A big question on the minds of many homeowners right now, thanks to the increase in home equity we’re all experiencing, is… “Should I renovate or should I make a move?”
I’ve shared about this before (we actually have a video on this very topic -- go check it out), but as we all know, the last 18 months have changed what many home buyers are looking for in a home, and in actuality, what many homeowners want in their current homes or maybe future homes.
According to a recent survey...
- 70% want more outdoor living space
- 69% want a home office (and 48% even wanted multiple offices)
- 46% want a flex space, something perfect for homeschooling
- 42% want an in-law suite, and
- 39% want an exercise space
If you are currently a homeowner who wants to add any of the above to your home, there are two options you’ve probably considered: renovate your current house or buy a home that already has the spaces you desire. The decision you make could be determined by factors like:
- A possible desire to relocate.
- The difference in the cost of a renovation versus purchasing a new home.
- Finding an existing home or designing a new home that has exactly what you want.
In any case, you’ll need access to capital… aka the funds for the renovation or the down payment your next home would require. The great news is that the money you need probably already exists in your current home in the form of equity.
As I’ve shared before, the record-setting increases in home prices over the last two years has dramatically improved homeowners’ equity. To break it down…
U.S. households own nearly $35 trillion in owner-occupied real estate, but only just over $11 trillion in debt, and the remaining ~$24 trillion in equity. In inflation adjusted terms, homeowners in the second quarter of 2021 had an average of $280,000 in equity - a historic high.
As a homeowner, the money you need to purchase the perfect home or renovate your current house may be right at your fingertips. However, waiting to make your decision may increase the cost of tapping that equity.
If you decide to renovate, you’ll need to refinance (or take out an equity loan) to access the equity. Please hear me on this though… Your home should NOT serve as a piggy bank for you. I am not a big fan of people using their home equity for these types of things. Remember, our homes are often our largest source of wealth and diminishing that wealth for a short-term purchase, including renovations, may not be the best long-term decision.
If you decide to move instead and use your equity as a down payment, you’ll still need to mortgage the remaining difference between the down payment and the cost of your next home. And… mortgage rates are forecasted to increase over the next year. Waiting to leverage your equity will probably mean you’ll pay more to do so.
So where do you even start? If you’re ready to either redesign your current house or find an existing or newly constructed home that has everything you want, the first thing you need to do is determine how much equity you have in your current home. To do that, you’ll need two things:
- The current mortgage balance on your home
- The current value of your home
While you can probably find the mortgage balance on your monthly mortgage statement, you can also reach out to me and I’d be happy to provide you with the current market value of your home. As a trusted real estate advisor, this sort of thing is what I do day in and day out for homeowners just like you.
A year from now, I don’t want you left wondering what could have been had we started the conversation today. Now is truly the time to start thinking about your next … move, whether it’s a literal one or just mapping out your real estate goals and plans for the future.