Establishing a Home Renovation Budget
Homeowners can avoid costly renovation surprises by getting multiple bids, planning for hidden expenses and leaving room in the budget for overruns.
NEW YORK — Homeowners know that the next home renovation project is always right around the corner. And that means finding ways to finance such undertakings.
When planning for renovations, the average homeowner underestimates their project cost by approximately 22%, according to the 2026 Remodeling Impact Report. Establishing a pre-project budget can help avoid such surprises.
Don’t over-improve
A common mistake homeowners make is over-improving a home beyond the neighborhood value. A good rule of thumb is to employ the average percentage-of-home-value approach in an effort to stay within range of what’s acceptable. Budget a kitchen renovation or finished basement at 10 to 15% of the home value. A master bedroom will come in at 5 to 10% of home value, while a small bedroom or office falls between 1 and 3% of home value. These benchmarks are supported by the National Association of the Remodeling Industry and the National Association of Realtors. Historically, a functional, modern kitchen is the top driver of home value, says Remodeling Magazine.
Learn the breakdown
Homeowners should understand that materials, fixtures, appliances, and flooring, otherwise known as "hard costs," will eat up 50 to 60% of their renovation budgets. Labor, permits and design fees will comprise the next largest chunk, typically coming in between 25 and 35%. Homeowners also should factor about 15 to 20% of a budget to a safety net to cover unforeseen expenses, like mold remediation or structural issues.
Get three quotes
It’s important for homeowners to get several estimates before establishing a budget. Experts advise working with contractors that offer fixed-price contracts rather than those that list time and materials; otherwise, there may be a mid-project price hike that comes out of the blue. A person also can ask contractors for a line-item bid so it’s possible to see where money can be trimmed through different material choices. With a list of desired items in hand, and acceptable substitutions if the cost comes in too high, homeowners can create a budget that works.
Saving versus splurging
It’s important for homeowners to be realistic about their renovations. They can splurge on items that are seen or touched every day, like door handles, cabinet pulls and faucets. Other items, like lighting fixtures or backsplashes, can be replaced down the road. It may be better to direct funds to structural elements or those "invisible renovations" like upgrading insulation or smart systems that save on energy costs and improve efficiency.
Keep a 20% cushion
Homeowners can determine the affordability if a proposed project ends up costing 20% more or takes a few months longer. If the answer is no, homeowners should scale back the project budget until they have that financial safety net. Alliant Credit Union says experts strongly recommend adding a 20% contingency cushion to a remodeling budget.
A home remodeling project is a big commitment of time and money. Budgeting correctly ensures that there are few, if any, surprises along the way.
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