By Dylan Bertet, owner of Build Better Properties (CSLB #1077286), a Bay Area design-build contractor.
For most homeowners, building an addition costs less than moving to a bigger house. An addition is a one-time capital expense. Moving comes with costs that never go away.
The ongoing costs of moving
- A new mortgage at today’s rates, which may be well above the rate on your current loan, carried for the life of the loan.
- A higher property tax bill, because the new home is assessed at its full purchase price. With an addition, only the new construction is added to your assessed value.
- Selling and buying costs: agent commissions, transfer taxes and closing costs.
A simple rule of thumb
Many Bay Area homes sell for around $2.5 million. A 25 to 30% down payment on a bigger house is $625,000 to $750,000. That’s a lot of money, and it goes a long way toward improving the house you already own. For homes priced over $2 million, a 25% down payment usually equals at least 75% of the construction cost of an addition.
What you keep by staying
Your neighborhood, your schools, your lot and your Prop 13 base. Even after budgeting for a rental while you’re out of the house during construction, a one-time upgrade usually comes out ahead.
Paying for it
Cash is ideal. A HELOC can be a good option. A cash-out refinance at a higher rate than your current loan can get expensive, and construction loans are fine if you get one the right way. Keep the loan and the contractor separate: get your price from the contractor, then arrange financing through an independent broker. I’m a builder, not a financial advisor, so talk to a lender about your situation.
Planning an addition? Read our full Home Additions FAQ, see the cities we serve, or call (650) 801-2699 to have us walk your house.