Housing News

Why More Homeowners Are Renovating Instead of Moving

Homeowners who need more space, an updated kitchen, or a major repair may be finding it more appealing to renovate than relocate.

Americans are moving less, particularly across metropolitan and state lines, according to a recent Bank of America Institute report. Today’s elevated mortgage rates are helping shape that decision as homeowners may be able to tap into home equity loans to help fund the work.

“When rates rise, and long-term yields stay elevated, the opportunity cost of moving climbs for almost everyone,” wrote New American Funding Principal Analyst Ryan Schoen in a new NAF Insights report.

Homeowners with substantial equity and favorable mortgage rates may be able to improve their current homes while keeping their primary mortgages in place.

Here’s why more homeowners are renovating and which financing options could help pay for the work.

Elevated mortgage rates can change the moving calculation

The average rate for a 30-year fixed-rate mortgage has recently remained in the mid-6% range, according to Freddie Mac.

Homeowners who purchased or refinanced when rates were lower may face a larger monthly payment if they sell and finance another property today, even when the new home has a similar price. That’s why it may make sense to stay put.

Bank of America found that the number of people moving has declined from its 2023 and 2024 peaks. Moves across metropolitan and state lines have fallen more sharply than local moves.

The slowdown extends across income and age groups. Members of Generation Z remain the most likely to move, while millennials experienced the largest relative decline.

Renovating can preserve an existing mortgage

Renovation may allow homeowners to adapt their property without replacing their primary mortgage.

A finished basement or addition could provide more living space. An updated bathroom or first-floor bedroom could make a home easier to navigate as its occupants age.

Homeowners should determine whether the completed project will meet their long-term needs. They can then compare the renovation budget with the cost of moving, including commissions, closing costs, movers, repairs, and a new mortgage payment.

Cosmetic improvements may be manageable with savings, while a larger project could require financing.

HELOC use is beginning to rise

A home equity line of credit, or HELOC, allows a homeowner to borrow against a portion of their available equity.

A HELOC works as a revolving line of credit. The borrower can withdraw money during an initial draw period, making it useful for projects with expenses that arise in stages.

“For now, as the federal funds rate has eased from its 2023 and 2024 peaks, HELOC utilization has begun to climb off its trough and is approaching the 2014 to 2019 average,” wrote Schoen. “Homeowners who feel equity-rich but cash-constrained are tapping the home again.”

Because a HELOC is separate from the primary mortgage, it may allow a homeowner to retain the rate on an existing first mortgage.

HELOCs commonly have variable interest rates, so payments can change. The property also serves as collateral.

Homeowners should compare rates, fees, draw and repayment periods, minimum withdrawals, and early-termination fees. Their equity, income, debts, credit history, and the lender’s combined loan-to-value limit can affect how much they qualify to borrow.

Other loans can finance renovations

A HELOC is one of several ways to pay for improvements.

Second mortgages are loans in addition to your primary mortgage and are generally repaid with monthly payments. It may be useful for a project with a defined budget.

An FHA 203(k) loan allows eligible borrowers to combine the cost of a home and qualifying renovations into one mortgage. It may be used to purchase and renovate a fixer-upper or refinance and improve a current home.

Conventional renovation loans can also combine home financing with improvement costs. Depending on the program, the loan amount may be based partly on the property’s expected value after renovation.

A cash-out refinance replaces the current mortgage with a larger loan and provides the difference in cash. Homeowners with favorable mortgage rates should compare the new rate, payment, and closing costs before choosing this option.

The right financing depends on the borrower’s equity, credit, project budget, and current mortgage. Renovation requirements vary by program, so homeowners should speak with a lender before work begins.

Credit scores can affect borrowing costs

Schoen’s data shows how borrowing costs can vary based on credit and equity. Those with higher credit scores often receive lower rates.

HELOC and renovation-loan terms are calculated differently. A strong credit profile, manageable debt load, and sufficient equity may help a borrower qualify for more favorable terms.

Buyers without a strong credit history can work to create or improve their credit score.

Some regions are still attracting new residents

Americans have not stopped moving completely. Bank of America found that Salt Lake City; Indianapolis; Raleigh, N.C.; Columbus, Ohio; and Louisville, Ky., recorded some of the strongest numbers of new residents.

Lower-cost Midwestern and select Sun Belt markets continue to attract residents. However, the movement toward more affordable regions has moderated from its pandemic-era pace.

Employment prospects also influence relocation.

An Indeed Hiring Lab analysis found that conditions vary widely, with employers in parts of the Northeast and Midwest struggling to find enough workers, while areas of the Southeast experience mismatches between available positions and the jobs residents want.