For more than 60 per cent of Canadians, money is the biggest concern when it comes to home renovations, according to a financial institution survey.
Yet with rising Metro Vancouver home prices, many are considering expanding or refurbishing their current home to meet their needs, rather than purchasing property elsewhere.
If you’re one of those who has decided to renovate rather than relocate, you’ll want to take a money-smart approach to your project. Ensure your financial house is in order by following these tips.
1. Determine the scope and budget
It’s always tempting to bite off more than you can chew when completing a home renovation project, but this is the surest path to financial trouble. Yes, there’s probably so much you can do to improve and spruce up your home, but don’t get carried away.
Instead of squeezing everything into one mega-project, determine your priorities and stagger your project over a couple of years, or more. Begin with what needs to be tackled now (what’s important and within your budget) and set aside what can wait till later.
Also, ensure you include a 10- to-15-per-cent buffer in your budget for cost overruns.
2. Source the right financing
Ideally, you have some savings to cover part of your budget as this will reduce your overall costs (if not, this is a good time to start saving for future needs in your staggered plan). In addition to any savings, home renovators have a variety of financing options, such as taking a second mortgage, refinancing your mortgage, or applying for a home equity line of credit (HELOC).
If you qualify for one and if it works for your needs, I recommend a HELOC because it offers several advantages. It provides funds that you can draw on for your project (up to a credit limit based on the appraised value of your home) and you only borrow what you need, when you need it. A HELOC can also help you save on interest costs, compared to other options, like your credit card.
3. Advise your insurance provider
Don’t forget to talk to your insurance provider before you begin your renovation project. Depending on the extent of work involved, your insurer may recommend some adjustments to your policy to provide coverage during the renovation period.
For example, if any of the exterior walls of your home will be torn down during the renovation, your insurer will consider your property to be at increased risk and consequently not eligible for coverage under your existing policy. Your policy will also need to reflect the changes to your property following the renovation. Without this, future claims related to any additions or improvements will be denied.
4. Exercise quality and cost control
Once your project gets underway, remain as involved as possible to ensure contractors and workers deliver to your expectations. If you have any questions or concerns about quality or cost, raise them immediately. The last thing you want is poor quality that forces you to spend more money to fix issues later. Even if you have a good contractor, he or she will be more committed to your project if you ask the right questions and make it clear that you care about high quality.
5. Tap applicable government programs
If there’s a senior (65 or over) or someone with a disability living in the home you’re renovating, you may be able to take advantage of a number of federal and provincial government tax credits.
To be eligible, your project will need to provide increased access or safety to these individuals. If this applies to you, talk to a tax professional to learn more. In addition, if your renovation project will improve your home’s energy efficiency, check out various rebates available from B.C. Hydro.
Whatever your goals, budget or timeline, take the time to put a money-smart plan in place to ensure your renovation project goes well and adds value to your home.
Kathy McGarrigle is Chief Operating Officer for Coast Capital Savings (www.coastcapitalsavings.com), Canada’s second largest credit union by membership.