There comes a time for many of us when our lives change and we find that our home doesn’t quite fit our situation like it once did. Maybe it’s because the family has grown. Or, maybe it’s time to move in the other direction and downsize.
Whatever your situation, you have three choices. Building a house. Buying a house. Or renovating. Which one makes the most sense for you (and your money)? This guide will walk you through the ins and outs of each.
Building a new house is often thought of as the most expensive of the three options. But don’t be too quick to write it off. If you’re buying a house, you may find there are renovations that it needs or you want. When you add those renovations onto the purchase price, you may find that building makes more sense. Take a look at some of the things you should consider when making your decision:
When building a house, the financing goes through two stages. In the first stage, you get a construction loan (usually for no longer than one year) to cover the costs of building the home. Your lender will work with you and your builder, ensuring there are detailed plans, a budget, and a timetable. Throughout the construction, your lender will release the funds needed for each phase. During this time, you normally pay only the interest on the loan monthly.
When the construction is complete, you move to the second stage where the short-term construction loan is turned into your longer-term home mortgage (typically range from 15-30 years).
There are a couple of things to watch out for:
There are a few other things to note. Since construction loans are so flexible, they can come with higher qualifying standards. It’s not unusual to find requirements of at least a 680 credit score and 20% down. But talk to an experienced lender to get the requirements for you. He or she can walk you through the details so you’ll know what to expect and when.
When you opt for buying a house, you may not get everything exactly as you want it, but you get the advantage of walking through the space and experiencing the house before you commit to buying. Plus, it’s usually cheaper to buy than build, and you get the convenience of moving right in. Here are a few more things to consider when you’re thinking of buying a house:
Lenders will want to look at your credit history and typically require a down payment between 5 and 20 percent, so talk to a loan officer. Additionally, you can choose terms to fit your situation. For example, you could choose a variable interest rate loan that could give you a lower payment initially or you may opt for the predictability of a fixed rate loan. There is also the length of the loan to consider. Here are three common types of home loans:
Your best bet is to consult with a lender that has a strong track record of helping people find the financing that is right for them.
Remodeling your home could be a way to get the best of both worlds – the advantages of not having to start from scratch with the ability to customize things to fit your situation. Before you jump right in, you’ll need to decide if your house is worth investing in. Is it structurally sound (does it have good bones as they say)? If you’re planning a good size renovation, you may want to pause to compare the cost with what it would take to move to another house – or even build in some cases. Plus you’ll need to consider whether you’ll be able to recover the investment you’re making with the renovation if there’s a chance that you’ll sell your house in the future. Consider these pros and cons that can come with a remodeling project:
You have a few options for financing when it comes to your home improvement project. For more modest projects (for example, up to $20,000), you could get a home improvement loan. These allow you to get a loan with just your signature. To handle larger projects, you can use the value you’ve built up in your home (your equity) to help get the money you need:
A knowledgeable lender can help you evaluate your situation and recommend the financing that is right for you and your project.
There is a lot to think about whether you’re building, buying, or remodeling. But getting to the home that’s right for you doesn’t have to be overwhelming. Consider these three steps:
With some thoughtful evaluation and some seasoned advice, it will become clear the option and financing that’s optimal. And you’ll find yourself moving one step closer to getting to that home that’s right for you.