When your family has outgrown your current home or your house hasn’t been updated to remain current it’s time to make a decision. Should you renovate and love it or look for another home and list it?
Instead of putting your home on the selling block and heading out shopping for a new home right away, it may be worth considering using some of your home equity to renovate so you can remain in your current location. If you have grown to love your neighborhood and all the amenities it has to offer or it is convenient to work, school and activities it might be desirable to stay where you are and make your home work for you.
The first consideration is whether your home can be adjusted to meet your needs. Is your lot big enough for an addition? Will your foundation handle the weight of an extra floor? Does the tired look of your home require a major overhaul? Will the renovations add value to the home?
Plan out the changes you’d like to make and speak to professional renovators to seek several quotes before making your decision.
Next, depending on the complexity of the project, you have to decide if it’s worthwhile for you and your family to live in a construction zone for several weeks or even months while improvements are being made to your home.
Finally, unless you have a lot of money saved up, you have to weigh your finances to determine what makes the most financial sense to you and your family in the short and long term.
Paying for the Renovations
If you aren’t in a position to pay for your renovations with money from savings or investments you might consider refinancing or taking out a home equity line of credit.
With the mortgage stress test making it more difficult to qualify for a new home loan, using some of your home equity to pay for the renovations could help improve your living space and create the features you need.
Another option is taking a home equity line of credit (HELOC) – where you can access money as required for each stage of your renovation. You only pay interest on the amount you use. This line of credit is secured by the equity in your home.
It’s important to weigh the renovation costs with the potential for your home to increase in value as well. The key is to talk to your mortgage expert who has access to multiple financial institutions and products to ensure you get the best option for you.
The Cost of Selling
At first glance, it may seem like it will be costly to undertake a renovation, but the paybacks are huge in terms of your satisfaction, quality of life and increased value in your home. Whereas it may seem easier to just sell and buy a new house, there are many costs to doing so including:
- Real Estate Fees. To sell your house it can cost up to 6% of the value for a realtor. So, if you sell your house for $250,000, you could end up paying $15,000 in commissions.
- Legal fees. Depending on the complexity of transaction can range between $1,000-$2,000.
- Land Transfer Tax. Where applicable this can be 1-3% of the value of the new home you are purchasing. So, if you buy a house for $300,000 this can be approximately $4,000.
- Moving Expenses. These will vary depending on if you hire packers and movers and how much stuff you have to move.
- Decorating the New Home. If you need to furnish a larger space it could cost thousands of dollars more to do so.
- Mortgage Penalty. Depending on the terms of your lender and your mortgage balance you could face fees in the range of $1,000 to $10,000 or more!
There are many considerations when trying to decide whether to move or to renovate your current home. The decision between renovating and upgrading to a new house is not just a financial one. You should also consider your time, energy and peace of mind.
Each choice has advantages and disadvantages. When determining the best option for you and your family, consider the pros and cons of both renovating your existing home and moving to a new home.
By taking into account what you want to do, why you want to do it, the costs of the renovations and upgrades, and the value of your renovated home in relation to other homes in your neighborhood compared to the costs of buying a new home, you can determine which option is best for you.