Being Unclear about your Budget
Unless you can afford to pay for your renovation out of pocket, chances are you're going to need financing, and it's a good idea to see what you can afford to borrow before you meet with an architect or contractor. You don't want to pay your architect for revised plans, and knowing what you can and can't afford can help you streamline that process and save you hundreds or even thousands of dollars by getting it right the first time.
It's harder to get a loan now than it was before the housing bubble burst, but there are still home renovation loans out there. The most common renovation loans that banks offer are:
- Refinancing, where you can use the difference for your renovation.
- A home equity line of credit, which is a second loan against your home's value.
- The 203(k), a new type of home renovation loan (see sidebar)
Once you settle on the type of loan that works for you, you can work with the bank to find out how much you can borrow. Even if you don't completely finalize loan details before you start shopping around for an architect and a contractor, working with the bank first can help you set your expectations for the project, so you don't end up planning something you can't afford.