How to Manage Costs while Renovating a Home During Inflation
10.17.2022 | Category: Article
There’s no question. Inflation has been hitting the wallets of Americans in big ways and it isn’t for the best. With inflation at the highest it’s been in many homeowners' lifetime, you might be thinking that now is a better time to tackle a home improvement project rather than try to sell or buy a new home.
According to the National Association of REALTORS®, Americans spent a collective $420 billion in 2020 on home remodeling ventures. That number is only likely to grow with 83% of homeowners sharing that they would have remodeled regardless of the pandemic and 86% reporting that remodeling one area of their home then influenced them to remodel other areas of the house as well.
"Our study revealed that homeowners tend to undertake a remodeling project for any number of reasons," said Jessica Lautz, vice president of demographics and behavioral insights at NAR. "In some instances, homeowners were content with sprucing up a room with a simple paint job, while in other cases, families decided to take on the task of renovating an entire attic or basement to add additional living space to their home."
While there are a lot of aspects to consider when starting a home renovation project, cost is usually the number one determining factor. Everything from where you live, to how big your place is can cause your costs to rise. It’s important to know what to expect and how you can mitigate any unforeseen expenses, especially when you’re trying to renovate your home during inflation.
Know when "cash is king" - and when it's not.
We’ve all heard the advice to use cash when you can. And if you have a healthy savings, and can pay for your home improvements in cash, that might be a viable option. But for many homeowners, you may not feel comfortable paying cash upfront for work that hasn't been done and you may want to keep your savings preserved should a real emergency arise.
When starting your home improvement project, it's important to discuss payment options with your contractors and find out if they offer discounts for paying cash, but also how they will guarantee the work if you decide not to charge the work on a credit card or use financing.
Many credit card companies offer guarantees and insurance for costs charged on a credit card, which can help protect consumers should issues arise with a contractor. Some larger contracting companies will offer special financing to go through their preferred financial institution. Be sure to cover all the bases with the licensed professionals you decide to work with before undergoing any home improvement work and choosing how to pay for it.
Consider the benefits of financing your home improvement projects.
There are many options for financing your home renovation project. The most common option is a home equity line of credit, or HELOC, which allows you to borrow against the equity in your home. With home values still hovering at historic highs, many homeowners are taking advantage of the option to use their equity to pay for kitchen renovations or bathroom upgrades.
Generally, homeowners may find interest rates on HELOC loans quite competitive against other loan options, including personal loans or credit cards, with lower interest rates and tax incentives. Often, homeowners can finance their home improvements using this attractive loan option.
Different than a HELOC is a home equity loan which also allows homeowners to borrow against the equity or value they have in their property. This option allows homeowners to receive a one-time payout as a loan upfront, with monthly payments required toward the balance of the loan over time.
A major benefit of a home equity loan is that rates are often fixed compared to the adjustable rate HELOC.
Set realistic expectations.
Setbacks are common when you start a home improvement project. You might have one plan in mind but once you get going on your project, you realize there’s more than meets the eye. You tear down a wall and find pipes that need to be replaced. You discover electrical wiring that isn’t up to code. You learn that your budget won’t cover the design materials you were hoping to choose.
Challenges like these can throw a budget out the window but if you leave some room for surprises you’ll be better set up for success. Learn what kind of projects you can do yourself, like demolition or clean up. Get referrals for the professionals that know how to do the work you can't, like plumbing or wiring, to guarantee the work will get done with quality and care.
Regardless of whether you are taking on a major renovation or a minor upgrade, educating yourself on your financing options will help you in the long run.
If you do feel like a HELOC or home equity line of credit might be a solid option for your home renovation projects, consider calling Mutual of Omaha Mortgage. Our loan specialists can walk you through your financial options to set you up for success, no matter how big or small your home improvement project is.