The National Association of the Remodeling Industry (NARI) says that moving costs between 8 to 10 percent of your current home's value. This percentage is recommended as a starting point for determining how much to invest in home improvement rather than moving.

If you plan to use a home improvement loan for your project, use an online monthly payment calculator like the one at http://www.sayplanning.com/calculate/calc_payment.html to determine your loan payment amount.

Call your preferred lender and ask for their set debt-to-income ratio (DTI) for loan approval. Use the following formula to determine your maximum affordable monthly payment for a remodeling loan: Gross monthly income x lender's DTI ratio (.45 if DTI is 45 percent). Then subtract your current total monthly expenses from this result. The remainder is the maximum affordable payment your lender will approve.

Subtract 10 to 20 percent from the total amount you have determined you can spend on your home improvement project. Set that amount aside for your contingency fund. If you don't use it on your project you will have it available for your payments or to purchase additional furnishings or accessories to finish your project.