Remodel or Move?
What's Best for You?

Tired of your old house? Need more room? Want a different neighborhood? Thinking about trading up to a new home or building one? Smart homeowners are now evaluating between whether it's a better decision to remodel, add-on or move. A lot of money is involved, no matter what you choose. So don't make these kinds of decisions primarily based on emotions.

So here are some financial factors to consider first:

Considerations That Are Important

Don't move solely as an investment. Be sure you want to move because you really want extra space or a different neighborhood. Don't buy bigger just to have bigger or because of home prices. You cannot count on "hot" home appreciation every year. Make sure your monthly payments do not exceed 25% of your income or you could have trouble making ends meet.

Consider the neighborhood. A home is more than the walls. It's a neighborhood, the view, the schools, the proximity to stores, the traffic, the crime rate. You can't change a neighborhood you don't like but by remodeling you can change your home to be more of what you want and need.

Think about what you want to change. Do you need more square footage? Would another bedroom or bath be sufficient? Could you add a second story? Or do you just need to update the kitchen and add more storage?

Priced for the Neighborhood

Experts say you're more likely to recoup remodeling costs or addition expenses if your home is below the average price for homes in your area. If an add on will make your home the most expensive one on the block, you won't recoup the costs when you sell, most likely.

So it's a good idea to assess the true costs. Trading up to a larger, more expensive home involves selling and buying costs. When you factor in commissions, appraisals, points, application fees, and moving costs, you might lose eight to 12 percent of the cost of your current home. And you're likely to run into repair costs on the current home just to get it to sell. Then there are the costs you'll likely encounter to decorate and/or remodel the new home.

Add all these factors and then throw in the moving costs and the costs associated with new utilities, changing banks, changing stationery and so forth. You'll likely get higher real estate taxes, maintenance costs and insurance as well. You have to add all of these into the picture. Add all these costs to the difference between the price of your current home and the one you want to buy.

Take into consideration the mortgage rates. New mortgage rates might be less than the cost of borrowing to remodel. The interest rate on a home equity line (2nd mortgage) will be more than on a first mortgage.

Compare square footage. An easy comparison is to compare costs based on the square footage. If you present home is $200 per square foot and you move into a home costing $300 per square foot, you're essentially buying the same size home for 50 percent more. This could work in your favour if you move from a hot housing market into a cooler market.

Other factors to consider: the age and quality of the new home, the neighborhood, the commute to work, distance to schools, shopping and church.

Condition of Current Home

What shape is your current home? Will it be due for major maintenance soon? Do the roof, furnace, water heater, windows need replacing? Does the exterior and interior need to be painted? Typically homeowners will spend 4 times the price of a home (over 30 years) paying for maintaining and remodeling the home. Homes typically need some serious repairs in their 10th-20th year, so moving every 10 years could be a good idea.

Taking Out a Loan

Don't take out a home equity loan to pay off debts. But know that the interest on the first $100,000 of a home equity loan is generally tax deductible. But do remember that home equity loans put your home in jeopardy if you are unable to make the payments. If you don't get a fixed rate loan for a fixed amount and a fixed payoff date, you need to make sure you have plenty of extra income to cover your payments if interest rates rise.

And remember, even if your home has gone up in value, there is always a risk of a decline in real estate values. A real estate bubble could burst at any time any where. You don't want to discover that your debt exceeds the home's value. So be careful.

October's Quick Links

Caulk Out the Cold Weather
Remodeling Tips for Your Kitchen
The Value of Home Improvements
Do you remodel or move?
Interior Design/Redesign Blog
October's Newsletter

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