Home renovations are more popular than ever, as people are spending more time at home and thinking about how to make their living spaces work for them.
The price tag for a typical home remodel can be in the tens of thousands of dollars, but rising home values have offered homeowners more opportunities to afford those costs. According to mortgage technology and data provider Black Knight, the average homeowner gained $48,000 in tappable equity in 2021, a 35% increase from 2020. That could be helping to drive the popularity of renovations, as homeowners often draw on home equity loans or lines of credit (HELOC) to finance renovation projects.
While homeowners have more equity to help pay for the work, costs have also gone up, driven by increased labor costs and supply chain issues affecting building materials.
Whether you’re using a home equity loan, home renovation loan, or your own savings to update your house, it’s important to estimate costs upfront before you dive in.
How Much Does It Cost to Renovate a House?
Home renovations can involve anything from repainting kitchen cabinets to refinishing hardwood floors to replacing old windows with new ones. Even small changes, such as painting a room or replacing light fixtures, can make a big difference to the look and feel of a room.
While some homeowners remodel for their own aesthetic enjoyment, others choose to renovate to increase the resale value of their home. Renovating bathrooms and kitchens tend to have the best return on investment, says Allie Weiss, U.S. digital director of Architectural Digest. “It can be costly to replace your appliances, but if they are dated that is likely to have a major impact.”
The chart below shows the average costs of popular home renovations for a house of about 2,500 square feet, according to Realtor.com. Keep in mind that these averages are just estimates; house renovation costs can vary significantly based on such factors as the materials you choose and your location.
| Common Renovations Projects | Average Cost to Renovate |
|---|---|
| Kitchen | $10,000 – $50,000, with an average of $20,474 |
| Bathroom | $9,000 |
| New Floors | $4,400 for wood; $2,800 for laminate |
| Window Replacement | $8,500 – $20,000 for 10 windows and frames |
| New Roof | $20,000 |
| Exterior Siding | $14,000 |
| Contractor Costs | 10% – 15% of project’s total cost |
Cost of Whole House Remodel
While renovating typically refers to cosmetic upgrades, remodeling often involves major structural changes. If you’re doing a whole house remodel, you might gut the house and start over, perhaps changing the floor plan, knocking down walls, or rearranging electrical wiring in the process.
Building an addition can also have a high ROI when it comes time to resell, according to Matt Lavinder, president of home remodeling company New Again Houses. “With COVID, the person’s home became a whole lot more,” Lavinder says. “Now it’s not just a home, it’s also a school, office, it’s where you go retail shopping, it’s your mall, theater. It’s all these different purposes now. At the end of the day, the square footage has become much more valuable.”
An addition or whole house remodel is a more complex undertaking than a minor renovation, and as such your renovation costs per square foot may be higher. While there are a lot of variables that affect the cost to remodel a house, these estimates from Realtor.com offer some average costs:
| Small remodel with painting, small repairs and new landscaping | $25,000 to $45,000 |
| Moderate remodel with kitchen and bathroom overhauls | $46,000 to $75,000 |
| Major remodel, with foundation, roof and sewer repairs | $76,000 and up |
Factors That Affect the Price of Home Renovations
A lot goes into a successful home improvement project beyond just wood and paint. Here are a few of the main items to consider as you price out your home renovation project:
Labor Costs
If you’re doing a major renovation or remodel, you’ll need to cover labor costs for builders, contractors, or anyone else working on your home. Those costs are going up, Lavinder says.
“Labor costs keep going up, because there’s a shortage of skilled trades,” he said. “There’s not enough electricians, there’s not enough plumbers, there’s not enough of anything. And so because of that, labor has gotten more expensive.”
The cost of labor includes more than just the wages of the people doing the work, says Anna Karp, CEO and co-founder of New-York based design, architecture, and build service firm Bolster. You also need to include estimates of costs such as insurance.
“Workers’ compensation is a percentage of the hourly or daily cost of a worker,” Karp says. “So it’s not just the hourly rate, it’s also the insurance associated with it.”
Code Regulations
Your local building regulations can have a major impact on the cost of a home renovation, Lavinder says. Code requirements could cause costs to “vary wildly” from one location to another.
“In one city, it could take an electrician 50% longer to do a task because of all the code requirements as opposed to another,” said Lavinder.
