Blog

Should You Use Equity to Renovate or Buy Your Next Home

Home equity is one of the most valuable tools homeowners have for achieving their financial and housing goals. Whether you’re considering updating your current home or moving into a new one, your home equity can help make it possible. But how do you decide if it’s better to use your equity to renovate or to buy your next home?

This guide breaks down the pros and cons of each option, helping you make the best decision for your needs, budget, and future plans.

use equity to renovate or buy

1. What Is Home Equity?

Before making a decision, it’s important to understand home equity.

Home equity is the difference between your home’s current market value and what you owe on your mortgage. For example, if your home is worth $400,000 and you owe $250,000, your equity is $150,000. Equity grows over time as you pay down your mortgage and as your home’s value increases.

2. Using Equity to Renovate Your Current Home

Renovating your home can be a great way to increase its value and create a space that works better for your lifestyle.

Benefits of Renovating

  • Customization: Tailor your home to meet your specific needs, such as adding an extra bedroom, updating a kitchen, or creating a home office.
  • Staying in a Familiar Area: Renovating allows you to keep your current location, neighbors, and schools.
  • Potential ROI: Strategic renovations, like kitchen and bathroom upgrades, can boost your home’s resale value.

How to Access Equity for Renovations

  • Home Equity Loan: Borrow a lump sum based on your equity and repay it over time.
  • Home Equity Line of Credit (HELOC): Access funds as needed, similar to a credit card.
  • Cash-Out Refinance: Refinance your mortgage for a larger amount and take the difference in cash.

Things to Consider

  • Renovations can come with unexpected costs or delays.
  • Over-improving your home may not yield a full return on investment, depending on your neighborhood’s market.

3. Using Equity to Buy Your Next Home

Sometimes, moving to a new home is the better option, especially if your current property can’t meet your changing needs.

Benefits of Moving

  • More Space or Better Features: Upgrade to a larger home, newer amenities, or a better location.
  • Lifestyle Changes: Move closer to work, schools, or family, or relocate to a neighborhood that fits your goals.
  • Avoid Major Renovations: If your current home requires extensive work, buying may be more cost-effective.

How to Use Equity for a New Home

  • Use your equity as a down payment on your next home.
  • Consider a bridge loan if you’re buying before selling.
  • Work with a mortgage expert to explore timing and financing options.

Things to Consider

  • Moving costs can add up, including closing costs, moving expenses, and new furnishings.
  • Selling your home may require additional repairs or staging to attract buyers.

4. Key Factors to Consider

When deciding between renovating and moving, ask yourself these questions:

  • What is my long-term goal? Will this home meet your needs in 5-10 years, or is a move inevitable?
  • What is the current market like? In a seller’s market, you may get top dollar for your home but face higher competition for your next purchase.
  • What are the costs? Compare renovation expenses with the costs of selling and buying a new home.
  • Do I love my current location? If your location is ideal, renovating might be the better option.

5. Pros and Cons of Renovating vs. Moving

Aspect Renovating Buying a New Home
Customization High – Tailor your space to fit your needs Limited to available listings
Costs Potentially lower upfront, but may overrun Higher upfront costs, including closing fees
Timeline Dependent on project scope Faster if you find the right home
Market Impact Adds value if renovations are strategic Market trends affect timing and pricing
Location Stay in your current neighborhood Opportunity to move to a better area

6. Steps to Make the Right Decision

  1. Evaluate Your Equity: Work with a real estate agent or appraiser to determine your home’s current value and equity.
  2. Consult with a Mortgage Expert: Explore financing options for both renovation and buying.
  3. Assess Costs and ROI: Get estimates for renovation projects and compare them to the costs of selling and buying.
  4. Consider Your Lifestyle: Think about how your current home and neighborhood meet your needs now and in the future.
  5. Create a Plan: Once you decide, work with trusted professionals to execute your plan smoothly.

Final Thoughts

Whether you decide to use your equity to renovate or buy a new home, the key is to make a decision that aligns with your financial goals and lifestyle needs. Both options have their benefits, and what’s right for you depends on your priorities and long-term plans.

At Weber Mortgage, we’re here to help you explore your options and secure the financing you need. Reach out today to discuss your goals, and let’s create a plan that works for you!

Your equity is a powerful tool—let’s put it to work for you.

Related Posts

Back To Top