When your home is damaged or destroyed, you face a critical choice: Should you rebuild? Relocate? Buy an existing home? These tips from Merrill can help you decide.
In the immediate aftermath of a natural disaster that forces you from your home – whether it’s a major storm, a fire, a tornado or an equally serious act of nature – your focus is rightly on safety and securing temporary shelter. But within a few months, you will need to start thinking seriously about a long-term housing solution.
While temporary housing can feel unsettling, take the time you need to decide – rushing into a permanent decision often leads to regret. Understanding your options can help you make the right choice for your situation.
What drives the decision: Insurance coverage is often the starting point. The amount of insurance you have relative to the cost of rebuilding fundamentally shapes your options. If you are well-insured and can rebuild comfortably, that may be the natural choice. Still, managing a custom home construction project requires significant time, decision-making and emotional energy. Some people find the process empowering and healing. Others find it overwhelming.
Also consider future risk and insurability. Some areas become difficult or impossible to insure after major disasters. Look into whether you can get adequate coverage in your original location and what that might cost.
Three options for long-term housing. After a disaster, homeowners typically choose one of these three paths:
Rebuild on the same property: Why? You can stay in a community you love and create a home designed exactly to your needs, including disaster-resilient upgrades. Perhaps the property holds sentimental value, or the land is irreplaceable or in a highly desirable location.
What to watch for: Many homeowners discover their insurance does not fully cover rebuilding costs. Replacement cost estimates from insurance companies often use nationwide or regional averages that do not reflect actual local construction costs. High-value properties are particularly vulnerable to this gap.
Custom home construction typically takes 12 to 24 months under normal circumstances. After a major disaster, expect longer timelines. Post-disaster building codes often become more stringent as well, particularly around fire resistance, seismic safety or flood elevation. These updates can add unexpected costs to your project, but may also make your rebuilt home more resilient and insurable.
Relocate to a new area: Why? Moving to a different community can be an opportunity to reduce future risk, be closer to family, downsize in retirement or pursue a lifestyle change. Or perhaps your original location has become uninsurable.
What to watch for: Consider any tax consequences. Some states have no income tax while others tax retirement income, capital gains or estates differently. You will also need to decide what to do with your damaged property: sell the land, hold it for future use or pass it to heirs.
While the financial and logistical aspects of relocating are important, also think about how you will build new relationships and support systems in an unfamiliar area. During a traumatic time, parents with children living at home may want to maintain continuity by staying near their kids’ schools and social networks.
Buy an existing home nearby: Why? Purchasing a move-in ready home may be your best option if time is of the essence due to family needs, work requirements or school schedules. It can also make sense if your destroyed property was significantly underinsured, or you do not want to manage the complexity of a rebuild.
What to watch for: After a major disaster, housing inventory in affected and nearby areas often becomes extremely tight, driving up prices and creating bidding wars. Be prepared for a competitive market, but do not let urgency push you into a decision you will regret.
How to finance your decision: Once you have decided on your path forward, you will need to fund it.
For building a new home: Residential lot loans help finance the purchase of a lot for future construction. Construction-to-permanent financing provides a two-phase loan that covers both the cost of building the home and the long-term mortgage that follows. You will make interest-only payments during the building stage. The loan automatically transitions to a standard mortgage when construction is finished.
For purchasing a new home: Traditional mortgages and home equity from other properties through a home equity line of credit can both play a role depending on your situation and timeline.
Beyond the financial aspects, do not hesitate to lean on family, friends, your community or mental health professionals. The emotional toll of losing your home is real, and taking care of yourself and your family is just as important as making sound financial decisions. Talk with your family about what matters most. And give yourself grace throughout the process.
For more information, contact Merrill Wealth Management Financial Advisor Jeffery D. Price of Price & Associates at [email protected] or (817)-410-4940.
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