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Is it better to buy a new house or renovate?

Sooner or later, most homeowners debate whether to buy a new home or renovate their existing one. It’s a challenging question with financial, practical, and emotional implications. Complicating matters are the extraordinary dynamics affecting the U.S. real estate market and home improvement industry in 2022 and beyond (like rising interest rates, higher home prices, increased home equity, and new home supply shortage).

Moving is seldom easy. According to a 2020 survey, it’s the most stressful of life’s events, more than going through a divorce or having children. Staying and remodeling is often challenging as well. 85% of people surveyed stated that home renovation is stressful, with respondents citing project planning and potential budget overruns as specific anxiety triggers.

You want to feel like you made the right choice when asking whether it’s better to stay or move. There’s often no simple answer, which can compound the stress. But by thinking through all the major factors involved, you can make a confident decision that’s right for you and your family.

Buying a house vs. renovating: Questions to ask

“Stay or move?” is often not just a practical question but an emotional one. We grow to love homes, neighbors, and communities. They’re part of who we are, and it can be hard to start over in a new place. Adding children to the mix — with their attachment to schools, friends, sports, and other activities — only intensifies the emotional challenge of a move.

"Stay or move?" is not just a practical question. It is an emotional one.

“Stay or move?” is not just a practical question. It’s an emotional one.

The best first step in answering this big question is to break it down into smaller ones that allow you to further explore your finances, motivations, and overall needs.

  • Do I have enough money to move or renovate? Start by looking at the local real estate market in the neighborhood you’re interested in and check out the home prices. Think about how much equity you have in your current home, and if it might it be a source of cash for a renovation. Home values have risen sharply in the past couple of years; how will this affect your buying power? Don’t forget to consider the additional expenses of the home buying process (more below). Use a home affordability calculator to help determine your budget and if you could benefit from a cash out refinance. Read our deep dive to find out if a cash out loan is right for you.
  • How will my mortgage be affected by a move? Depending on when you bought your current house and your mortgage terms, a new mortgage may cost you less per month than what you’re paying now. But be aware that interest rates are expected to keep rising. So, the longer you wait, the more you’ll likely pay for a mortgage.
  • How will my property taxes and insurance costs be affected? If you live in a community with low property taxes and insurance rates, and plan to move to a location with higher taxes and rates, the difference may shock your budget. Investigate these costs to have a better understanding of the impact of moving.
  • How important are the neighborhood and community? Advantages might include avoiding a longer commute to a new job, having access to different schools, or being closer to friends and family. Some benefits — such as a shorter daily commute — may help offset drawbacks such as higher property taxes in a new community. Being closer to aging parents might help you avoid some added stress in the future.
  • How much work needs to be done? If you want to move in right away, you’ll need to plan for the costs of any immediate work that’s needed. If it’s a fixer-upper, you should consider doing a full budget of potential renovations before you even consider making an offer or living there.
  • Will moving affect my cost of living? Location may not be much of a factor if you’re only moving from one town to the next. However, interstate or inter-regional moves may significantly impact what you pay for everything from gas to groceries.
  • What are my family’s long-term plans? If your plans involve growing your family — and growing out of your home — it might make sense to move sooner than later. Pulling kids out of their school, activities, and away from friends can be an emotionally challenging task.
  • Will a renovation meet my family’s needs? From a purely economic standpoint, you owe it to yourself to compare the cost of renovation to the cost of moving. If adding a bedroom and bathroom to your current home would be cheaper than moving while still meeting your family’s needs, it might make sense to decide to stay. A renovation that preserves the basic floor plan of your home should cost much less than one that requires structural changes and engineering work. Finishing a basement to add more living space may cost around $20,000-$30,000, while putting an addition on your home may cost upwards of $70,000.
  • Will renovations increase my home’s value? Renovations that add living space and utility, such as finishing a basement, may add more value to your home than those that simply update style, such as putting in a high-end kitchen. Be aware that renovations that add living space may also cause your property taxes to increase.

How much does it cost to move?

You’ve probably already realized that buying a new home will affect your mortgage. If you’re moving into a house with more rooms or extra amenities like a pool, you’ll likely be paying more money per month than you currently are.

Beyond that, you should factor in the additional costs associated with selling your current home and buying a new one.

