How To Budget & Fund A Home Remodel Project In 2025
Planning a home renovation project? Congrats! Having the opportunity to remodel your home so it’s more beautiful and functional for your needs is always a fortunate thing.
One of the first steps to take for any successful remodel is the project budget. Deciding how much to spend and how to fund it is part of the process, but project management and design also play key roles.
I’ll cover this and more in the post, so read on to learn practical ideas to successfully budget and manage your home remodeling project.
Creating A Budget
Remodel Return On Investment (ROI)
Project Funding Options
Keeping Project Costs Under Control
Designing For Budget Constraints - An Opportunity
Budget
A budget is a must if you want to keep your remodel/design project under control. Decide up front what you can spend on your project. Prioritize your expenditures into “must haves,” “nice to haves,” and “not a priority.” Then pencil out how much all of those items will cost start to finish before the contractor shows up with a sledgehammer.
I start off by creating a spreadsheet where I input line items for each and every element of a project. Any fixed costs go in like materials along with cost estimates (labor and some materials) that are replaced by hard numbers once I have them.
If you’re planning on sourcing any of the materials yourself, (this can be a way to save depending on your labor situation and how you source) you’ll need to calculate square footages for parts of the project to estimate your materials costs. Tile, flooring, paint etc all require you to take measurements whether real or on your scaled plan to calculate.
Once you’re created your spreadsheet, update it often so you know where you are budget and cash-flow wise.
Always add in an additional 10%-20% for cost overruns. Kitchen remodel in an old house? Many would argue 20% is more appropriate. Landscape redesign? You’re probably OK with 10%. The point is, you don’t want to be on such a tight shoe-string budget that when your contractor opens up a wall and finds dry rot or corroded plumbing, (surprise!) you don’t have a cushion to deal with it.
Once you’ve set your budget, stick to it. Don’t be tempted to deviate from your budget mid-project with “Oh it sure would be nice if (insert expensive upgrade). This is how budgets get blown. Unless you can really and truly afford it, don’t do it. (And re-read the bullet point above for a compelling reason you don’t want to do this.)
Remodel return on investment (ROI)
Formulating an ROI (return on investment) for your project is important. Even if you are fortunate enough to not be super budget-conscious, you should always estimate the value you expect to get out of a project and how it will affect the overall value of your home.
This isn’t easy, so do some research on where you get the most bang for your buck in remodels or design projects in general.
Talk to local realtors familiar with your neighborhood on what a reasonable upgrade might be. A 60k master bath remodel probably doesn’t pencil out for a 200k home if you needed to sell. Don’t over improve for you neighborhood or property value.
On the other hand, painting over a living room with mint-pistachio green walls and a red ceiling is probably going to be well worth the investment. (Yep, someone chose to do this to my living room once upon a time.)
Even if you think “I’ll never sell this home,” from a financial perspective, you should always have a Plan B exit strategy just in case Plan A falls apart. (And many I know would argue you should also have a Plan C.)
You never know what life may throw at you, (Hello 2020!) so you need to have a financially sound exit strategy whenever possible. Even if you think you’re in your “forever home” and don’t consider it to be an investment per se.
How will you pay for your remodel/design project?
If you’re embarking on a large remodel, how do you plan to fund it? There are many different strategies including cash, home equity associated loans or lines of credit, refinancing, or taking out a personal loan. Cash on hand or home equity loans/lines of credit can be among the most fiscally sound strategies, depending on your situation.
Cash: Cash carries low risk so long as you have sufficient funds to see your project through. Ideally, you will be doing a carefully planned project that adds greater value to your home than cash invested.
Example: Your home is valued at $400k with a remaining mortgage of $150k. You have $250k of equity in the home and decide to invest $50k cash in a major kitchen remodel to fund it.
The average ROI on a kitchen remodel is approximately 65% of the remodel cost, so the project could add approximately $32.5k of value to the home. (65% of 50k = 32.5k)
Your home’s equity is now 282.5k and your home’s market value is now $432.5k. Your home’s equity has increased by 32.5k and you get to enjoy a new, beautiful kitchen that cost you 50k, but if you were to sell (or access it’s equity through a HELOC or home equity loan) it would theoretically only have cost you 17.5k.
Home equity loans & HELOCs: Home equity loans and home equity lines of credit, aka HELOCs, are two different products - one is a loan and one is a line of credit, both backed by home equity, but both can have the advantage of their interest being tax deductible within certain parameters.
Example: Your home is valued at $400k with a remaining mortgage of $150k. You have $250k of equity in the home and decide to take out a home equity loan or a HELOC to fund your kitchen remodel.
The average ROI on a kitchen remodel is approximately 65% of the remodel cost, so the project adds $32.5k of value to the home. (65% of 50k = 32.5k)
Your home’s equity is now $232.5k and it’s market value has now increased to $432.5k. Your home’s equity has decreased by only $17.5k, despite borrowing 50k to fund the project, and you get to enjoy your new, beautiful kitchen.
