy to answer. But if you're borrowing, you need to assess how much a bank will lend you and what that loan will add to your monthly expenses.

There are three basic types of loan options:

  • A cash-out refinance
  • A home equity loan
  • A home equity line of credit (HELOC)

For the vast majority of homeowners, the best way to borrow for a home improvement is a home equity line of credit. A HELOC is a loan that's secured by your home equity, which means that it qualifies for a lower rate than other loan types, and you can deduct the interest on your taxes.


For help shopping for a HELOC, download our free worksheet.

The catch is that the minimum payment on a HELOC is just that month's interest; you're not required to pay back any principal. Like only paying the minimum due on a credit card, that's a recipe for getting stuck in debt.

Instead, establish your own repayment schedule. You can do this by paying 1/60th of the principal (for a five-year pay down) or 1/120th (for 10 years) in addition to the monthly interest. If you can't afford that much, then you should reconsider your project.

Related: 6 Ways to Pay for a Remodel When You Can't Tap Home Equity

3. Get Quotes from Contractors



  • Ask to see their recent work
  • Check references
  • Look at online sites that provide peer reviews of contractors

Related: 5 Essential Questions to Ask Before Hiring a Contractor

Reality Check: Cost Overruns

Take the winning contractor's bid and add a 15% to 20% contingency for the unforeseen problems and changes that occur on every project. Is the total still within your ability to pay? If so, you're ready to get started. If not, it's time to scale back your plans.

4. Set Priorities and Trim the Project to Fit Your Budget

Dreams and budget not in alignment? Carefully scale down your dream -- chances are you'll end up satisfied and solvent. Enlist your contractor for suggestions on cutting costs -- that way, he'll be an ally in helping you stick to your budget.

Possibilities include:




Buy it yourself. You'll save up to 20% on your project costs if you buy materials and appliances yourself. Be sure to coordinate your BIY efforts with your contractor.

Oliver Marks
