Should we sell our home and buy larger, or stay and remodel?

My family and I have outgrown our 2 bed 1 bath 1970 home. We purchased the place in 2004 for about $100k. Unfortunately, the bad economy dropped the value of our home tremendously years following. As of today it is now again worth the purchase price we paid, and our mortgage is about $80k. The home is in need of some improvements soon such as windows, roof, a/c duct work etc. We would also want to build another bedroom and bathroom. Thoughts on cost to upgrade versus selling and buying another home appreciated. Also, any advice on how to proceed financially-home equity, second mortgage, new construction loan?

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