  • Real estate agent commissions — Generally the biggest single expense associated with the sale, agent commissions are usually around 5%-6% of the sale price. If you sell your home for $250,000, expect at least $12,500 to go to your real estate agent.
  • Down payment — Mortgage lenders typically require a down payment of at least 20% of the home’s purchase price. Alternatively, you can have a lower down payment if you agree to pay private mortgage insurance (PMI) with your loan, which will add to your monthly expenses.
  • Mortgage prepayment penalty — If you have an existing mortgage, you may need to pay a fee if you close the loan before its full term. Your lender can provide details.
  • Home inspection — This is a thorough and careful walk-through of the home by a certified, independent, professional inspector. While an added expense that’s typically paid for by the buyer, it can help you avoid spending additional money on repairs and problems after you move in. An inspection usually costs $300-$500, according to Realtor.com.
  • Repairs — Most homes require at least some minor repairs and other work. You may also need to do some repairs to your current home before selling it. Such repairs can range from simply freshening up paint to more complex and costly tasks, like replacing a roof or furnace. Expect to spend from a few hundred to a few thousand dollars for routine repairs; more for older homes that might require extensive electrical or other work to align with building codes.
  • Closing costs — Typically paid for by the buyer, closing costs include various fees related to the sale like title insurance, appraisals, taxes, and more. They usually range from 2%-5% of the sale price. You’ll pay this when the sale closes.
  • Movers — According to a recent article in Forbes, the cost of a local move ranges from $800-$2,500, with an average of $1,400. A long-distance move costs between $2,200 and $5,700. The Federal Motor Carrier Safety Administration offers resources to help you find a reliable mover.You may also need to take time off work (including time to pack). If your move involves a multi-day trip, you’ll need to plan for hotels, meals, and gas.
  • Capital gains tax — If you sell your home for more than you paid for it (a likelihood in today’s real estate market), the IRS will consider the difference a capital gain. A certified tax advisor can tell you whether or not you need to report this capital gain on your return and what effect it will have on the tax you owe.
  • Two mortgages — If you cannot sell your current home before closing on the new one, you’ll need to juggle two mortgages.You’ll also be in a situation where you don’t have the proceeds from the sale to apply to your new home’s down payment and closing costs. Many lenders offer options, such as short-term loans, to help you get over this hump.
  • New appliances, furniture, and other items — Depending on what the previous owner leaves behind, you may need to purchase new kitchen appliances, a washer and dryer, window blinds, and even light fixtures. Don’t forget the cost of having these professionally installed.

You might also find that the furniture from your old house simply doesn’t “work” in the new home, or you need now to furnish additional bedrooms that you didn’t have before.

Finally, if your new house has a larger yard (or your first yard), you’ll want to invest in a mower and other tools.

How much does it cost to remodel?

As with moving, renovating your home has a significant cost. Even a seemingly simple project, such as updating a bathroom, can run several tens of thousands of dollars. If you have the skills (and time), you can do some or all of the work yourself.

There can be a wide range of estimates for common home renovation projects. Here’s what you can expect:

  • Kitchen — The average renovation cost for a kitchen ranges from $4,000 for small remodels to $60,000 for high-end projects. The most significant expense is cabinetry and hardware, accounting for nearly one-third of the cost of most projects.
  • Bathroom — The average cost of a bathroom remodel ranges from $2,500-$25,000, with some high-end projects reaching $55,000 or more. Cabinets are the most significant expense, accounting for nearly one-third of the cost.
  • Living room and bedroom — Bedroom and living room renovations range from $1,500 to $5,500 and typically involve just paint and flooring updates.
  • Basement — Finishing your basement can range from $11,000-$30,000 on average. If the project involves installing a bathroom (including fixtures, rough-in plumbing, and hiring a plumber), expect costs near or beyond the top of that range.
  • Building a home addition — Adding living space to your home, perhaps to support a growing family, costs between $21,000 and $70,000. The exact cost depends on the extent of the addition (will it include plumbing?) and the types of materials you choose.

Other costs and considerations when remodeling

Also consider the cost of permits and inspections. These range from $400-$1,800 based on the project and the municipality. Check with your local building department to understand what’s needed before you kick off your project.

Depending on the size and extent of your project, you may need to think about staying in a short-term rental or hotel or having meals out until the work is complete.

A remodeling project can also be an opportunity to make your home more energy efficient. Choosing efficient appliances and lighting, adding insulation, or replacing windows can all help you live greener and perhaps save some money in the long run. The U.S. Department of Energy offers guidance on energy-efficient home design. You may even be eligible for rebates or tax breaks.

While moving is stressful, remodeling is rarely a cakewalk. Even if you hire reliable professionals, you can expect many projects to last several weeks to a few months. It can be noisy and dusty, and you’ll lose access to at least part of your home for some time. Make sure the contract you sign with a remodeler includes a clear estimate of costs and timing, so you know what to expect.

While moving is stressful, remodeling is rarely a cakewalk. Expect your project to take from several weeks to a few months.

Calculating the return on investment (ROI) of your remodeling project

When thinking through what remodeling projects you’d like to do, you might consider how those projects will add to your home’s value. When you think of your project this way, you think of it as an investment — a true home improvement.

Opendoor has a handy tool to help you calculate ROI for many common home improvement projects. The tool lets you access data from your own city for a more accurate estimate.

Moving and remodeling in 2022-2023

Home values have skyrocketed since 2021. That’s great for sellers, who are commanding more money than they might have ever imagined for their homes. It’s a challenge for buyers, who see their options limited by dwindling inventories, high prices, and rising interest rates. Zillow expects the home price trend to begin cooling off by mid-2022 but nevertheless forecasts 14.9% growth from April 2022 to April 2023. Experts advise working with a real estate agent, being flexible in your home search, and considering alternatives to traditional mortgages.

Meanwhile, the pandemic kicked off a whammy of a situation in the home improvement industry. Many homeowners turned their attention to renovations just as supply chains for building materials became disrupted and the industry started dealing with a severe labor shortage. These problems will likely persist through 2022 and beyond. So, if you’re committed to staying and renovating, have patience, be flexible, and expect to pay more once you find a general contractor and your project gets underway.

Be confident in your decision

Like many of life’s big questions, “should I move or stay?” often has no simple answer. You can gain confidence in your decision by discussing your needs and answering the questions in this article with your spouse/partner and family to help with this practical and economic decision.

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