How Much Can You Afford to Spend?

Right At Home Daily:

Planning and Budgeting

Paying for remodeling or renovating a home is easy -- if you have the cash to plunk down.

The truth is, most of us have to borrow cash to finance our home improvement projects.

Ultimately, your home improvement budget should boil down to two things: What you can realistically afford to spend rather than how much you can borrow; and what level of amenities and condition the neighborhood standard will tolerate.

To figure out how much you can realistically afford to spend, make a list of all current expenses, from your mortgage and insurance payments to food, schooling, travel and entertainment.

Take stock of your savings. A detailed family budget will tell you how much money you have to comfortably devote to monthly loan payments. Then you can choose a figure you can live with instead of spending more than you can afford.

The second issue to consider is what price home buyers will pay for a home's condition and amenities.

Don't put more money into your home than you can expect to recover should you decide to sell it. Ask your real estate agent to help you price homes in the neighborhood that are in the same condition, with the same amenities, as you're looking to create with your renovation project.

Looking at local home values will help you set the budget for your improvement projects.

In a healthy real estate market, the general rule is to avoid making improvements that will increase your home's value to more than 20 percent above other area homes.

In a sluggish market, avoid pushing the remodeled value above the area's average value. In a neighborhood with mixed values, hold the value below the top values, regardless of the state of the real estate market.

To establish neighborhood values, check real estate sales ads and listings of recent sales in local papers, or ask the agent who helped you buy the home to put together a comparative marketing analysis, which looks at homes similar to yours that have recently sold in your neighborhood.

TAKE IT AND RUN
1. Remember, a lender might allow you to borrow more than you will feel comfortable paying. Figure out the numbers in advance to avoid getting caught in a financial pinch.

2. Home improvement projects always cost more than you think. Be sure you factor in an extra 20 percent in overages when planning your budget.

Need help with your project costs? Visit our forum for advice from other DIY-ers.