Financial expert Suze Orman
We all love before-and-after pictures of home renovations, but photos don't show the price of transformation. Here's how you can keep construction expenses from sending you to the poor house:

Plan on overspending. Conventional wisdom is that your actual costs will be about 30 percent higher than the contractor's bid, but they can be far more—sometimes double. To avoid overruns, wait until you have finalized plans before starting work.

Don't bet the house. Tapping savings is safest. But if you need to take out a home equity line of credit (HELOC) or home equity loan (HEL), make sure you can handle the added debt. No upgrade is worth the risk of losing your home if you fall behind on payments. Interest rates on HELOCs fluctuate with the economy. This is a good option when rates are stable or failing and you expect to pay off the loan quickly. For projects you'll be paying off for years, a HEL can be better because the rate never changes.

Hire smart. Talk to your prospective contractors' past clients. With the building craze of the past few years, many firms had to hire new, unproven workers, so verify that recent projects went well.

Understand the fees. If your architect charges you based on total construction costs (up to 15 percent or so), it's crucial that your contract include a maximum dollar amount. The same holds true if his or her fee is based on an hourly rate. Ask whether that figure includes additional professionals he or she might need to bring in, such as a structural engineer.

Protect yourself. In the event you have to fire your architect or contractor, your project could be in jeopardy if your contract doesn't stipulate that you're entitled to the plans for work that's been done up to that point. And, depending on your state, see if you can get the permits in your name and not the architect's or contractor's. If you sever ties, the project could be stalled until you refile.
Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.

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