Many homeowners who have been in their current home for a few years may be thinking about relocating to a new home. It is common for homeowners to initially purchase a starter home and to make a transition to increasingly larger or more valuable homes over the years. However, this trend is slowly changing, and many homeowners are making the decision to stay in their current home and to renovate it to increase value and improve functionality for their changing needs. With this in mind, you may be torn about whether to renovative or relocate. A closer look at a few key points will help you to make the decision that is right for your family.
Analyze Your Current and Future Needs
When you initially purchased your home a few years ago, you likely had a list of necessary and desirable items that you wanted your dream home to have. However, these needs and wants can change dramatically over the course of a few years. Now is the ideal time to update that list. Consider if you need more storage space, a home office, a game room for the kids, a bigger or smaller yard and more. Determine which items are needs versus wants. Ask your family members for feedback as well, but pay close attention to how long each member of the family will remain in the home. For example, a 16-year old who desires a private bathroom may not be as important as a two-year old who may need his or her own bedroom, and this is because the teenager will only be in the home for a few more years.
Create a List of To-Do Items for Your Existing Home
With your list in hand, create a to-do list of items that need to be done to your current home to meet your goals. In some cases, a quick-fix solution may be available. For example, if you need more storage space, building a storage shed in the backyard can easily address the problem. In other cases, such as if you need a new bedroom, more significant effort may be required. Consider which to-do items you can tackle on your own and which items you need a contractor to work on for you.
Get a Renovation Quote
A key factor that may influence the decision to remain in the home or to relocate relates to the renovation costs. Your current home may no longer be practical or functional, but investing money into its improvement may make it sufficient for your current and future needs. Request several quotes from experienced, licensed contractors to learn more about the cost to improve your current home’s functionality and style to meet your needs. When you have quotes in hand, consider your financial ability to pay this expense. For example, do you have enough equity in the home to pay for the renovations through a home equity loan? Keep in mind that you can typically only borrow up to 75 to 80 percent of the home’s value when pulling equity out, and this does include the first lien balance.
Estimate the Current Value of Your Home
The current value as well as equity in the home is critical to your decision-making process. You can estimate the value of your home on your own by exploring listings in your neighborhood online. Pay attention to the quality of the interior and exterior, and determine a reasonable price per square foot to apply to your home. You may also get a quote from a real estate agent or even order a full appraisal. Then, review the current loan balances on the home to calculate available equity. Remember, if you plan to sell the home, you will typically have make-ready costs, staging costs and agent fees to pay for. Therefore, the amount of equity you may have available to make a down payment on a new home may not be as significant as you might think.
Research the Real Estate Market
Before you make the decision to relocate, it is important to determine what you can afford to buy with your current budget. You now may have a good idea about how much money you can afford to use as a down payment through available equity and your current liquid assets. You also need to use a mortgage payment calculator online to determine what mortgage payment is affordable for your budget. This will help you to determine a price range that is affordable for you. Then, research online listings to determine if your needs and wants list is affordable for your budget. If not, moving may not make financial sense.
Consider the Pros and Cons of Relocating
If you have reviewed all of these factors, you may have determined that one option is more financially feasible than another. On the other hand, you may have determined that both options are possibilities. A closer look at the non-financial aspects of relocating versus renovating should be considered. For example, think about your emotional attachment to the home. Perhaps you have great friends and neighbors close by that you do not want to move away from. In addition, consider the length of your commute, the schools your kids go to, if the kids would be forced to make new friends, how close stores and restaurants are to the home and more.
In many instances, remaining in the home and renovating it to meet your needs makes sense. However, this is not always the case, and many others make the solid decision to relocate to a better home. This decision is a financial one that could impact your budget and financial security in many ways. However, it also is an emotional and practical decision that requires careful consideration. It is wise to spend ample time weighing these points. You may also try on one of the decisions by taking baby steps into one option more fully. This can help you to determine more easily if one option is better for you than another.
