Many homeowners today face a serious housing dilemma. They love their home, its location, and even their neighbors. But they’ve outgrown the space. Do they trade up to a bigger or better house, thus entering a busy real estate market, or stay put and renovate?
Most homeowners have never sold and bought at the same time, nor have they lived through a renovation. Both experiences are incredibly stressful, and many people don’t know what to expect. Here are some tips for making an informed decision.
Know what you’re getting into
It’s helpful to know that it is cheaper to stay in your current home and renovate than it is to sell your home and buy a bigger one. And renovating isn’t as big a deal as one may think.
If you go into it with an open mind and full awareness, it’s not so bad. However, some people are just not cut out for living with dust, disruption, and a little bit of chaos.
Living through a renovation means a constant stress is hanging over you. If you can’t take that in your life, don’t fool yourself.
Check your finances
The most important thing you need to do is understand your home financial situation. Do you have equity in your home? If so, how much, and would you need those funds to either renovate or purchase the new home?
Is a home equity line of credit available to you? Using that money provides the mortgage tax benefit for the interest, which makes an equity line a no-brainer.
What would you need to spend on a new home in your desired location? Just like when you first got pre-approved to purchase the original home, you need to get pre-approved and run the numbers. You may find that the house you can get isn’t much bigger than where you are, or that you have to change areas to get more space.
Define your renovation requirements
What exactly is it that you need? An extra bedroom or bath, more family or community space, a larger kitchen or a master bath? Put it all out there and prioritize.
Can these changes be made within the envelope of your current home, or would you have to expand outside your walls? Renovating inside might mean that you need to leave the home for some time, while an expansion might allow you to stay in the home during the renovation.
Research zoning and building codes
Learn how building and zoning laws will affect your plan to renovate. Find out if expansion is even a possibility.
Many people think that finishing the basement is as easy as putting up some walls and carpet and moving the TV downstairs. But did you know that you likely need two forms of egress or certain height and insulation to make a finished basement meet code? A few hours of an architect’s time can help get you the information you need.
If you want to add on, make sure that your lot is big enough. Town zoning laws only allow a certain percentage of the lot to be covered. If you’re at your max, you’re out of luck.
Set-back laws might mean that you can only expand in the front or on one side of the property. You may find out immediately that what you want to do simply isn’t possible, and the decision is made for you.
Don’t over-improve for the neighborhood
You need a master bathroom and family room or some extra square footage, but will the neighborhood support it? You don’t want to be the biggest or best house on the block when you go to sell. A big master suite or designer kitchen may be just what you want, but will future buyers pay for it?
Do some research, talk to a real estate agent and attend open houses in your neighborhood. If you don’t know, ask. But do not embark on a large renovation project if you can’t get your money back when it’s time to sell.
Get ready for a different kind of stress if you move
Purchasing a new home and selling your existing one simultaneously means instant stress that is intense and compacted in a short period. The stress may come in the form of carrying two mortgages, getting a bridge loan or waiting for your home to get an offer.
Remember how you felt when you purchased your first home? Now double or even triple that.
Expect the expenses
When you sell your home, you need to pay the real estate commission and transfer tax on the sale, and you may be taxed on any gain. When you get a mortgage for the new home, expect more loan and title fees upfront.
While many closing costs and transfer fees are tax deductible, you don’t realize anything from these expenses. The $10,000 in fees might be better spent toward a new bathroom. Before you decide to explore this path, gather some information about costs.
Deciding whether to trade up or sell and buy is incredibly personal. The most obvious thing to do is to check your finances, and see what is out there on the purchase market. Learn what’s happening and understand how you would fare. And even if it’s intimidating, seriously consider renovating. It is incredibly rewarding to be able to make your home even more custom to you.