Housing decisions - Reno vs move, and a refi

[jaylea]

We are stuck trying to make a decision here.

Basic scenario:
- Bought 11 years ago, 30 year mortgage.
- Owe about half of what the value of the house is now.
- interest rate is 5% - so much higher than what is out there now.
- incomes are now more than double what they were when we bought

We love our neighborhood and will not move the kids out of this area of the city until they are out of school.

But the housing market is INSANE and has been for a long time, not easing up with COVID. In fact, the market is worse now - not much inventory, going before you even see it, and prices are high.

When we bought our plan was to stay here 5-10 years. We desperately need more space. 4 of us, 2 dogs in 1250ish sq feet. My son’s bedroom is TINY and simply won’t work much longer (loft bed and tiny dresser are all that fit).

Our options are:

1. Continue to wait and see if the market eases/something comes on the market. Most current inventory that comes up is smaller than our current house or bigger and $520k+ 🥺 (median HH income for our city is $49k so that’s high)

2. Bump out the back of our house to expand. This would give us more space in the areas we need it, and would leave us with a decent backyard still. However, we are coming up on needing new windows and roof too, so those are costs we’ll do in addition to renovating/adding on.

We can’t seem to decide what to do here. If we wait a year to do either, does it make sense to refi at a lower rate for 15 years now? The monthly payment would be about the same.

If we go the addition route, are we better off waiting to refi, then taking cash out? Or do we refi now, do a heloc then?

Any help or experiences welcome!

[goldengirlz]

I’m not an expert on refinancing so I’ll leave that one to someone else.

But do you have a sense of what it would cost to renovate? And how much your mortgage would increase if you move? While the housing market is tight, so is the construction market.

Also, are you all working from home and doing distance learning? Do you have somewhere to stay during the construction? I know a lot of people are doing it, but renovating during the pandemic seems a bit overwhelming to me. We recently had someone come in to change out all the light fixtures in our main living area and just getting him to wear a mask was A Thing. I’m not sure how I’d feel about construction workers coming and going if I were also living in the house. Especially since I’m also WFH and prefer quiet.

[jaylea]

Oct 6, 2020 17:01:16 GMT -5 goldengirlz said:

I’m not an expert on refinancing so I’ll leave that one to someone else.

But do you have a sense of what it would cost to renovate? And how much your mortgage would increase if you move? While the housing market is tight, so is the construction market.

Also, are you all working from home and doing distance learning? Do you have somewhere to stay during the construction? I know a lot of people are doing it, but renovating during the pandemic seems a bit overwhelming to me. We recently had someone come in to change out all the light fixtures in our main living area and just getting him to wear a mask was A Thing. I’m not sure how I’d feel about construction workers coming and going if I were also living in the house. Especially since I’m also WFH and prefer quiet.

The renovations wouldn’t happen for a while because contractors are very tied up here - I’d imagine it’d be a year or so out. That said, my FIL lives in the same city, and has three extra bedrooms, so we could stay there during Renos if needed. And we’d probably have to - have one full
Bath and it’d be gutted with the renovation.

[ny96]

We’re looking at renovating because our house is too small for us. The deciding factor for us in the move vs. renovate decision was location. We’re in a great location and will be increasing our property value exponentially if we expand.

[wesleycrusher]

We're similar and I have no real advice but can commiserate- 4 of us in 1100 sq feet (my DD has the loft bed and dresser room, too). But we love our city neighborhood and even more speficially our location in said neighborhood. It's got to be at least 90% of the houses in the neighborhood are close to the same size with same # of bedrooms so there's no real reason to move. We would renovate before we moved- actually our back yard/porch needs major renovations that we are having done now, but sadly no addition. A couple years ago we went through our mortgage company and ended up doing an interest rate buy down and converted to a 15 year mortgage. They ran all the numbers for us and sent us an email laying out all our options.

