A good cost estimate home remodeling should be within 2-3% of the actual cost. But unexpected costs and upgrades can creep in putting the estimate 10-15% below actual.

You need a plan where you can cut corners if necessary when cost overruns begin to jeopardize your project. Some suggestions include:

1. Save money before home remodeling:
   
   
   • design your home remodeling plan within budget — don't add special frills that you can't afford
     
     
   • add a financial variance — don't plan your home remodeling plan using 100% of your budget, set aside a portion of your budget for variance
     
     
   • shop prices aggressively — get several bids from contractors and shop materials among 1-2 suppliers that offer discount incentives
     
     
   • plan your home to minimize waste — materials come in certain dimensions, plan your rooms so that you maximize all of the material without having to cut it in half
     
     
2. Perform the work yourself:
   
   There are home remodeling jobs that you may take on yourself to reduce costs:
   
   
   • painting
   • wallpaper
   • moldings
   • light fixtures
   • some landscaping
   • clean up
   • others
     
     
3. Get the extras later:
   
   
   • microwave, crown moldings, alarm system, swimming pool, finished bonus room, etc., are all "want-to-have's" but are not needed to occupy your home
     
     
   • you can cut these items from home remodeling plan to save money and then add them later once you have settled in the home
     
     
4. Downgrade:
   

• use regular windows instead of designer windows
• install straight-up stairways instead of oriental stairs
• lay vinyl flooring instead of tile
• others: make a list of acceptable downgrades
  

Home Remodeling Cost Breakdown

• Builders will prepare a cost breakdown of the project that has four cost components:
  
  
  1. Fixed Costs: basically the startup costs such as the land purchase, building fees, architectural fees and the like.
     
     
  2. Bids: portions of your home costs that are from subcontractors and suppliers for plumbing, roofing, foundation, etc. These players will provide estimated cost bids based upon the projected plans and specifications.
     
     
  3. Estimates: this includes the builder's estimates for materials and services to build your home. Such items include lumber, concrete, site excavation, trash removal, etc.
     
     
  4. Allowances: includes the finishing touches of the home such as cabinetry, flooring, lighting, landscaping, etc. The builder will estimate a dollar figure for these items. Anything in excess, or desired upgrades, is the financial responsibility of the buyer.
     
     — from www.b4ubuild.com
     view a sample residential remodeling contract and schedule
     
     does your residential remodeling agreement protect you?
     
     
• Lenders require a cost breakdown to approve the amount of home remodeling funding. A good estimate will be within 1-2% of the actual costs. A poor estimate can be off as much as 5-10%.
  
  Builders generally tack on a fee as a percentage of the total cost or some fixed amount. You will need to negotiate with the builder on fixed price guarantees and warranty provisions.
  
  
• Keeping within cost estimates:
  
  It will be tempting to upgrade on features or alter the plans that will increase the cost estimates. It is a good idea to have a plan ready when cost estimates exceed their budgeted amount. This way you can act fast so as not to delay the home remodeling.
  
  Suggested plans may include:
  
  
  1. Cash Reserve: maintain a separate cash reserve or take out a home equity line on your existing home: see our site YourEquity.com for information about home equity lines
     
     Word of caution: the equity in your existing home may be your downpayment on your home remodeling loan. Using your equity may increase your costs for the mortgage loan. Analyze your numbers.
     
     
  2. Financing Plan: some lenders may allow a percentage increase of the line for extra costs. But there is a limit to this percentage. Lenders expect the home remodeling plan to remain within costs.
     
     
  3. Change Specifications Plan: be prepared to delay completion of a room or landscaping to keep the home remodeling project on time and within budget.
     
     
  4. Change Building Plan: you may need to redesign your building plan to bring the project down to a more modest design and funding.