NEW YORK – After living in her Athens, Georgia, home for four years, veteran house flipper Charissa Bright realized she needed more space and an updated floor plan for herself, her husband, and their two teenage sons. It was 2021, and working from home meant having your own office was a priority, along with some wishlist items like a larger kitchen and patio. Looking for a home that ticked all of her family’s boxes without needing additional updates proved to be really difficult, and she chose to stay in her current location anyway.

“Remodeling allows me to control the timeline and make my home exactly how I want it, but that can be a lot of work,” Bright says. During the renovation, the family alternated between living in the house and a rented camper in the backyard.

Costs and effort will likely play a role in your choice between remodeling or moving, but the emotional components are also important. If you love your neighborhood and don’t mind taking on a project, a renovation could give you the changes you’re looking for.

Alternatively, if you are open to a new area, it may be in your best interest to sell the house that does not suit you and buy the one that suits you. Both options have their advantages, and asking the right questions can help you determine the path that’s best for you.

Falling rates give homeowners more options

On November 7, the Federal Reserve voted to lower the federal funds rate by 0.25 percentage points. This can signal where mortgage interest rates are headed, as interest rates often (but not always) move in the same direction as the Fed’s rate adjustments. Other economic factors to watch include inflation and job growth, which affect lenders’ interest rates.

Mortgage interest rates have been falling slowly over the last few months. The 30-year rate averaged 7.32% for the week ending May 2 and averaged 6.86% for the week ending November 7.

Mike Hardy, real estate investor and managing partner of Churchill Mortgage in San Dimas, Calif., says mortgage interest rates are predicted to fall even further next year. This may mean that some homeowners, bound by the golden handcuffs of low interest rates, may finally consider a move.

As the federal funds rate declines, second mortgage rates (which typically have a rate plus a margin equal to the federal funds rate plus 3%) will also decline. This can make financing a major renovation more affordable.

Weigh the costs against your wallet and your peace of mind

Start with a holistic look at your needs and then investigate what the changes you envision will actually entail.

renovation

Hardy advises homeowners, just as he does when investing in homes that need a little TLC, to consider five factors before deciding to remodel: money, time, stress, risk and return on investment.

The costs of common renovation projects can vary greatly depending on where you live and the scope of work needed.

“When we remodeled our home and added a room, costs skyrocketed,” says Bright. For example, a homeowner looking to add an extra bedroom can expect to pay an average of $50,000 to $62,500; however, if the addition requires significant structural changes, this figure can go up to six figures. Be sure to get estimates from more than one local contractor.

You have several options for financing a major renovation. These include a second mortgage, such as a home equity loan or line of credit (HELOC). Other types of loans include home improvement personal loans or cash refinancing.

“Buyers often underestimate the cost and time it takes to remodel,” says Ashley DeHart, a real estate agent in Clovis, California. “A real estate agent can help them weigh these factors against the convenience and potential savings of purchasing a move-in ready home.”

In addition to getting price estimates from potential contractors, ask about average timelines, examples of things that could go wrong, and the level of disruption to daily life in your home. Talk to contractors and contact your city government or HOA for information about structural updates you’re allowed to make on your property.

Consider working with a real estate agent to analyze recent sales of homes with similar improvements in your area. DeHart says this will help you estimate how much value a renovation could add.

You should also consider the cost involved and whether the work is worth it for you. For example, making a home more accessible may not increase its financial value, but it can make it much more livable for someone with limited mobility.

Energetic

Before deciding whether moving is the best option, consider the following: existing properties, monthly mortgage payments, and buying and selling costs.

Are there houses for sale in the area you want that meet your criteria? What kind of trade-offs would you be willing to make?

Your search criteria should be narrowed to include features that are expensive or difficult to change, such as structural layout, location, and lot size. “A good agent can help buyers see the potential in a home by suggesting cost-effective changes that might meet their needs,” says DeHart.

• Monthly mortgage payments

If you have a low interest rate compared to current rates (which you probably do if you bought your home before 2022), moving could mean getting a higher interest payment each month. However, if the value of your home has increased since you purchased it, those gains could allow you to make a hefty down payment on your next home.

If you’re buying in another area, research local property taxes and factor in the difference in your monthly payments.

• Buying and selling cost

Moving as a homeowner means you’ll likely be listing your home for sale and potentially paying closing costs as both the seller and buyer. When you sell your current home, you’ll want to budget 6%-10% of the sales price for closing costs. In addition, the purchase typically costs about 2% to 6% of the new mortgage amount in closing costs.

Whether you decide to renovate or move depends entirely on personal preference. By considering the financial, practical and emotional aspects of both options, you can confidently make a decision that suits you.

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