Code regulations might not matter as much for smaller projects, but for larger renovations, they can lead to delays that drive up your labor costs..
Material Costs
The costs of certain building materials have also been going up. “The cost of lumber has been really volatile the past year,” Lavinder says.
It’s not just lumber: Steel is also among the materials that have gotten more expensive in recent years, Karp says.
One reason materials have gotten pricier is that supply chains have been disrupted due to COVID. “Across the board and in every location, materials have been getting more expensive because of supply chain issues,” Lavinder said.
However, if you’re not doing a major remodel, you might not need much lumber or steel to complete your project.
“I think materials are what people concentrate most on,” said Lavinder. “But it’s probably the least important [factor].”
How to Pay For a Home Renovation
While the cost of materials and labor have been rising, homeowners might be in a better position to afford them thanks to rising home values. With more tappable equity at their fingertips, homeowners can draw on a HELOC or home equity loan to finance their home renovation. Here are a few ways to pay for a home renovation
HELOC
If you have built up some equity in your home, you can draw on a home equity line of credit, or HELOC to fund your home renovation. A HELOC tends to have a better interest rate than a personal loan. Depending on a few factors, including your credit, you might be able to take out a HELOC worth up to 85% of the value of your home, minus what you owe on your mortgage. There are risks: Just like a mortgage, home equity loans and HELOCs are secured by your home, meaning the bank could foreclose if you fail to repay.
Home Equity Loan
Similar to a HELOC, a home equity loan draws on the equity in your home. But rather than borrowing small amounts at a time and paying as you go, a home equity loan involves borrowing a lump sum upfront and paying it back in monthly payments at a fixed rate.
Savings
If you can draw on your own savings to pay for your home renovations, you won’t have to go into debt. At the same time, be careful about draining your account. It’s a good idea to have an emergency fund on hand in case of unexpected expenses or job loss.
Renovation Loan
Home renovation loans are based on the value of your home after your renovation is complete. A lender offers a loan based on your proposed renovation project and its expected return on investment. Borrowing a home renovation loan could give you more borrowing power, but make sure not to take on more debt than you can afford.
Government Loan
If you meet certain guidelines, you might qualify for a government-backed loan for home renovations, such as the Fannie Mae HomeStyle Renovation Mortgage or FHA 203(K) Rehab Mortgage. You might need to work with your contractor to determine a budget and submit plans to the lender so it can determine your eligibility. You might also be able to qualify for government grants for home improvements.
Cash-Out Refinance
A cash-out refinance involves replacing your mortgage with a new, higher loan. Because your new mortgage is higher, you’ll pocket the difference, or in this case, put it toward home renovations. Refinancing comes with fees, including closing costs and origination fees, so make sure your interest savings will be worth it before choosing this route.
Personal Loan
Depending on your creditworthiness, you could borrow a personal loan to pay for home renovations. A personal loan is an installment loan that you’ll pay back over a set period of time with fixed monthly payments. Personal loans are typically available from banks, credit unions, and online lenders.
Credit Card
Charging your house renovation costs on a credit card is not recommended, as credit cards come with high APRs. The average credit card APR in 2021 was around 16%, according to the Federal Reserve, and rates are likely headed up. Because of high interest charges, racking up a high balance on your card could leave you with burdensome debt that’s difficult to pay off.
Ways to Save Money on Home Renovation
While you can’t control the supply chain, you can find ways to save money on your home renovation. Karp recommends working with people who will share costs with you upfront.
“I think the number one thing is to have the right team, a team that you trust,” she says. “As much as possible, homeowners should try to get an idea of the cost of the project, meaning architectural fees, compliance fees, and build costs at the schematic design, development, and construction stage.”
Allow space in your timeline for unexpected delays, Weiss says.
“Make a sort of renovation calendar that has enough space for any sort of interruptions,” she says. “Even [prepare for] things like your contractors have to be out because they may have been exposed to COVID. There’s nothing worse than expecting a renovation to be done months and months before it’s actually done, so make sure you can dedicate ample time to the project to account for the hiccups you may face.”
Finally, Lavinder reminds homeowners to solidify their renovation plans before they get started.
“People may have a plan for the remodel, but then they change their mind in the middle,” he says. “That has a ripple effect that affects all these different costs. Going into a project and sticking with it and not changing your mind is one of the most important parts of doing a successful remodel.”
