The decision to renovate a home often starts with a dream: a new kitchen, a new bathroom, another bedroom, and so on. Such dreams are often based on a sound business decision. Renovating what is probably your biggest and best investment - your home - can increase both its value and your enjoyment of it.

Planning the financing of your renovation carefully can help you to maximize the benefits and prevent your dream from turning into a nightmare. Consider the following scenario. You think you know what you want. You talk to friends who have already renovated, and then you invite a contractor to look at the house.

The contractor asks for a description of the job. The south wall has to go, you tell him. The kitchen should be extended at least twelve feet. You want an island in the work area, pot lights in the ceiling…

The contractor scratches his chin and muses about "the high cost of everything today". Your tentative budget is $ 15,000. His estimate is $ 25,000.
Now what? Scale down the job, or put it on hold until you save more money? Your dream slowly fades into the future. However, waiting may not be the solution. The cost of the work may well increase by the time you save the extra cash. One well-known renovations consultant says this is a common dilemma.

How to Plan
Many of us embark on renovations without a carefully laid-out plan that protects against additional costs, time losses and other unforeseen situations that sometimes give renovating a bad name. To avoid surprises and complications, draft a blueprint that includes the specs for the job as well as a clear picture of the funds available and repayment terms that fit your budget and lifestyle.

Pre-approval is Step One
For your financial blueprint, the first person you should talk to is your lender. More and more people are seeking pre-approval of loans before they discuss the work with prospective contractors. Knowing exactly how much money you have available will simplify your decision-making as to the extent of the renovation.

Reviewing your financial situation with a professional lender offers another benefit: it helps you take stock of the effect of the borrowing on other aspects of your life. You may want to ensure that the renovation doesn't mean giving up the yearly vacation or other activities you consider essential to a reasonable lifestyle.

The Best Way to Borrow
The discussion with a lender may also help identify avenues for financing that might not have occurred to you. For instance, as an alternative to a loan you may wish to consider increasing an existing mortgage. This can often be done easily and at low cost.

You may also want to consider taking on a second mortgage, or using the equity in your home as security to arrange a longer repayment period, or to borrow a larger amount than would be available through an unsecured loan. All of these possibilities have to be balanced against what you anticipate to be the added value. Another financing option is a line of credit. This allows you to have a set amount "on tap" to use as you need while the job progresses.

No matter what you decide, the important thing is to line up your financing and have it pre-approved so that you are sure of your position going into discussions with prospective contractors. The chances of realising your dream are much more likely if you start with the money.

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