Plus, in 2020, you can deduct the interest paid on home equity proceeds used to “buy, build or substantially improve a taxpayer’s home that secures the loan,” the IRS says, up to a specified amount. Check with your accountant or tax adviser for the latest updates though.
Even if you have cash in hand, borrowing money at a low interest rate may be smarter than using cash if you instead took that cash and invested it where it generates a higher rate of return over time than the loan interest rate, such as a down payment for a cash-flowing rental property. If you instead spend your 50k cash in Vegas and Nordstroms, wellll, then use the cash for your remodel or design project.
If you're getting a loan, factor in costs like interest rate, loan origination fees and the loan duration. Also, find out when you'll get the funding from your loan. You'll need to make deposits with your contractors, and you might need to pay for some materials up front.
Here are some potential sources for home improvement loans.
Controlling remodel costs: Finding quality work for a reasonable price
So you’ve figured out the financing end of the project and now it’s time to find the people with the skills to make it happen. Where to look?
Brainstorm a list of friends who have had construction work done and ask them for referrals.
Trade referrals - if a plumber comes over to fix your sink, ask who they recommend for carpentry, electric, or tiling etc. Tradespeople are a treasure-trove of hands-on experience and information with other tradespeople. Even if they’re not fixing your sink, call and ask.
Community boards like Next Door can be a great source for finding quality construction related work. When you see a post asking for a tile layer and 6 people are chiming in on how they love the tile work done by a particular person or company, this is likely a go. Reach out to those people who made recommendations and ask them questions. Most people are happy to let you know about their experiences, good or bad.
When considering someone for work, ask for references. Get on the phone and ask questions.
Get 3 bids for any work that needs to be done. You’d be surprised at the variation in cost sometimes, but of course, this also needs to be closely compared to your assessment of the quality of the work and project management skills for the job at hand.
All 3 are important - a great price isn’t a great price if the work is shoddy or the contractor only shows up every 3 days or so while he’s fitting it into other jobs, dragging out your project timeline.
Photo: Charles Deluvio on Unsplash
Working with budget constraints
OK back to design budgeting. Do not feel daunted by the idea of making and sticking to a budget. A budget keeps you and your project in check. You don’t want to plan a grandiose redesign in your head, only to realize later that it just isn’t realistic budget-wise and have your dreams dashed and have to go back to the drawing board, or worse, overspend.
Contrary to what many think, I actually believe having budgetary constraints can make a project better. It makes your design process more efficient because you make decisions early on knowing how much you have to spend. This keeps your decisions realistic and you don’t waste time exploring “pie in the sky” options. (And get your heart set on them only to be disappointed later.)
What a budget does do is force you to get creative and make lemonade out of what you might initially perceive as lemons.
I won’t get on a soap box about this here, but I’ve always argued that design constraints, whether budgetary or building/historic code and ordinances etc., can often make a project better.
Example: You put a ton of effort into designing your space. Maybe it’s your dream kitchen and you assumed you’d have white painted custom cabinetry with vintage-style exposed hinges and in-line drawers and doors for your new kitchen. When you get estimates though, the custom-cabinetry estimate gives you sticker-shock and it just isn’t going to work. What to do?
Instead of custom, you could opt for “off the shelf” cabinetry instead. (Honestly, how different do painted kitchen cabinets look in the end, really? If you dig into the sources of many of your favorite Instagram home décor influencers, you’ll be surprised to find out how often their gorgeous kitchens have mass-produced cabinetry.)
You find simple but beautiful hardware for them that looks expensive but isn’t, AND you manage to source a fantastic deal on Craigslist for a beautiful vintage china hutch that you’ll use instead of built-in cabinets to hold your dishes and glassware, where they will be on display and add to your kitchen ambiance rather than being hidden away.
Even if you decide to go with pre-fabbed cabinets rather than custom, the overall effect of your white cabinet kitchen is very similar, and you’ve maintained your budget.
Plus, with the replacement of some cabinets with the vintage china hutch piece, IMHO - this will create a more interesting and unique kitchen anyway (read - it won’t look cookie-cutter) for less money. Win-Win!
[Related post: Decorating with Good Bones: 10 Ways to Redesign Your Home on a Budget]
This Haberdasher’s kitchen by DeVOL is a high end version of a “downstairs” kitchen. Regardless, it still serves to inspire me for how I could design a beautiful kitchen without breaking the bank with simple Shaker-style cabinetry, vintage-style open shelving (less expensive than full uppers) and a free-standing hutch for storage and display.
Renovation Budgeting Conclusion
So there you have it - tips and guidelines on how to create a budget for your home design or construction project and scenarios for funding a remodel. When the dust settles, I hope you tackle your home project head on - your beautiful results will make it worth all the work!
What remodel, construction or design projects are you planning or working on? What constraints, budget or otherwise, do you need to work with?
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