Building a Comprehensive Plan for Your Home Improvements 

Key Takeaways: 

• Taking time to plan for home improvements can save time and money and reduce stress. 
• Determine who will handle your projects, and obtaining accurate estimates, is key to success. 
• Options to pay for home improvement projects include home equity loans, HELOCs, personal loans and home equity agreements. 

If you’re like many homeowners, you might not think about making a home improvement until something breaks, deteriorates or suddenly looks hopelessly out of date. Here, we’ll outline how to plan for improvements and renovations, with tips on how to prioritize projects, pay for improvements and save money in the process. 

Why plan?

Creating a plan for your home improvements can benefit you in three ways. 

1. Cost. Whether it’s with a holiday meal or a major home improvement project, if you wait until the last minute with nothing planned, chances are high you’ll buy what you need in a hurry and spend far more than if you had planned out your purchases. Planning ahead gives you time to review projects, make sure you’ll handle them as efficiently as possible, and get the best prices and most accurate estimates. 
2. Time. Planning gives you the opportunity to schedule projects when it’s optimal for you. It also allows you (or your contractor) to order necessary materials or fixtures without incurring rush charges.  
3. Avoid crises. While unexpected home repairs will inevitably happen from time to time, it is possible to avoid or prevent most of them with good planning. In doing so, you’ll be able to keep costs – and stress – down.  

Prioritize your projects

Start by making a list of your needs and wants. To maintain your home in good condition, any needed repairs should top the list, followed by routine maintenance items. After taking care of those items, you may have home improvements – major or minor – you’d like to make. 

Next is estimating costs, which will require you to decide whether you’ll tackle the project yourself or hire a professional. Home improvements can be expensive, tempting many homeowners to consider taking on projects themselves. For small repairs or maintenance projects, do-it-yourself (DIY) may make sense. But, along with the size of the project, you’ll need to consider the complexity, the type of the project and the time involved. You’ll also need to make a realistic assessment of the skills and knowledge required for the tasks. 

If you decide to hire a professional for your project, you’ll need time to identify the right person(s). Try to get a recommendation if possible; many good, reliable contractors work only by referral. Realize, too, that good contractors in any field are often busy, and you may need to wait for them to fit you in. And no matter how strong the recommendation, talk with the contractor about your project and their work before obtaining an estimate. 

Understand what an estimate covers

Realize that estimates are just that. In fact, beware absolute pricing. Whether your project will require a few hours or a few months to complete, it is difficult – or impossible – to accurately predict everything that can arise. Material prices can change, even in the course of days or weeks. You might find that there is an underlying mechanical, electrical or structural issue once things get underway. Plus, once many homeowners find that they want to make changes in the design, finishes or other details as projects progress.  

For these reasons, be sure to include a contingency fund in your project budget. How much should be the result of a common-sense discussion between the contractor and homeowner, though anywhere between 10% and 30% is typical.  

Iterate the process

Planning and budgeting is a back-and-forth process. Once you receive an estimate on your project, or determine the DIY cost, you may find that it’s more than what you budgeted. Then you’ll need to return to the planning process to revise your project scope or rework your priorities. 

If you’re working with a professional, ask questions and be open to different ideas. They may be able to suggest smart alternatives that you may not have considered. For example, you may have envisioned marble countertops for your kitchen remodel, but a contractor might recommend quartz as a cheaper and more durable alternative.  

Paying for your home improvements

Ideally, you’ll have been saving up to pay for maintenance items, repairs that arise and any major improvements. That way, if you can’t pay for a project within your monthly budget, you can cover costs with your savings. 

If your regular budget and savings can’t support your home improvement needs, there are several financing alternatives to consider. One caveat: It’s typically a good idea to steer clear of using credit cards unless you are confident you can pay off the entire balance, on time, in each billing cycle. With rates averaging more than 20%, your home improvement will cost more in the long run, and you run the risk of getting into a vicious cycle of debt. 

• Personal loan. Personal loans are a popular option for paying for home improvements. Banks, credit unions and independent lenders all offer these loans, typically up to $50,000, although some have higher limits. You will need to repay the money you borrow over a set period, usually between 24 and 60 months, with interest. In addition, most lenders charge origination fees of about 2-7% of the amount borrowed. There also may be late fees and prepayment fees (if you pay off the loan early). Each lender is different, so it’s important to understand all costs before making a decision. 

Qualification for a personal loan is based on your credit profile. The best rates go to those with the best credit scores. Lenders also look at debt-to-income (DTI) ratio, the portion of your monthly gross income that goes to debt payments. 

• Home equity loan (HEL) or home equity line of credit (HELOC). Using home equity can be a good way to fund home improvement projects. Both HELs and HELOCs are loans, which require monthly payments. With an HEL, you’ll receive the total amount you borrow up front. The interest rate will be fixed, so the monthly payment will not change over the loan’s term. With a HELOC, you can draw upon it as you need, up to the limit extended to you. The interest rate – and associated monthly payments – is usually variable, although some fixed-rate HELOCs are available. You pay interest on the amount you draw. 

Qualification, like with a personal loan, is based on your credit profile and DTI ratio, as well as your loan-to-value ratio. That’s the amount of your current home loans (like your mortgage) divided by your home’s current value.  

• Home equity agreement(HEA). With an HEA, you can tap your home equity without monthly payments. A homeowner receives cash up front in exchange for a portion of the future value of their home. Income requirements are flexible, and you may qualify with a credit score starting in the low 500s. With Unlock’s HEA, you can buy back your equity at any time during the 10-year agreement term. 

• Home improvement loan. Some lenders market “home improvement loans.” These are typically just personal loans. Similarly, larger contracting businesses that offer these loans are generally working with lenders that offer unsecured personal loans. Borrowers still must qualify as they would with a personal loan, as explained above.  

Conclusion

Staying up to date on improvements is important for homeowners. Creating a plan for your improvements will help you save time and money and reduce stress. When you’ve decided on your priorities and budget, take time to evaluate financing options. If using your home equity without monthly payments is of interest, you might consider giving the Unlock HEA a closer look.