Kitchen Remodel Budgeting: The Bottom Line

Here's how to set and stick to a realistic kitchen remodel budget.

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You've spent hours paging through design magazines, imagining every aspect of your dream kitchen. Now it's time for a reality check: the budget. Sure, it's not as fun as contemplating countertop choices, but giving careful consideration to budgeting can keep a project from turning into a financial nightmare.

SET A BUDGET

While the national average cost for an upscale kitchen remodel is roughly $82,000, according to Remodeling Magazine's 2005 Cost vs. Value report, you may spend more or less depending on a number of factors. First, conduct a thorough and honest examination of your finances to reveal how much you can afford to spend. The National Association of the Remodeling Industry (NARI) offers a worksheet that makes this easy to do. With that number in hand ask yourelf, "How long do I plan to stay in my home?"

"I have a flexible rule of thumb," says Everett Collier, president of NARI and co-founder of San Francisco-based remodeling company Collier Ostrom. "If a person is going to stay in a home for five years or less then the improvements should be viewed as improvements on investment. If you're going to be there for a longer period of time, you want to look at what's going to make you and your family the most comfortable."

Depending on how you answer that question, your budget might need to cover a kitchen facelift (for example, a new countertop and a fresh hue for the walls) or a complete kitchen overhaul.

No matter how long you plan to stay, give careful consideration to what the remodel will do to the value of your house, and then compare it with others in the neighborhood.

"You want to look at your neighborhood—whether it's a very expensive neighborhood or a modest neighborhood. That will help you determine what you're going to spend [and] whether you're going to over-improve your property," Collier says.

HOW TO SPEND?

How you spend your money is a matter of personal discretion. Sara Ann Busby, owner of Sara Busby Designs in Elk Rapids, Mich., and National Kitchen & Bath Association (NKBA) vice president, has some practical advice on where to spend and save. "I think the things to spend on are the ones you don't want to replace [again] soon," she says.

To keep costs down, Busby recommends evaluating how important extra "goodies," such as interior fittings on cabinets and intricate crown moldings, are to the overall look and function of a kitchen. "In a big kitchen they add up," Busby says. A cost-saving alternative may exist, or you may be able to do without the item entirely.

Also, when budgeting, don't forget a line item for labor costs, which usually end up around a third of a project's total budget, says Jeff Cannata, president of Designer's Showcase Kitchens & Baths Inc. in Carol Stream, Ill., and past president of NKBA.

BUDGET FOR THE UNEXPECTED

Always leave a little wiggle room in the budget for the unexpected. There are all sorts of budget-busting surprises lurking behind the walls and floors of homes (especially if it's an older residence). Last minute changes, known as change orders, cost time and bust budgets, too. You might elect to upgrade your choice of countertop halfway through the project. Though you can't predict the unknown, you can prepare for it financially. As a cushion, Cannata recommends leaving 10 percent of whatever number has been budgeted for labor costs.

HOW TO PAY?

There are many ways to foot the bill for a kitchen remodel, but a home equity loan may be the most popular because it's tax deductible. Other options include refinancing, no-equity loans, FHA loans, personal loans, loans from retirement plans or borrowing against a life insurance policy. Whatever type of financing you choose, make sure to shop around for the best rate. Even if you have cash in hand, oftentimes borrowing at a low-interest rate makes more financial sense than pulling your money out of an investment account yielding a higher rate of return.

"When you have money in the bank, sometimes it's smarter to use someone else's money rather than your own," Cannata says.

KEEP TRACK

Once the project begins, track actual spending on a computer spreadsheet or a simple piece of paper, and compare it often to budgeted amounts.

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