You’ve decided you need a change in your current living situation, and you’re ready to be out with the old and in with the new. But the age-old question is: should you move to a brand new house, or renovate your current home? Which is the better option for you and your bank account? The circumstances for each option come with their own financial implications, so it’s important to weigh the pros and cons to see what would be best for you.
Buying a New Home
Whatever reason you have for wanting to move, whether it’s the need for more space or looking for a change of scenery, searching the housing market can be tough. There are multiple financial factors you’ll want to consider before putting a for sale sign in front of your current home.
One upfront price when buying a new house that you won’t be able to avoid is closing costs. The average closing costs for a home buyer are between 2% - 5% of the price tag of the home. Don’t forget about your costs when you go to sell your current house as well. If you hire a real estate agent to help you sell your home, you’ll owe them about 6% of the price of your home.
You’ll have to take into consideration the cost of the down payment as well. If you’re buying a home that’s move-in ready, chances are it will be more expensive than your current house, which means the down payment will be significantly higher. Be sure to evaluate if you can afford the down payment, as well as the increase in your monthly mortgage payment and utility costs.
Property taxes are another expense you’ll want to take into account if you choose to move to a new house. If you’re moving to a more expensive neighborhood, property taxes might be much higher than you’re used to. Same goes for the school taxes: changing neighborhoods likely means changing school districts, so you’ll need to calculate if your budget will be able to sustain the changes in your monthly and yearly expenses.
Remodeling Your Current Home
Home is where the heart is, so it can be difficult to separate yourself from the house where you’ve built memories with your family. If you’re comfortable in your current home, it can be hard to leave that all behind. If you want to stay in your home but you know it needs a few updates, make a list of all of the renovations you’d like to have done before making any decisions.
First things first: you need to set a budget for your home renovation. Do some research to figure out how much your home remodeling projects are going to cost you. Look at the comps in your neighborhood for the values of other similar homes around you so you can make a realistic budget of how much you should be putting into your house. The annual Cost vs. Value report for various home remodeling projects in different regions of the United States is a great place to get an idea of the ROI on different types of renovations.
Even after you’ve explored the ROI of a given remodeling project in your neighborhood and set a reasonable budget, it’s possible to have unforeseen costs enter the picture. While working with a reputable design-build contractor can help cut down on cost overruns, timeline issues, and other surprises, it’s always a good idea to factor in some “emergency funds” as part of your remodeling budget.
It’s important to know your plan of how you’re going to pay for these renovation projects. Full remodels can be expensive, so look into your options for home improvement loans. A loan will help keep your budget firm so that you have to work with the amount you can afford. A home renovation takes up a lot of time and energy and can be expensive, but it can also be a great investment. You’ll want to be prepared both financially and mentally if remodeling is the option you choose.
Once you’ve weighed the options and evaluated your financial standing, it’s time to decide what to do: buy new or remodel? Whether you choose to renovate your home or buy a new, move-in ready home, it’s crucial to understand the financial repercussions that come with both. No one likes to be drowning in debt, so do your research, know your options, and be realistic about what you can afford.