Buy, Build, or Fix A Home: What Makes Financial Sense | NerdWallet

Even though the U.S. real estate market has been a seller's bonanza for the last several years, a lot of homeowners are very reluctant to sell their homes. Now, yes, houses are very expensive and becoming a homebuyer seems really hard. Plus, if you bought or refinanced around 2020 or 2021, you've got a super low interest rate that you might really want to keep. That said, if your starter home is bursting at the seams or that neighborhood that seemed perfect when you move in has kind of lost its luster, it might be time to literally just move on. I write about mortgages and home buying for NerdWallet, and my colleagues and I spend pretty much all our time debating questions just like these. Our job is to help you make the smartest money moves you can with what's probably your largest investment. So today, let's talk about whether you should buy, build, or fix. First up is buying, which yes, also means selling. And if you are one of those people with a really low interest rate, if it is time to move on, you might just need to let that rate go. But one thing to bear in mind is that home prices have risen rapidly over the past few years. So unless you are seriously downsizing or moving to a much less pricey area, you may be looking at a larger mortgage with a higher interest rate. That said, those rising home prices are also in your favor as a homeowner. When you sell your house, you're much more likely to make a substantial profit, and then you can use those funds to reinvest in your next home. Then there's building. It feels like whenever I'm talking to someone about whether they should sell their home and move to a new one, at some point they'll say something like, ah, homes are so expensive. What if we just bought some land and built a house? Now that does sound amazing, but that's also going to be a pretty pricey proposition. If you've seen headlines saying, oh, you know, new construction costs less than existing homes these days, that is genuinely true. But those are not bespoke site built homes. We are talking about homes that are in development, whether it's single family, whether it's condos, whether it's townhomes. If builders are making a bunch of homes at once, they can lean on economies of scale to bring you discounts. If it's just a one-off home, you've gotten rid of that completely. But the point still stands that new construction is where the deals are these days. So if you are considering selling and moving, you might want to look into new, new homes. One more option? Fix. Yep, just upgrade the house that you are already living in. And that could take a lot of different forms. Maybe it's putting on an addition to give yourself the space that you need or doing interior renovations to take your existing space and turn it into what you really want. You might also consider something like adding an ADU, an accessory dwelling unit, so that you could have extended family move in or maybe even get some rental income. Now, as I was saying a bunch of times before, home prices have gone up considerably over the last several years. And so if you're a homeowner, that means your home value has likely increased too. Depending on how long you've lived in the home and what market you're in, you might be sitting on a substantial cushion of home equity. So your home equity is the part of your house that you actually own. So it's the home's current value minus the amount of your mortgage. That is your equity. That's truly yours. And you can borrow against it to do things like financing a big home improvement. One option for home equity borrowing is a home equity line of credit or HELOC. And lucky you, we have a ton of videos about HELOCs. So if you are considering borrowing against your home equity, you've got plenty of options for turning your regular old house into your dream home. This is a big decision and it is a lot to think about. One small step that you can take right now, download the NerdWallet app to see an estimate of your home's current value and track how it changes over time. Something else to consider, your happiness. If being stuck in a home that doesn't suit you anymore is making you completely miserable, you might decide that relieving that stress is worth a few added costs in the long run. I'm Kate Wood and I write about mortgages and home buying for NerdWallet. Head to our website and check out our home affordability calculator to see how much you could afford in today's market. But while you're here, like and subscribe for more.