If you’re considering remodeling your home by refinancing and wondering whether or not to renovate or sell your current home, you certainly are not alone. There’s a definite confusion which befalls homeowners torn between renovating and purchasing new construction. The best choice will always be predicated on personal circumstances, but, there are factors that don’t typically change which will come into play.
While you may be comfortable with where your current home is located the very fact that you’re considering moving into a new property begs the questions to why you’re conflicted. In other words, if you were perfectly content with your current home than there wouldn’t be a choice, you’d simply start planning your remodel.
Selling Your Home and Buying New Construction
Choosing between renovating and buying new will include what’s most financially feasible and what will yield the best long term results. If you begin to crunch the numbers, depending on the extent of your wish list, you’ll probably begin to lean toward renovating. However, if you take into account future costs, those numbers will dramatically change.
“The FHA 203(k) loan lets you include the money needed for repairs and related expenses in the loan, such as materials and labor. If you wanted to buy a home in which the kitchen had been ripped out, you could include in the loan the price of new cabinets, counter tops, flooring, a fridge, stove, oven, microwave, sink, dishwasher, garbage disposal, and the cost to design, permit and install it all. The loan can also include a 10-20% contingency reserve for expenses above and beyond your repair estimates.” –Forbes.com
Because the housing market is enjoying a steady recovery, especially in places like here in Orlando, home values are rising. That’s a good thing but with interest rates so low, it makes sense to move-up rather than to move latterly. Though you might improve your current property, its age will take its toll and that’s something that can’t be escaped.
Refinance and Remodel or Buy New?
Deciding the best course of action can be tricky, but if you take into account a few factors, it makes the choice clear. Here are a few things you should think about:
- The cost of refinancing and remodeling. If you refinance, using a 203(k) or other product, you’ll pull out the equity built-up in your home. The question is whether or not the improvements are worth the cost. No large remodeling project will return more money that is invested into it.
- Space, project time, and energy efficiency. If you remodel, will you have more space in your home? How long will the project take from start to finish? Will your newly renovated home be more energy efficient than it currently is and will it be as energy efficient as a newly built home?
- Commute time, school district, and neighborhood. If you remodel, you won’t change your commute time, the school district you’re in, and the neighborhood will stay on its current course.
- Tax advantages and long term investment. If you renovate, you won’t be able to take advantage of some tax breaks. Calculate what you’d save and spend in both scenarios.
Finally, you’ll have to take into consideration the timing. If you’re just a few years into your career, it won’t be a big emotional affair. As mentioned, interest rates are near historic lows, so, either refinancing or a new mortgage will fetch great rates. However, what you pull out in equity won’t produce a larger return.