So, you’ve tapped out your savings to buy your new home. Or maybe it’s time to update your current home. In either case, finding money for a home improvement budget can be tough, especially when you have limited funds.

Yet being a responsible homeowner means occasionally remodeling and upgrading, in addition to spending money on regular home maintenance. Use these tips to create a home improvement budget that suits your situation.

Prioritize Your Home Improvement Projects

When deciding on a home improvement project, a simple renovation can quickly turn into a costly, multi-room ordeal.

Before creating your budget, prioritize what your home improvement needs are over what you want to complete. For example, you may have a leaky roof to replace and a bathroom that could benefit from some updated decor. However, a safe and waterproof roof takes priority over redecorating, so save the bathroom project until you have more cash.

Creating a priority list will keep your renovations organized and your spending in check. Starting a renovation without a priority list could lead to out-of-control spending and possibly unfinished renovations.

Get Quotes… and Budget for Overages

For renovations you aren’t willing or able to tackle yourself, get quotes from at least three contractors, and don’t forget about overages.

Homeowners often make the mistake of accepting a quote that completely fills their entire renovation budget, leaving no room for unexpected expenses. Renovations commonly lead to unforeseen issues, such as updating wiring or replacing rotten/damaged subflooring. When considering contractor quotes, be sure to leave a contingency in your budget for at least 15 to 25% in overage costs and unexpected expenses.

Include Home Improvement in Your Household Budget

Even if you aren’t planning a renovation right away, adding a “home improvement” category to your monthly household budget will get you saving now for future home improvements. This is especially important when you’re working with limited funds, as an unexpected home improvement expense could be tough to cover if you don’t have some money set aside.

Make a spreadsheet with your monthly household expenses — including insurance, utility costs, taxes, etc. — and look for places to cut your costs. For example, many homeowners find a variety of ways to reduce their electricity costs through free or cost-effective strategies. Look for options to bundle your cable, phone and internet services to cut costs further. After reducing costs wherever possible, set aside the saved amount and begin building your home improvement budget.

Explore Credit Options for Home Improvements

Some renovations will be too large and costly to pay out of your savings, so explore your credit options for home renovations. If you qualify for a home equity loan, you may receive the full loan amount at once, meaning you pay interest on the entire amount from day one. Home equity loans typically have fixed interest rates, and since the loan is secured by your home, may offer a lower rate compared to unsecured loans. The interest paid on a home equity loan for home improvements may be up to 100% tax deductible (consult a tax advisor to learn more).

On the other hand, a home equity line of credit (HELOC) comes with a set limit, but allows you to withdraw funds as you need, so you only pay interest on what you’ve borrowed. HELOCs typically have variable interest rates. Both home equity loans and HELOCs act as second mortgages on your home.

Finally, if you have enough equity in your home, you may qualify for a cash-out refinance by restructuring your mortgage, which can be a great way to take advantage of lower interest rates.

Use Credit Card Rewards to Stretch Your Home Improvement Budget

Buying the necessary renovation materials yourself lets you shop around for better deals and take advantage of credit card rewards programs when you’re working with a limited home improvement budget.

Many credit cards offer cash back incentives and/or rewards points, both of which add up quickly when making large purchases for a renovation. 

Before diving into a renovation, be sure you have created a realistic plan and budget. Sticking to your budget will keep you out of unforeseen debt and allow you to start saving again for your next home improvement project.

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