How To Determine How Much To Spend On A Home Addition?
My husband and I are considering adding on to our house because our family is growing. We only want to spend another 10 years in this house. How do we determine how much to spend on an addition? We’re concerned that if we make the addition too large we will lose money when it’s time to sell.
Terry Says
The cost of your addition won’t matter much to the sales price in 10 years. That sales price will be impacted by the economy and interest rates at the time, the neighborhood, and the comparisons with other houses in your neighborhood.
A better way to look at it is how much you can “afford” to spend — based on your savings and your plans for financing this addition. Please don’t take out a home equity loan to do it! The rates on those loans fluctuate (and the likely direction is up). Plus, many home equity loans look attractive because they are “interest-only” — requiring a “balloon payment” perhaps 5 years out. That’s where you need to concentrate.
Refinancing your home to get the money to build is another option — assuming you have extra equity. But if you have a low-rate mortgage (less than 4%) that may not make sense. Still, you can ask your bank how much it would cost monthly to do a refi and what your new monthly payment would be.
One more piece of advice: Count on the cost being at least 20 percent more than you planned!
This reminds me of “Love it or List IT” on HGTV. Maybe you want to look at a new house before taking on this project.
