How much can you afford to do?

You may be lucky and money may not be an issue for you, but I doubt it. For most of us, money is the most important thing and we only have so much of it to spend on a reno. But how much can you afford and how much should you spend? Here’s how to find out.

1. Go to see a mortgage advisor.

A mortgage advisor (we used Ray Strong at Smartline) will tell you how much you can borrow and how much it will cost. But be aware that brokers often tell you you can afford much more than you’d actually be comfortable paying – sure you can afford it, just so long as you never go on holiday or ever buy a new car.

2. Look at your bank account

How much are your incomings and outgoings each month? Has that stayed the same or changed in the last year? How much could you really afford to pay on a mortgage? Do you have savings. Tally up exactly how much you have saved, how much you feel comfortable spending on a mortgage each month (and therefore how much you can borrow).

3. Think of what costs are involved.

The cost of the reno will not just be what the builder quotes. You will also have to add a contingency of roughly 10%, an amount for fees and charges, and your move out costs. The expert fees and charges will probably include a survey to mark out the land and if you are raising the house, determine how high you can go (about $2300), engineering reports to work out the footings and slab ($1500), architect or draftsman fees (between $2000 and $30,000), building certifiers and application fees to council ($2000). All of these costs need to be deducted from the total of what you can afford.

4. What’s left?

What is left after the deductions is what you can afford to pay for a renovation. So if you had $40,000 savings and could afford to borrow $300,000, you had a total of $340,000, but minus the fees and expenditure this could be reduced to $280,000.

5. How much does that buy?

It’s difficult to say, but I’ve been told the average whole house reno costs between $1000 and $3000 per square metre that is touched by the builder. This has to include patios/ decks and car ports. So if you averaged $2000 a square metre then $280,000 would buy you about 140 square metres of house. It’s not an exact science of course, and much depends on the finish you want, but you can get a rough idea. And certainly you will know that you can’t afford the 600 square metre house you were thinking of!

6. Less is more

One thing to remember though is that you can always hold off on some jobs until later. Will anyone really care if your laundry isn’t 100% finished, if it just has basic tiled floors, a tub and a washer in it? Could you fit out the ensuite at a later date? Could you live without a car port for a while? Does the whole house need to be painted or could you do some of it later, or yourself? You could save yourself a fair amount of money just by prioritising what is really important to do now.

7. What’s it all going to be worth in the end?

This important question is often ignored. I’m a Scot though and for me the idea of spending more than something is going to be worth is just plain stupid. So check out with local real estate agents and by looking on the web (try onthehouse.com for free info on what’s sold for what in your area) and get a good handle on what your house is worth now and what it would be worth if it was done up. Subtract one from the other and that figure is the top of what you should spend on your renovation.