[jenny1223]

I'm in a very similar position. I would 100% like to buy a new house next year (actually years ago!) but we have work to finish on this house before we can list it. And if we don't finish the work and/or the market sucks, we'll stay here. So I'm torn on whether a refi makes sense. I don't want to kick myself for not taking advantage.

I need to shop around a bit more, but I think if I can get refi with low enough closing costs, it will make sense either way.

[madringal]

If you PM me your current loan balance I can tell you exactly how long it would take you to recoup the closing costs in interest savings. That should help you decide.

[dr.girlfriend]

I think the first thing to do would be to look into zoning for your area to figure out if you can do the addition and how much you can do. For years we had been planning to do one and then found out that in our area you can only cover x% of your lot (including driveway, garage, house, sidewalk, etc.) and we were ALREADY over. We had to appeal to the zoning board, and in the end they granted us a pretty big addition, but it added a year to the process and if they had said no then at least we would have known. I think interest rates are pretty amazing right now so honestly I would try to lock one in even if you feel like moving is a possibility. Then, I would start saving up either for the reno or for increased mortgage on a new place.

We were in the same spot -- loved our location, but anything in this area gets snapped up immediately. We ended up putting close to 200k into our renovation, which WAY outprices this home for the area given that it's still a 3-bedroom, but we made it exactly what we would want to stay forever -- ground floor living that's going to still be accessible as we age, solar on the roof, etc.  And since we plan to stay here until we're old we are not really worried about resale.  Overall, we have no regrets.  We would have paid a lot more for something that wouldn't have suited us nearly as well, plus selling and buying costs, transfer tax, etc.  It adds up!  Because of the delays we were able to largely cashflow the reno, which means we are on track to pay off the house within the next 5 years.

[simpsongal]

I might have misread your post but how would refinancing to a 15 yr keep your payment the same? The rate is much lower, even if you roll in closing costs - you only have 19 yrs left on your mortgage...I figured it would drop more. You could do a 20 yr too. When we researched cash out refi we found rates to be higher than straight refi. If you have plans to pay off a renovation, the HELOC is the way to go (I also liked being able to draw down on the HELOC as needed - we opened ours and it sat for 7-8 months while we engaged an architect and planned).

This is a highly personal and area dependent decision. In my area of Northern Virginia, a lot of houses under $650K are considered tear downs, then there are the houses at prices between that figure and $1.3M, and the new builds often around $1.5-$2M. Thus, if someone needs space or wants a nicer house, there are only so many options for moving up. We're slowly renovating our house of 8 yrs. It's our forever house, we're on our second major reno right now (we added a porch and have done lots of other things like a new roof, insulation, electrical upgrades).

We're doing a small 2-story addition right now (week 2), next will be the master bath reno, and then the kitchen. All in, I expect we'll end up spending $80K on this addition, $30K on the master bath, and the kitchen....IDK $100K?

[dr.girlfriend]

I should add that contractors did not charge us to come and "talk through" what we are planning to let us know if it was feasible and about how much it would cost. So, once you know your zoning requirements that would be a good next step.

[marie]

I also like to think about the realtor fee. I know selling my house would set us back quite a bit in realtor fees, so if you can take that amount and put it toward making your house something that works better for you, I think that is worth it as well.

[imojoebunny]

This really depends on your market. We ended up moving when we were in a similar spot. We could sell our house for $X , and buy a new, larger one with exactly the layout we wanted, plus a basement and carport, for $X+$130K, vs. renovating the old house, would have been at least $150K, and probably more like $200K, and not gotten us the house layout that we really wanted. We moved a whopping 2 miles. How you finance a renovation, current house, or new home is a separate issue. I would discuss your options with a lender based on your specific numbers. I would definitely start with having a contractor come out and give you a ballpark. We have looked at renovating several houses, and renovated several, and quotes can vary a lot, but at least you will know if what you want to do is even feasible. Around here now, renovation cost are through the roof, and there are supply shortages, driving up prices, and lead times to start are very long, permits are taking a long time, too. Realtor fees run around 5.5% here, so there is that cost.