Yeah I totally get your line of thinking regarding $700k vs $900k but it's ignoring your equity that you could cash out now. My answer did ignore the cost of selling your house, which is significant though.

I'm not totally familiar with construction loans. Some are due at the end of construction (i.e., you need to refinance) and some convert to a mortgage. Either way, you are going to have a higher effective mortgage rate in the end.

It's a super hard decision. But I wouldn't discount the time/headaches/cost over runs that come with renovating. It's hard to put a price on, but it can be a really high workload for you.