Buying a New Home vs. Remodeling: What's the Best Option for You?
No home is perfect, but sometimes our needs change as our family grows. Or maybe you've kept up with the latest in home design and noticed a shift that's caught your eye for its practicality and style. Deciding between buying a new home and updating your current one with a large remodel can be difficult. Here are a few questions to ask yourself before deciding which decision is best for you.
What Do You Want in a Home?
If you love your neighborhood and have a hard time picturing yourself in a different location, you may choose to stay put and remodel. Unique characteristics like a historic style or an original floor plan may be difficult to find in other homes. In these cases, you may want to work with what you've got and renovate.
Alternatively, if you purchased a starter home and your family has grown, purchasing a larger house may better suit your needs. Or perhaps a job change or a long work commute has convinced you that moving is the best option, even if you're not necessarily looking for a larger home. That's without even considering newer technology like smart home designs or a more open floor plan that you won't be able to recreate in your current home.
What Can Be Easily Changed in Your Current Home?
Certain items like low ceilings or an exterior design are difficult, if not impossible, to change. But if you believe you'd be perfectly satisfied with only one significant change — like an updated kitchen — you may want to price out a renovation project rather than incurring the costs of a move. Do you want to add a swimming pool or swing set to your backyard? Or would you like to finish your basement? If your current home can't accommodate these features, that's when you may start to consider buying something new.
Will a Renovation Add Value to My Home?
Certain remodel projects can also go a long way towards adding value to your home. Each year, Remodeling magazine ranks the cost versus value of popular home improvement projects to determine which are the most beneficial. In 2018, the top projects were exterior renovations and minor kitchen remodels, where cabinets are refaced but not replaced. Before spending money on a large renovation, consider what you'll get out of it, especially if you can see yourself moving in the future. Some projects will be more worthwhile than others in terms of resale value. You also don't want to price yourself out of the neighborhood with too many upgrades, which can make your home more difficult to sell.
Paying for Renovations vs. Buying a New Home
If you decide to go the renovation route, you'll need to budget for one-time expenses. Financing options are available to help manage the costs of a large home remodel. Home equity loans allow you to borrow against your home's appraised value and incur lower closing costs compared to a traditional mortgage loan. Or, if you have a sizable amount of equity in your home you may want to talk to a mortgage loan officer about refinancing your mortgage and completing what's known as a cash-out refinance.
You should also calculate the costs of a new home purchase. As a current homeowner, you're probably aware of certain expenses in addition to a mortgage payment, like property taxes, insurance, maintenance, and repairs. If you move, you'll need to pay off your current mortgage and incur additional closing costs when you buy and sell. A check of interest rates can also help you price out your potential change in mortgage payments.
For additional questions about how to finance a new home purchase or a large remodel, be sure to speak with your financial advisor. An experienced loan officer will be able to guide you toward a financial solution that works best for you.