Has your wife been asking for a new bathroom for a whole year now, or is your hubby itching to remodel the basement into a playroom-slash-family room but his busy schedule just doesn’t allow for it? The time is now to think of the best Christmas present EVER!
Not sure that’s going to fly? Well, surprise gift or no gift, as you, Atlanta homeowners, are putting together your Christmas lists and budgeting for the New Year, we wanted to give you some clues on how to budget for a remodeling project in 2014.
We know it’s not the most fun thing in the world to do, but creating a budget for your home-improvement project doesn’t have to become the bane of your existence, either. First, you want to figure out what your estimated dream remodeling project might cost. Instead of spinning your wheels, we can actually provide an estimate for you for free. Otherwise, here is some information and estimates for potential Atlanta remodels from HomeAdvisor.com:
And it’s always good to check out Remodeling magazine’s Cost vs. Value report. Here it is for 2013: http://www.remodeling.hw.net/2013/costvsvalue/national.aspx. Just click on the Southeast and then you can narrow it down to Atlanta, and download a pdf that includes the above spreadsheet and more.
Next, figure out if you can really afford the remodeling project for 2014. The National Association of the Remodeling Industry’s helpful remodeling project budget calculator below makes it a lot easier to calculate those numbers. Just follow their advice:
1. Determine your gross monthly income, and write down all of the sources of your income.
2. Make a list of all of your debts, including mortgages, car loans, credit card bills, etc.
3. Fill out the below form.
Step 1 – DTI
Lenders use a simple Debt-to-Income (DTI) ratio to determine if a homeowner can afford the additional debt of a remodeling project.
Enter Your Total Monthly Expenses $
Add the Estimated Monthly Payment for the Remodeling
Project + $
Total = $
Divide the Total by Your Gross Monthly Income… $
DTI % =
Each lender will approve loans at a specific DTI percentage (most lenders will tell you what their set DTI ratio is, if you ask). For example, if the lender accepts DTI ratios of 45 percent and your DTI ratio is 30 percent, your loan would be approved. However, if your DTI ratio is 55 percent, you would need to find other financing options. Perhaps your lender offers debt consolidation loans that could reduce your DTI ratio, which brings us to the next step:
Step 2 – The Maximum Payment
The next step is to determine the maximum monthly payment you can afford for remodeling. Multiply your monthly gross income amount by the lender’s maximum DTI allowance, and subtract your current total monthly expenses, excluding the estimated remodeling payment.
Gross Monthly Income $
Lender’s DTI ratio x
Subtotal = $
Total Monthly Expenses – $
Maximum Affordable Payment = $
If the last line is negative, you will not be able to borrow from that lender. See step 3 for further options.
STEP 3 – Consolidation
If your DTI ratio was above the lender’s accepted percentage, or if your maximum affordable payment was too low, you may want to consider a debt consolidation loan. This would incorporate your current debts into the home improvement loan. Not only does this allow you to roll your debts into what may be a tax deductible loan, it also provides one easy payment for your debts and lowers your DTI percentage. In addition, the interest rate on a debt consolidation loan may be lower, which will save you additional money.
Now you should be all set for how to budget for a remodeling project in the New Year — maybe your husband or wife’s dream kitchen will even appear under the tree this Christmas! Well, not the actual kitchen, but perhaps the plans for one… Exciting! Happy Holidays!
When in doubt about how much your remodeling project will cost, you can always request a FREE estimate from us. We would be happy to take something off of your plate!