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How to Create a Budget for Your AC Replacement

If your air conditioner stopped working unexpectedly, it creates a stressful situation for your entire household. The silver lining is that a new air conditioning unit will keep you cool, help increase the value of your home, and save your money on your utility bills. Trying to make decisions under strife can be daunting. It is important to have clear conversations around cost with your contractor and complete the budgeting process for your HVAC project.

Creating a budget for a home improvement project like an air conditioning replacement can seem intimidating. It is important to research how to best manage and create a budget for your investment in your home.

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Budgeting for Your Air Conditioner

There are so many systems and projects in today’s market to match every homeowner’s needs and budget. Things to consider with your contractor will include the type of system your contractor suggests for your home, the energy efficiency of that system, and the budget you’re working with. Complete your own research, but also expect your contractor to know which system will be the most cost effective for your home.  We encourage you to look at our cost calculator as well to get a better idea of what to expect.

At Modernize, we frequently speak to homeowners about their home improvement projects. Budgeting your project is stressful and we get that: The first step is to be sure you can afford the air conditioning unit you’re planning to install, based on factors like your cash flow, your assets, and what the return will be on your investment.

That’s where the budget comes in. Put simply, your budget is comprised of some simple math. After consulting with your contractor, here’s what you need to figure out.

How Much Can You Afford?

Depending on your home’s layout, your contractor will help determine the best air conditioning system for your needs. Prices could range anywhere from $3,500 to $7,600. But remember, certain units will also help drive your energy costs down. As noted in a previous Modernize report, central air conditioning units with high energy efficiency capabilities —also known as high SEER ratings— can save you a considerable amount of money on your average heating and cooling energy bills.

Calculate your income and your expenses, your needs and your wants, and find the figure of money you could theoretically put aside for an investment in your home. Your experienced contractor is one of your most important initial sources on how to best determine what that investment should look like from outside your personal goals.

What Is Your Home Equity?

If and when you decide to finance your own air conditioning installation, your home equity could play a pivotal role in everything from your loan amount to your interest rate. Simply put, your equity is the difference between what you owe on your home or property and the appraised (or market) value determined for it.

The more of your mortgage you’ve already paid, for example, the higher your equity in the given property. And the more equity you hold in your home, the more powerful you are as a borrower, especially when it comes to purchasing power, or the financial ability to buy (or purchase) things.

What Is Your Credit Rating?

From your credit score to your existing savings, purchasing power, and other ongoing loans, various financial institutions will have slightly different scales by which to determine your eligibility for a home improvement loan. And while some programs are certainly designed to be on your side—like the HomeStyle Energy Program or the Title I Property Improvement Loan—you’re going to be paying back in some way.

One of the most significant markers of your financial health—as determined by financial institutions, anyway—is your credit score. Plainly put, a credit score is “predicts how likely you are to pay back a loan on time,” according to the Consumer Financial Protection Bureau. Companies us proprietary  scoring models to calculate your credit score using information from your credit reports, which essentially break down your “credit activity and current credit situation, such as loan paying history and the status of your credit accounts.”

Knowing your credit rating and how you’ll be considered as a borrower will go a long way in helping you determine how much you can afford as you budget for new siding.

Be Real About Your Air Conditioning Needs

Homeowners have told us repeatedly through surveys that trying to decipher the complex elements of their siding project left them seeking more professional support— which our homeowners found with Modernize.

You likely already have a solid idea of what this project will be comprised of based on what your contractor has shared with you. And while their goals might be completely in your favor and aim to maximize your home’s insulation or energy efficiency, they might not necessarily align with your personal or aesthetic goals. Be sure to communicate your own priorities with your contractor.

It all comes down to trusting a contractor—and that also means a contractor trusting you. The more upfront you are about what you want to do and your financial limits, the better a contractor will be able to hone in on the best type of budget to build for your air conditioning project. It will ensure the best value you’ll get for the money you’re able to invest.

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