Paying for Renovations vs. Buying a New Home: How to Decide

Your home needs a lot of work. You know it’s going to cost a lot of money. The thought crosses your mind to just pick up and move rather than spending the money on renovations. But, is it the right decision?

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Before you decide, consider the following factors.

Think About the Location

When you buy a home, you buy into a neighborhood. How do you feel about your neighborhood right now? Would it break your heart to leave? If so, you may want to consider staying and renovating the home. If you’ve established roots, love the commute to your familiar places, and think of your neighbors like family, buying new may leave you feeling sad and lonely. These feelings could bring on buyer’s remorse, which isn’t something you want to feel after making the large purchase of buying a home.

If you want to look at it from a financial standpoint, think of the value of the homes in the area. Do the values support the work you want to do on your home? While you won’t see a dollar for dollar return on your investment, you should see some sort of return. If the values in your area continually decrease or haven’t’ recovered from the housing crisis, buying a new home may be the better option.

Do You Have Enough Space?

If space is the issue, you may want to consider moving. Unless, of course, you think you can get the permit necessary to add onto your home. You’ll have to consider the laws in your area as well as the amount of land you have available to expand your home. If you are a neighborhood where land is sparse, you may not have the option to expand your home. If, on the other hand, you have plenty of land and the city allows expansions, then it may make more sense to stay put and make your current home larger.

What Type of Money do You Have?

Buying a new home probably means taking out a new mortgage. Will you qualify for a mortgage? Do you have money to put down on the home and pay the closing costs? Is your credit in good shape? What about your income? Is it stable and predictable? If you think you’d struggle getting approved for a mortgage, you may want to consider renovating the home instead.

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Of course, renovating a home costs money too. Do you have money saved up to make the renovations? This would be the best case scenario. Then you don’t have to worry about anyone denying your application for a loan. You can make the changes that you have the cash to afford. If you don’t have the money saved, but you have equity in the home, you may apply for a home equity loan. This means you’ll have to get approved, though. Generally, approvals on home equity loans are easier to obtain than a purchase mortgage, though.

What are Your Future Plans?

Before you make any decisions, think of the near future. Looking ahead five to ten years can provide the answers you need. Do you plan to move out of state? Are you the type that likes to move every few years? Are you retiring in the near future? These plans can have an impact on what you do with your home.

If you know you’ll move relatively soon, even within five years, don’t waste your money on home renovations Unless you know beyond a reasonable doubt that you’ll see a decent return on your investment, leave the home as is and consider moving elsewhere in the meantime. If it means downsizing until you move away from the area, you’ll save even more money, assuming you can manage the space.

If you don’t have any plans to move far away anytime soon, you may consider investing in your current home. You’ll likely have to put up less cash and may see a decent return on your investment, especial if you can give the home time to appreciate. Of course, the return you see will depend on the amount and quality of the work that you put into the project.

No two homeowners will have the same answer to the move or renovate debate. It depends on your personal situation and the values in the area. Think about both options carefully, writing down the pros and cons of each. This way you can determine the right choice for your situation right off the bat and see the greatest return on your decision.

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