At the time, the house you originally bought was perfect for you. However, your situation may have changed, your preferences adjusted, and eventually, your home may no longer be what you need or want. Your choices: move to a different home or remodel your current one. Both decisions have significant financial, time, and emotional impacts. Which one is better? According to a Rasmussen Reports survey, 52% of Americans feel that their home is their best investment. A Houzz home survey indicated that the respondents who planned on a home improvement projects increased by 12% in 2013. On the other hand, moving to a new home can be equally as enticing, though possibly more expensive. Is remodeling your home worth it? That depends. Remember that you generally do not recoup your costs if you sell soon after completing your renovations. But if you plan on staying in your home, remodeling could be the way to go. However, there are pros and cons to purchasing a new home and remodeling. Consider some of the following factors:
- Location: Are you happy or unhappy with the schools in your neighborhood? Is your job stable and in a convenient location, or will you need to relocate? Do you like your neighbors? Before you commit to a plan, be sure that you really want to proceed. You may want to remain in your current community, or look forward to new and exciting changes.
- Need to exceed: Will your renovation project bring your house up to the same level as the other properties in your area, or will it exceed them? Remember that market prices are balanced by the lower priced homes in your neighborhood, and not necessarily by the higher ones.
- Privacy: When selling your home, you will need to let strangers into your home to peer through closets and cupboards, in basements and backyards. But the same holds true when remodeling; contractors will need access to your home, and certain areas will be off limits during the work period. Which inconvenience is more convenient given your situation?
- Work with the pros: Whichever decision you make, you will need to deal with professionals – either a real estate agent or contractors. Do you have the experience and desire to manage a home renovation project on your own?
- Bells and whistles: Are you hoping simply for an extra room, or are you also hoping for the extras such as granite counter tops, a soaker tub, or a pool? While you can get all of these little items in either a remodel or a new home, you will need to balance living in a construction zone versus the additional costs of purchasing them already completed in a new home.
Even if you think you know which path you want, you need to factor in the financial components of your decision:
- Home value: Do you know the current worth of your home? Ask an agent for a “Comparative Market Analysis,” (CMA). It will help you understand what houses similar to yours are selling for in your neighborhood.
- Renovation costs: You need to calculate the cost of your home improvements. Contact multiple reputable, licensed contractors for quotes. Use consumer sources to obtain a ballpark idea of what your renovation may cost. Always include a buffer in case of unforeseen costs.
- Moving costs: Don’t kid yourself – moving also costs. In your analysis, include a sales commission on the price of your home, any repairs that are required, moving truck costs, legal fees, as well as closing costs, among others.
- Taxes: Whether you are buying a larger home or remodeling, expect increase in the property taxes. Can you afford them?
- Loans: Buying a larger home and renovating both require money – money you may not have on hand. You are most likely familiar with the various mortgage products available to help you secure the additional financing you may need for a new home. Did you know that you can also get a special loan for renovations, with restrictions? An FHA 203k loan is available to those people who want to purchase and repair an older home or fixer upper. Learn more here by downloading our Free FHA 203k Fact Sheet now.
New home or remodeling – you need to understand the financial and personal differences of each option. Both have their advantages and disadvantages, therefore, your final decision should be the one that makes the most sense for you. If you have any questions, contact your mortgage lender for advice – you won’t regret it.