5 Things You Should Know Before Getting a Home Improvement Loan

Every homeowner has a wild imagination: In their mind:, walls disappear, carpet becomes hardwood and outdoor living spaces transform into their new and improved living room. See, inside each and every homeowner is an innate desire to improve, enhance and beautify their domicile.

Perhaps you want to knock down that invasive wall between your living room and kitchen to give your house a more “open feel”. Maybe you desire a writing nook overlooking the backyard where you can finally start that great novel you’ve been thinking about. Or, maybe it’s time to turn your out-of-the-house and off to college student’s room into a photography studio.

That all sounds nice but — dreaming isn’t enough. At some point, just like that novel you’ve been thinking about writing, you’ve got to put pen to paper and work on starting your project.

Before you freak your family out by swinging that sledgehammer around, you may want to consider the following 5 home remodeling tips to help you build in the right direction.

How to start a home improvement project

1. Decide how to finance the project

Your project won’t get very far if you can’t fund it through completion. One big mistake some homeowners make is under-financing their home improvement projects, leaving their projects incomplete, over-budget or both.

Forty-two percent of homeowners looking to spend money on home improvement in 2017 aim to spend $5,000 or more, with almost a quarter planning to spend $10,000 or more.

Even if you have a rough idea of how much you want to spend, you’ll want to secure that line of financing before getting started. Some ways to finance a home remodeling project include a home equity line of credit, home equity loan, savings (cash), or personal loans.

2. Set a budget

Setting a budget is more or less setting expectations with yourself. This is where you crunch the numbers and arrive at a realistic idea of how much your project could cost. You’ll want to factor in a buffer to prepare for the unexpected. Avoid being too much of a penny pincher — the budget is about realizing the cost of a long-term investment, not an exercise in thrift.

Figure out how much you have to spend and, if you’re borrowing, what the loan will add to your monthly expenses. Then, get quotes from a few contractors. Ask to look at their recent work, compare reviews, and ask around to see if any of your friends, family or neighbors have someone in mind. You’ll know the right fit when you find them. Once you find the contractor of your dreams, add between 15%-20% contingency buffer to the budget for the unexpected. You never know what you might find once your builders start digging.

3. Secure a return on your investment

Your home improvement project should always improve the value of your property relative to those in your marketplace. A simple way to calculate the ROI is by:

  • Considering the present value of your home and adding the estimated cost for your project, including the interest rates of your home improvement loans.
  • Comparing this total to other homes with similar improvements that are for sale in your area.
  • Making sure that the total does not exceed 15 to 20 percent of your home’s net value

That being said, ROI isn’t always the sole metric by which to measure the value of your home improvement project. You certainly need to weigh ROI against personal value and how the remodeling project may improve your quality of life.

4. Obtain all Permits and Certifications

Before you begin your home improvement project, make sure the project meets your local codes. That means, having all eligible local authority certifications to prevent any interruptions due to possible violations.

For homeowners interested in remodeling, permits are necessary. State and local authorities issue these permits to ensure compliance with building codes.

Usually, permit prices range from $398 to [$1,561, with an average cost of $979], so make sure to factor in this expense when setting your budget.

While varying by state and local authority, common projects requiring permits include:

  • New buildings, such as a guest house, garage or barn.
  • Extensions such as room add-ons, patios or decks
  • Interior renovations (kitchen, bathroom, etc..) or changing the exterior appearance of your house.
  • New electrical, home automation, or plumbing

5. Protect your Investment

Many home improvement contractors sub-contract labor such as electricity and plumbing to third-party experts. Because these sub-contractors are not hired as full time employees of your primary contractor, they may not be covered under the contractor’s workers’ compensation policy. While some independent builders such as electricians and plumbers may carry their own workers’ compensation coverage, others may not.

All insurance of all parties should be verified. If one or more of the workers on your project are not sufficiently covered, you may want to consider extending the limits of your own homeowners liability insurance.

Another way you can protect yourself from mishaps is by increasing the amount of your homeowners’ insurance coverage. Since your home value will increase with the new completed improvements, there’s more at stake. If you wait until all remodeling and improvements are complete before you increase your homeowners insurance, you may end up paying out of pocket should your improvements suffer damage before the project comes to a close.

A lot goes into a home improvement project, but no more than you can handle. Taking steps to prepare for this endeavor is one part protecting your investment and one part peace of mind.

When all's said and done, you should be able to enjoy your new additions with a renewed sense of empowerment and excitation.

After all that hard work — you’ve earned it.