How To Finance Your Home Renovations

Now that we’re on the other side of our home renovations, many people have asked me how I did it. I’ve realized the assumption is we had loads of money in the bank waiting to be spent on home improvements. Not the case. Not for us at least.

How to finance your home renovations are very specific to your personal circumstance. Some people may have loads of money saved, some may max out credit, we decided to do a combination of both.

Because we were adding a second story to our house, we started this process by getting our foundation tested (to ensure our house could support a second story). After our foundation was approved, we had plans drafted from an architect.  Once we had plans from an architect we got a few quotes from trades and contractors to see how much this renovation would be. All of this was done with our savings.

Once we knew how much the renovation would cost, we looked at the potential equity in our home. We did this by looking around at comparable home sales in our area. We then factored that if we sold our home at that moment, we would have X amount of liquid cash (equity).

Serendipitously, our mortgage was up for renewal. So we went to the bank with our plans and asked them to reappraise our house. Because we had done our research, we knew how much it was currently worth. The bank re-appraised our house. gave us a new mortgage and we used the existing equity/cash in our home to start the renovation.

Because this was a huge renovation, we knew the cash we had available would not cover everything. So we had to look further. We looked at what our house would be worth once we finished the renovation. We subtracted what our mortgage was now (with the liquid cash equity) and what it would be with the greater value. The idea was when the renovation was done, if we went over budget, we would have the home reappraised and cover our costs with that cash.

To recap, this is how to finance your home renovations if you’re looking to do it like we did:

  1. Draft plans so you can have a serious conversation with contractors and trades about how much the work will cost. This step also involved testing the foundation for us as we were adding the second story
  2. Get quotes from trades and contractors to see how much your reno will potentially cost
  3. Reappraise your house at it’s current market value. This will allow you to use up to 80% of the equity in your home to finance.
  4. Borrow money to bridge the renovation gap if you need
  5. Reappraise your house once it’s completed at its final value and either take out the cash equity or leave it depending on your needs

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