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You have a notebook full of ideas and a "wish" list for your home that includes everything you have ever dreamed for a home . . . you even know who has the skill to make it come true. Now all you need is to decide how to pay for it.
Financing can be a major source of stress in any remodeling project. The National Association of the Remodeling Industry (NARI) suggests several options for establishing your budget:
Keep the cost of your remodeling project in perspective. According to the American Homeowner Foundation, moving to a new home typically costs 8-10 percent of the current value of your home. This is a good base figure for establishing your remodeling budget.
How much should you spend? The answer varies by circumstance. However, you should spend as much as is necessary to create your dream home if you are staying in the home for a long time and can afford to do so. However, if you are planning on moving, be sure to remodel within the standards for the homes in your particular neighborhood and a reasonable budget.
Once you determine how much you can afford to spend on a remodeling job, decrease that amount by 10-20 percent. This money should be put in a reserve account to cover any change orders or incidental charges accrued along the way, which will prevent a frantic scramble for additional funds at the end of a project.
Keep change orders to a minimum and remember that phrases like, " . . . while you are _____, could you just ______," can quickly destroy a budget. Remember that any work not specified in the original contract will have a new and additional cost attached to it.
You may want to obtain financing for your remodel, especially for larger projects. There are various financing plans readily available to homeowners. Among the most popular is the equity line of credit which bases the loan amount on the equity in your home.
Federal Housing Administration (FHA) loans specifically for home improvements are available through many banks and lending institutions. FHA, however, requires that the contractor be approved by the lender; but be careful, it does not guarantee the contractor's work.
Some institutions will allow you to borrow against the anticipated equity in your home once your remodeling project is complete. Check your local banks and lending institutions for more details about this form of financing.
A professional remodeling contractor is familiar with many of the financing options available and can often help you arrange the financing you need. However, it is important for you to research various sources of funding to compare individual qualification guidelines, interest rates, terms and tax considerations.
Whichever financing plan you choose, stick to it. If you decide that your budget is "x" and your reserve fund is "y," tell your contractor to work within those figures. It is easy to say, "A little more on this faucet won't matter. It's a small amount of money." Unfortunately, this is also an easy way to overextend your prepared budget.
For additional advice about preparing your budget and yourself for the remodeling project, call the NARI Homeowner Remodeling Hotline at 1-800-440-NARI (6274) for your free copy of The Master Plan for Professional Home Remodeling magazine. This publication is filled with tips about everything in remodeling from prepare a budget to reasons cash may not be your best choice. It also covers legal matters and offers tips for finding the right professional for your job.

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