Is it cheaper to buy a new home or renovate?
In this season of sustained high-interest rates, many homeowners wonder if they should get a new construction home or fix their existing one. Both paths have advantages, disadvantages, and cost considerations.
How do you decide to remodel or buy a new construction home? The best route for you depends on the cost of your remodel project, the condition of your current home, and what you personally want in a home.
Should you fix your house or buy a new one?
It depends on the scale of your project and what you ultimately want in your forever home. If your current house is almost perfect but needs a few changes that don’t disrupt its overall structure, then renovating is easily cheaper. If the modifications you want dictate that you want a new home altogether, then buying a new home is often a faster, easier, and more affordable way to get everything you want.
According to the experts at Forbes, a home renovation costs around $100 per square foot on average. Meanwhile, building a new house costs around $150 per square foot. The scale and complexity of your project matter the most in your decision. If you plan to renovate a lot of your existing home, you can end up spending a lot of money which could have otherwise gone toward a down payment to a house that already has everything you want.
Fixing an existing house
For example, if you need to fix up a bathroom or install new flooring, renovating your house will be cheaper. But suppose you need to create a whole new in-law suite for a loved one. In that case, the costs of extending utilities and plumbing into an entirely new section of the house will cost a lot. Not to mention, the cost of building materials and labor can easily make the costs the same or even more expensive.
Buying a new construction house
If you buy a new construction home of the same size and caliber as your existing home, closing costs and the expenditures of selling your existing home can cost more than making minor renovations to an existing home. But if you want major changes like adding a laundry room, a third bathroom, an office, and more, you will find great convenience and equal value in finding home builders and having them customize your dream home.
Other Cost Considerations For Buying or Renovating
It’s also important to consider other factors like the age of your home’s electric, plumbing, roof, HVAC, and other major systems. A home due for upgrades to all these elements can end up costing you more in the long run. Also, if you want a modern open floor plan, the cost of gutting out a section of the house, plus the process of making most of your house unlivable for a season, can end up costing you hotel and self-storage fees on top of the cost of the renovation.
Pros of Getting a Home Renovation
Through a home renovation, you can make practically any improvement to an existing home. This can turn an outdated home into a place that grows with you. Here are the pros of fixing up your old place:
- Make an old home more functional and energy efficient.
- You keep paying your old mortgage.
- Avoid the process of buying a new home.
- The right high ROI renovations can increase home value and make it more marketable.
- Depending on the scope of your project, renovating can be more affordable than buying a new home.
- Stay in your neighborhood and around familiar surroundings.
- You can enjoy upgrades that increase the value of your home.
- It’s possible to use a home equity line of credit to fund major improvements.
As you can see, there are many pros to making home improvements instead of buying a custom home. However, there are some drawbacks to consider.
Cons of Getting a Home Renovation
Fixing an existing structure does have a few drawbacks that make buying a new home construction a better option.
- When your primary residence becomes a construction site, it can interrupt daily life, especially if you renovate a kitchen or bathroom.
- During different remodeling phases, certain areas of the house can be blocked off.
- It is difficult to keep pets and small kids away from the construction site in your home, which can become a safety risk.
- It can be time-consuming to find a general contractor with the skill and rates you desire for the job.
- Older homes can need more work than it’s worth if you desire a head-to-toe makeover.
- The average renovation cost can easily be a down payment for a new home.
- If you plan to make permanent external changes and live in an HOA, you will need HOA approval.
- If you need to make an addition to your home, you will need to apply for a home addition permit, which costs on average $1,300.
- Using a HELOC will increase your monthly debt payments. With the average $50,000 HELOC payment being around $590 at 7% interest, your old mortgage + HELOC payment can be equal or more than the payment for a new construction home.
If you have needs that your current home can’t fulfill even with renovation, such as needing a first-floor master in a two-story house, you can spend too much on a home remodeling project after figuring out the costs.
Additional Cost Consideration: Interest Rates
Anybody who has bought a house before the interest rate hike is likely enjoying a rate under 5%. This factor automatically makes an existing home an asset in the real estate market. If you tried to rebuy the same home, the elevated market value with the average 7% interest rate could add a few hundred dollars to your monthly payment.
This factor should be considered when you’re trying to make a lateral move from your home to another one. Conversely, if your current home is not checking a lot of your boxes, it may be smarter to buy a new home and get everything you want instead of throwing a lot of equity into an older home.
Though a new construction home will cost more, your existing home can cost just as much or even more after figuring out home equity loan repayments and the risk of older components (like the HVAC and roof) breaking down. Meanwhile, a new construction home comes with all new systems that require little to no repairs for years.
Decide Which Path is Cheaper For You
Overall, it’s essential to run the numbers, get cost estimates from contractors, and speak with a real estate agent about your new build-buying options. Line item each cost to see which option ends up costing less. If you decide to pursue a renovation project, be prepared for some inconveniences at your primary residence. If home buying is a better plan for your finances and personal needs, then working with a realtor and lender can get you the home of your dreams without “breaking ground” on your own turf.
Summary: Is it cheaper to renovate your old house or buy a new one? This article discusses the various factors that determine whether it is more financially sensible to fix an old house or buy a new construction home with everything new inside of it.
Alicia Persson is a real estate content/SEO writer at Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined Marketplace, she was a freelance writer for 7 years, leading to a specialization in real estate and home living content for boutique digital marketing agencies. During her writing years, she learned the basics of SEO and gained experience writing for many different clients, making her highly versatile at creating diverse content.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When Alicia is not writing, she plays keytar and sings in a local 90’s rock cover band, or she spends time with her amazing family.