Add on to Your House or Buy New?
You love your home, its location, even your neighbors. But it’s no longer big enough. What’s next? Is it better to add on to your house or buy new? Here are some tips to help you decide.
It’s less expensive to upgrade, but it’s not for everyone
Generally speaking, it’s cheaper to stay in your home and expand it than to sell and buy a bigger place. Adding on to a home isn’t as big a deal as you may think, but some people aren’t cut out for the dust and disruption. Be honest with yourself: Can you and your family handle a period of chaos?
Consider the financial picture
Some other questions to ponder: Do you have equity in your home? If so, how much do you have? Would you need those funds to either renovate or purchase a 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? When you run the numbers, you may discover that the house you can afford isn’t much bigger than where you are, or that you have to change areas to get more space.
Be clear about 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? 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 a while, but an expansion might allow you to stay in the home while the work is going on.
Find out about zoning and building codes
Many people assume that finishing the basement is as easy as putting up some walls and carpet and moving the TV downstairs. But you may 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 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 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. So be clear about the codes that could affect your plans as soon as possible.
Don’t build the best house on the block
You need a master bathroom and family room or some extra square footage. But does that put your house out of sync with the rest of your block or neighborhood? You don’t want to be the biggest or best house on your block when you go to sell, because future buyers may balk at your price in context of the other homes nearby. Bottom line: Don’t embark on a large renovation project if you can’t get your money back later when you sell.
Prepare yourself for stressful days ahead if you move
Buying a new home and selling your current one simultaneously creates a lot of intense stress in a short period of time. After all, you’ll be carrying two mortgages, getting a bridge loan, or waiting for your home to get an offer. So factor the stress into the equation. How much can you take? Will it be worth it?
Prepare for 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. Put another way: 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.
Ultimately, the most important thing to do is to check your finances and see what’s on the market. Learn what’s happening in the market. 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.