Is your home starting to feel a bit cramped? If you're thinking of selling your house and buying a bigger home, you may want to compare the benefits of a home equity loan for renovations, vs. the benefits of moving.
Of course, the first question is: can your current home be modified to fit your new needs? Decide if the plot of land is big enough for the additions you'd need. Will the foundation support an added floor above your home? Imagine the changes you'd need and plan them out to determine if modifying your home is realistic. If you think a renovation is feasible, check with a professional to be sure.
If renovation is a realistic option, the next consideration is to compare the costs and other expenses involved.
Financial Costs
If you buy a new home, included in your closing costs will be additional fees for the appraisal, credit checks and title insurance. These extra costs usually amount to between 2% and 6% of the loan itself. Home equity loans are almost universally smaller than mortgages, and bring lower closing costs as well.
When selling a home, there are extra costs and fees as well. Real estate commissions, the seller's closing costs, and other expenses can total up to 10% of the total sale price. Don't forget that moving costs money as well.
In terms of taxes, regardless of whether you take out a mortgage or a home equity loan, your interest payments are usually tax-deductible.
Renovating is usually the cheaper option, and by renovating your home, you'll increase its value for the day when you do eventually sell.
Other Factors
The other factors or "intangible costs" for selling and moving, vs. renovating, are also worth considering. Your time, energy and comfort are important.
There are pros and cons to both moving and renovating. Here are some of the points to consider for each choice:
Moving Cons
- There is a lot of stress involved in selling a home and buying another. It takes a lot of time.
- Your family will have to adjust to a new setting, possibly meaning new schools and friends for your kids, and a longer commute to work.
Moving Pros
- It's possible to find a home that's ready to inhabit and perfect for your needs.
- You'll avoid the discomfort that comes with living in a home with ongoing renovations.
- There's less risk of costly surprises when moving, compared to renovating.
Renovating Cons
- Zoning regulations and building codes, building permits, and other legal issues come into play.
- Dust, bare walls and floors, contractors, and noise will be a fact of life during renovation.
- There are risks of structural issues, contractor complications, and other unavoidable-and-unpredictable costs when renovating.
Renovating Pros
- Renovating is usually a cheaper way to get your dream home, than buying a new house.
- Selling one house, buying another, and moving are generally more stressful than renovating.
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