Budgeting for home renovations

Ready to start on those renovation projects you've been dreaming about? Whether it's building a porch to relax  with friends, redoing that outdated pink bathroom you can't stand, or landscaping your yard into a lush paradise, you may be thinking about all the ways you could update your home to make it better reflect your lifestyle.

The only problem is figuring out how to finance all the updates you want to make. Don't worry! We've got you covered with this primer on how to budget for and finance all the work you want to do on your home.

Whether you moved into an older home you've always meant to update, want to customize your home to your tastes, or have a condo in need of a refresh, you likely have a list of renovation projects that you've been meaning to get to. So, how do you decide where to start?

There are a lot of ways! You could look at what kind of updates would add to the market value of your home. You're better off making big changes like updating a kitchen or bathroom or landscaping a yard to improve curb appeal.

Another way to choose is to do the renovations that will bring you the most joy. That pergola or pond might not add to the value of your home, but it will make your backyard an oasis that you can enjoy. That's money well spent.

Next, you'll have to figure out whether you want to be a DIYer and do the project yourself or hire a contractor. While doing it yourself will save you money in the short-term, you might not have the skills required to do it right and may end up spending more than budgeted in the long run. 

For example, if you haven't tiled before, renting a tile saw to redo the tile in your bathroom will likely be an exercise in frustration once you get to the corners and could end up as a renovation fail costing you more to hire a contractor to fix it. 

Instead, you might consider landscaping your yard despite being a novice. If you read up online about spacing plants for future growth and landscape design, this is a simpler project for most DIYers. 

Just remember that the fact that you think you can do it doesn't necessarily mean you should. Doing it yourself is often an enormous investment of time that you could otherwise spend relaxing.

Not sure how much to set aside for your renovations? The first step is to figure out what you want to do with your project and break down how much it will cost. There are apps like Budget My Reno and Buildshop that can help you estimate the costs of common major renovations such as kitchens and bathrooms. For the most accurate numbers tailored to your specific needs and project, you may have to price everything out yourself. If you're working with a contractor, reach out to get a quote from them.

Having a number is important to work with, however, you're likely to have unexpected expenses that cause you to go over budget. Be sure to budget with a little extra for unforeseen costs such as material price increases, problems with the wiring or plumbing, or mould. You could select something that doesn’t work as anticipated, for example a finish (a tile or faucet, perhaps) that doesn't look right or work with your specifications so you may need to order something new and redo work that was already done. These are just examples, but no one — not even contractors — can anticipate everything. Set aside some extra money to cover those unpredictable costs.

When it comes to financing a home renovation, there are a number of options. What's most important is figuring out which is best for you. Before you start your renovation, think through your financing strategy so that you know how much you'll pay for your renovation in total, including interest.

To help you do that, calculate how long you think it will take you to repay the money you're going to spend.

• Existing savings: Have you been saving up for this renovation? Or maybe you have an emergency fund or savings account sitting around that you can access to pay for your upgrades? This is a great way to finance renovations because there is no interest to pay on top of your renovation costs.
  Don't have money sitting around? You could start today by cutting back in other areas and putting money aside every month to help fund your renovations.
• Take advantage of your home equity: A great way to finance a home renovation is by using the equity you’ve built up in your home. One way to prepare for financing current and future renovation projects  is by having a Scotia Total Equity® Plan (STEP). STEP lets you choose from different kinds of Scotiabank credit products (like mortgages, a line of credit, credit cards and more) based on your needs, all with one easy application.¹ This lets you apply for a variety of credit products like a mortgage, personal line of credit, and credit cards, and then link them all together so that as the equity on your home grows, so does your capacity to borrow on those other credit vehicles.^.With STEP, you can also choose the Automatic Limit Increase option so that each time you pay down your mortgage, the credit limit on your line of credit automatically increases. That way, the next time you need extra funds to buy a new fridge or get some flowering trees for your personal backyard paradise, the money is there.
• A personal loan: A personal loan is another potential way to finance a renovation without having to pay credit card interest rates. With a personal loan you borrow money for a specific term and at a specific interest rate and your payments are then divided, or amortized, into equal payments over the term of your loan. The downside of a personal loan is that you have to borrow the money in a lump sum and start paying interest on the total amount immediately.
• Credit cards: A lot of people use credit cards to finance renovations or the unexpected additional expenses related to renovations. While this is convenient, it's not always the best idea due to the high interest charges. Unless you are able to pay off your monthly bill to avoid paying interest, this may not be the best option since it can increase the total cost of your renovation significantly.
• Government programs: Making an eco-friendly upgrade? You may also want to check out the Canada Greener Homes Grant, and other government programs, which give eligible Canadian homeowners rebates for making eco-friendly home improvements like replacing windows and doors, installing solar panels and improving insulation.

When it comes to upgrading your retro rooms or your backyard, your investment will have a significant impact on your life since you'll be able to enjoy your home more. However, figuring out the best way to finance those big changes takes some planning.