Buying a home is a major life achievement—but it’s not a milestone that will magically solve all of your real estate problems.
Even when you succeed in buying a home and building equity in that property, you can still face real-life challenges when it comes to making the most of that space or meeting your personal needs and goals with the space the home is able to provide.
There are many reasons why a home you previously purchased might become insufficient for your current needs. If you find yourself at that crossroads, the two options available are renovation or relocation.
Each option comes with its own benefits and risks. Struggling to decide? Here’s a quick homeowners guide to help you make your choice.
Is it cheaper to stay and renovate or to buy and move?
The first step of any good homeowners guide is often the toughest one for homeowners: You have to answer the question, “Should I stay, or should I go?”
It’s helpful to keep in mind that, regardless of your choice, you will face costs if you want to change your living situation. Those costs can vary significantly and should be calculated before you make any decisions.
When you renovate, you’ll need to pay to make those changes to your home. You might be able to tap equity in your home to protect your cash reserves, but you’ll end up paying for it eventually.
By contrast, when you buy a new home, you’ll likely have to pay closing costs in addition to the difference between your current home and your new one. Keep in mind, too, that a new home may still have renovation needs.
How does your mortgage interest rate compare to the current market average?
If you’ve owned your home for a few years or longer, you might be facing a different housing market than the one you dealt with before in terms of interest rates. If current rates are lower than what you have now on a mortgage, you can save on interest by either refinancing your home or buying a new one.
However, if rates are higher today than they were when you bought, you’ll end up paying more if you change your mortgage. The cost difference alone might not be enough to influence your decision about whether to stay in your home or to seek an upgrade, but it is smart to do the math and make sure you know how much a higher interest rate might cost you over time.
Is the housing market hot or cold?
Buyers are often tempted to sell their homes at the peak of a hot housing market, but there is an important caveat to keep in mind: If you plan on staying in your area, you might get a high price for the house you’re selling, but you’ll also likely pay a premium on the home you buy.
That said, it is possible to take advantage of a hot housing market by moving to a less competitive part of your community or by moving to a different community altogether. If you work remotely, you might have additional flexibility in where you choose to live.
Or, depending on the local real estate market, you might be able to create a buying advantage by strategically purchasing in an area that hasn’t been as hard-hit by rising prices.
Are you prepared to endure the inconvenience of remodeling?
If you plan on staying in your home while renovating, be prepared for inconvenience in the form of dust, messes, and inaccessible parts of your home.
This mess is unavoidable, at least to some degree, and not everyone is up to the task. Some homeowners may be fine enduring some short-term discomfort, but others may feel that the stress and inconvenience is not worth the long-term benefits, especially knowing that most project timelines are simply estimates. Ultimately, your willingness to endure a remodel may depend on the appeal of your moving options.
Remodeling may also require refinancing your home. Although this option can offer benefits such as lowering your interest rate and tapping unused equity, every homeowner must evaluate their existing loan and home equity to decide if now is the right time to tap these funds.
Will a new home address your greatest pain points?
If you consider moving to a new home to address the shortcomings of your current home, make sure the house you purchase adequately addresses these needs. This could mean paying special attention to the size or number of bedrooms, kitchen appliances, square footage of the home and/or lot, or other criteria.
It might be difficult to find the “perfect” home. But if you make too many compromises in your new home search, you could find yourself in a situation where your new home becomes just another problem you need to either solve or escape.
When making the choice between refinancing your current home or purchasing a new home, you must balance both financial and emotional considerations. Rather than overemphasizing one single point in your decision-making, it is important to consider the full spectrum of factors influencing your choice. A comprehensive homeowners guide can cover these considerations in greater detail, giving you more confidence that whatever decision you make will be the right one for you.
Considering a refinance? Download The Smart Homeowner’s Guide to Refinancing today.
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