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Should You Fix Up Your Home or Trade Up?

March 5th, 2015

Young happy couple shoppingShould You Fix Up Your Home or Trade Up?

With mortgage rates so low, you may be asking  yourself if you should trade up your home to a larger one or if you should look into  an equity line of credit and add on additions to your current home.

Money magazine has a detailed article in their April, 2013 edition that looked at two case studies. For one family, they needed more room than their current home could be expanded to. For the second couple, they were happy adding on for what they needed.

The case studies evaluated how much space was needed, what the budget would be, the ROI, and the impact on the homeowners.  The couple that remodeled their home will have to find a short term rental apartment for the six months that their house is being renovated. The family that traded up has the cost of movers, but they may need additional housing if they sell their home before they close on the new one.

So what should you look into?

Step One – Is Selling a Realistic Option

If homes in  your area aren’t selling, you may not have much choice. Of course, you could look into turning your current home into a rental, and buying a new home. Again, you’ll need to do some soul searching to decide if you want to be a landlord, and if your finances can afford that option.

Also, if your credit is not very good or you’re buried under credit card debt, you should probably wait until you’re on more stable ground.

Step Two – Do You Want to Move

If you really love your neighborhood, and the schools, and the shopping, parks, bike paths, neighbors, you may want to ask yourself if you really want to move.  If the answer is no, then you can start to look at how much extra space do you want, and if it’s possible with your current home and lot size.

Step Three – Where Do You See Yourself in 5-10 Years?

If you’re in a small townhouse, and you intend to start a family, you may want to look into buying a new house.  If you’re in a medium size house, but your kids will be gone by then, you may want to stay put.  You may be retiring in 5-10 years and no longer want a house with stairs, or one that’s closer to more senior activities.

Step Four – Crunch Those Numbers

You may want the help of a tax advisor when you look at whether or not you will be subject to capital gains taxes if you sell your current home.  Consider having a home appraiser come in to let you know the current value of your home.  Ask them how it would impact the value if you added on the additions.  Also, you will want to have a home inspection to identify any major or minor repairs that would need to be done before selling.

A good general contractor can help you estimate the costs involved with the remodel. You can estimate costs of green upgrades and other remodeling that you may have been wanting to do.

Figure out if you would need to spend time living in a rental while your home is being remodeled or if you sold your home before you bought a new one.

Get an estimate from movers if it’s free with no obligation.

Calculate your expenses if you sold the home including termite inspection, home inspection, closing costs, any penalties for early pay off of your current mortgage, etc.

Then add it all up.

Step Five – Think and Talk

Spend some time on your own thinking, and spend some time with your partner talking about the whole situation.

And do remember, if you remodel, you will get it exactly how you want it.  However, if you’re not that happy where you’re living, you could find your dream home and have the opportunity to move into it.  Zillow has a useful article with some calculators here.  They also provide a list of the return on investment for remodeling areas of your home.

Step Six – Look Into Financing

Talk to your mortgage loan officer to find out what you would qualify for with a new mortgage or with a home equity line of credit.  They may have some programs available that would be perfect for you.

Are you thinking of trading up?

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