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March 5, 2021
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Real Estate & Business

Scott Sheldon
Buy a house or refinance the one you own
January 22, 2021

With fixed-rate mortgages still at historic levels, many are considering re-evaluating their home and financial situation. One strategy might be to remodel the house you presently have or to acquire a new house. Here are some things to consider when exploring both options so you and your family can weigh out what makes the most financial sense…

Maybe you have an upcoming child on the way, or you’ve outgrown the house you presently have and you need something bigger for your family? Whatever the circumstance it is time to move on. Understand this: the home-buying market has undergone some changes due to Covid-19. One such change is the fact that many people are now working from home and are driving housing prices up in many pockets throughout the country. One area is the California Bay Area. People from the big tech companies making several hundred thousand dollars a year are moving, driving up housing prices.

Buying a new home

Your property taxes are going to be higher because you’re probably going to be buying a house for more than what you spent on your previous house. Typically, 1.25 percent of the purchase price is standard, which means your property taxes will be based on the new tax rate based on the purchase price of the new house.

Some things to consider…

• Your interest rate and your terms might be more attractive. Purchase money financing mortgage rates are typically a little bit more lucrative than cash-out refinancing for remodeling purposes.

• You close escrow on your house, move one time, there is less back and forth and less inconvenience than going through a remodel project.

• You can get a bigger yard and/or more square footage for less

• Potentially more bang in a purchase transaction

• You can avoid monthly costs such as a homeowner’s association payment, for example, going from a condominium to a single family

• Your taxes, in terms of deductions, will increase because you’ll be having more than likely a bigger mortgage and higher property taxes increasing your tax deductions

• Potentially more appreciation for the house if you buy in a good area. Remember, a house for $800,000 is going to appreciate more in terms of area, location and desirability than a $500,000 house

 Cash-out refinancing for home improvement

The other side of the coin is cash-out refinancing the home you already own.  This situation could work out financially because you stay in the property, you don’t have to move, but on the flip side, your life can be inconvenienced depending on how intense of a remodel job you take on. Redoing a bathroom and/or a kitchen, for example, at the same time could prove to be extremely stressful and time-consuming. Can you increase the value of your house and do a remodel on your house and support what you’re trying to do, or would it be easier just to turn in the key, sell that property and reposition the equity into another home? These are all things you should be given some consideration to in deciding what makes sense. Simply put, if the pain and the inconvenience of going through a potentially intensive remodel process, depending on what your goals are, is more painful than the prospectus of buying a new home, it might make more sense to buy a new home and avoid the construction process.

At the end of the day, it will boil down to cost-benefit when remodeling or jumping ship to an entirely new home and new neighborhood. The costs for either ought to relative to the purpose and in alignment with the long-term family objective.

 

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.