5 Financial Considerations Before Adding Onto Your Home
How much is an addition to a house? That depends on what rooms you are considering. Here's how to decide if you're ready to expand.
Do your research when hiring a contractor or other professional for your home renovation.(Getty Images)
It's a question that crosses the minds of many homeowners who would like to buy a bigger house but lack the money or will to move: Why don't I just add onto my house?
But adding or expanding a room isn't much easier than moving. You have contractors to hire, important decisions to make and a lot of money to spend. If you decide to add a room to your home, it will soon be filled with dust, plaster, nails and other construction materials.
If you're still dreaming of a home addition, here are some considerations and questions to ask before moving forward.
Who Should You Hire to Complete Your Addition?
Who to hire depends on where you live, says John Kilpatrick, the managing director of Greenfield Advisors, a Seattle-based consultancy that specializes in real estate and other areas of finance. Kilpatrick is also the author of "Real Estate Valuation and Strategy" and a former building contractor.
In some parts of the country, Kilpatrick says a general-purpose remodeling contractor may be able to handle everything involved with adding on a room.
"In some other areas, you may have to coordinate with multiple specialty contractors. In fact, in some areas, you may even need an architect or engineer," Kilpatrick says. "Many, if not most, local zoning, planning and building departments have folks available to meet with you and discuss all of this."
That said, Kilpatrick warns, "COVID has really put a damper on their ability to provide these services, but once COVID is behind us, check with your local authorities to see if they have a public assistance desk to help you with the regulatory problems."
Meanwhile, plenty of people interested in a home addition go straight to a remodeling firm or a construction company, both of which often have architects on staff. Handymen businesses also build additions. Just make sure to do your research when hiring a contractor or other professional, and when you do hire someone, make sure they are bonded, licensed and insured.
What Is the Cost to Add a Room to a House?
The cost of a home addition varies widely depending on the type of room and where you live. So you'll never get an exact figure until you start talking to contractors.
But Oren Farkash, the founder and CEO of South Land Remodeling in Los Angeles, says, "For the most part, the average cost for adding a room to the average home should run $300 to $350 per square foot."
That said, if you live in an area of the country where the cost of living is much less, you may fare far better.
Keep in mind that wherever you live, adding a room onto your home won't be cheap. You will almost certainly spend thousands of dollars and maybe tens of thousands.
"The amount of money you will likely spend for a room addition will largely be determined by the size of the room, type of build and many other aspects, such as access, location and more," Farkash says. "Oftentimes, adding a room requires some remodeling to the existing spaces, which can drive the cost up, especially if we are talking about kitchens, bathrooms and other sensitive spaces. So all of those aspects need to be taken into consideration, and cost will vary from project to project."
How Will You Pay for Your Home Addition?
If you're still paying off your home, Kilpatrick says you should consider informing your mortgage lender before adding on a room. After all, it's not technically your house yet.
He also suggests contacting your homeowners insurance carrier as well.
If you aren't paying for the room out of pocket, you'll probably get a home equity loan, he says. In this case, you'll probably have to pay for an appraisal of your home.
Of course, you might also want to consider getting a home equity line of credit or perhaps take out a personal loan. Proceed carefully before rushing into the financing, however. It would be the saddest irony if you took out a home equity line of credit to pay for an additional room, and then find you can't make the payments for the HELOC, and end up losing your house (and the room) to your mortgage lender.
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How Can You Bring Costs Down for Your Addition?
You want to be careful here, too, and not take a lot of shortcuts to bring down expenses. That can backfire. Kilpatrick brought up talking to your homeowners insurance carrier, an idea that Stacey Giulianti emphatically agrees with. Giulianti is the chief legal officer with Florida Peninsula Insurance Company in Boca Raton, Florida.
"Before adding a room to your home, you should check with your insurance agent and carrier to determine the extra cost associated with insuring the added square footage," Giulianti says.
If you don't do that, and your room isn't built to code by a licensed contractor, you'll likely be dropped as a customer when your insurance company finds out, according to Giulianti.
"An unpermitted, unlicensed addition to a home is extremely dangerous and may make your home uninsurable," he says.
That warning aside, there are legitimate ways to bring down the costs. The smaller the room, the lower your costs. The more complex your idea for a room, the more expensive it will be.
For instance, "utilities can add to the overall cost, especially if needing to reconfigure plumbing," Farkash says. "Building stairs can be challenging and costly due to having to find a good location to place them."
That said, many contractors will tell you that if you can build a room within the existing footprint of the home, it will be far cheaper. For example, creating a new room within your basement will be much more affordable than making an entryway in your living room and then creating an adjoining room outside the home's footprint.
What Inconveniences Should I Prepare For?
Adding a room can be a noisy experience (something to consider if you work from home), and you'll want to plan for any contingency. If you're expanding and remodeling your kitchen, think about how you'll prepare meals or if you'll be eating out a lot. You might need to kennel your pets if the construction noise is too much for them.
And as Kilpatrick mentioned, the pandemic can multiply the inconveniences.
"The main issue is some materials, especially materials from abroad, may take longer to arrive," Farkash says. "Also, contractors have become very busy expanding and improving homeowners' quarantine quarters, so you may have to wait a little while longer than usual for the project to break ground. Also, take into consideration that more time may be needed to complete the project. For example, if one worker gets sick, the whole crew is jeopardized. Also, less contractors are on the job site right now to allow for social distancing."
That may just increase the hassle factor, but it could also mean a more costly home addition. For instance, if it takes longer to build your add-on room, that could mean you'll need to board your pets in a kennel for a longer period.
In conclusion, there are a lot of considerations when adding a room onto a home – enough that you may decide you have the money to buy a new home and move after all.