our house is a 1920s brick bungalow, 3 BR, 2 BA, approx 1700 square feet. the 10x21 addition, which was added to the back of the house 40+ years ago, creates some awkward spaces, both upstairs and downstairs.

the upstairs is our main concern now (the downstairs, maybe a distant dream). the upstairs extension is a 10x21 room with no ventilation or closet. it is attached to a smaller bedroom with a big closet and no windows. you have to walk through the smaller room to get to the larger room. oh, and the extension is 6 in. lower than the rest of the upstairs and has a sloped ceiling. there is also another bedroom and a bathroom in the original upstairs.

we're trying to decide how to best use our space. we would love to stay in the house forever. we have two small kids, and we'd like them to eventually have their own rooms. currently, our daughter is in the back room (we use window ac unit and space heater for air and heat), our son (baby) is still in our room, and the middle room is used as a dressing area i guess? we have their dressers and a changing table there, plus an extra couch. so our options are:

(1) us move downstairs to the tiniest room in the house (10x10, currently used as guest room/office) and give the kids the whole upstairs. we'd extend it about five feet back to give us a 10x15 room, which would be plenty big enough for us.

(2) split the upstairs back room and middle room somehow and stay in our current room.

we are leaning towards the second option because of cost and because we don't really want to add another extension. we feel like we have enough square footage in our house...IF we could rework the square footage we have. i am hoping (crossing fingers) that reworking the interior walls upstairs is not too expensive. we'd have to do duct work and electrical, which is something we'd want to do eventually anyways. because the window is in the middle of the big room, one bedroom would only be 8.5x10 (yikes!). but both bedrooms would have a few extra square feet from the middle room, which is a step up from the bigger room, and would ideally be used for closets and dressers. is that crazy small? is there a better way to split up the space?

here's a rough sketch of current floor plan and two ways we thought to split it.

current upstairs layout

option 1 upstairs layout

option 2 upstairs layout

if we did split the rooms, we might rethink the downstairs extension too. currently there's a 5x10 hallway on the left, a 5x10 bathroom in the middle, and a 10x10 bedroom on the right. the only purpose of the hallway/mudroom is to get from the kitchen to the back porch and backyard, and it takes up precious square footage. dream plan would be to gut it, put a family room on the left/middle and move the bathroom over to the right. this would also enable us to open up the kitchen to the family room. but i have no clue how much gutting the back extension would cost. here's current downstairs layout and dream layout:

current downstairs layout

dream downstairs layout

PLEASE HELP! WHAT WOULD YOU DO? and i don't want to buy another house - home prices in our area are very expensive, and i love our house. i just want to figure out the cheapest/easiest way to get three usable bedrooms out of it. remodeling the downstairs is a dream, but if it wouldn't be really, really expensive, i might consider it...eventually.