Lots of ideas online for terracing. Define the areas you NEED and WANT and go in stages if the Budget is limited... Looks like a beautiful home for a beautiful project.

just an example to terrace down to a ground level patio to maximise the property. Can have enough outdoor space. go as big as you can... I would create the ground level patio and connect the two with a landing, add the other features as budget allows.

The fence bisecting the porch is a huge obstacle to good space planning- is there a reason for its current location? Can it be moved?

What is your budget?

Without a budget restraint I would extend the current patio to the end of the house, having both covered and uncovered patio directly off the house. Add and outdoor kitchen space in the new uncovered area. I would build a retaining wall / bench along the new area and add gardens around the outside of that space so you have some greenery, flowers, maybe a fountain. Then I would create another large area off the existing area with a fireplace and a couple of seating areas and extend that space to the right of the fenced area and add a hot tub area there.

That fence bisecting your area in question is a huge obstacle, as you realize.

Must you keep it as is? Do you need to keep something in or out of the area? It looks like a nice fence, maybe you could have it moved to the side? Or sell it.

I assume fencing in half of the yard was a budget decision by previous owners... just enough fence to keep the dogs in and deer out, without having to fence the entire perimeter. We have a dog so we would like to keep a fenced in area, just struggling to figure out how that would integrate with a porch/patio. The HOA rules state that fences should be metal unless otherwise approved. We're currently thinking we'd remove the first two tall fence panels which would take care of the awkward point into the current porch, but then what to do to tie it into something?

Is there a reason that the fence cannot be moved to the perimeter of the property? Doing that would open up so many more possibilities.

I suppose if there aren’t any better options moving the entire fence will have to be considered… seemed like quite an expense if there were other clever solutions. Here are some pictures from the porch looking out

My nephew had 4 hunting dogs and 3 young kids and had his yard split in two. The dogs had one side and the kids had the other. The dogs were just too big and rough and knocked the kids over and it was easier to have two spaces.

Nothing wrong with making the space work well for your family.

It might look less awkward if the fence met the corner of the house instead of splitting the porch, but I am betting the old owners didn't want to have to take the dogs to the fenced in area, so they made it so the dogs could come out the back door and be contained in just part of the yard.

What more do you want from your outdoor space? Do you like throwing parties, or having a bunch of kids over? How often do you use the outdoor space? Would you want a big outdoor kitchen area, extended patio space? Do you need to keep your dog contained? Would it be a PITA to have to walk the dog out to the fenced area rather than just opening the door?

Do you have kids and do you want them contained? Do you have any plans for a pool?

Maybe you can use the current fencing but just reconfigure it, If you extend the patio/seating area out another 12' and create gardens outside of the fence it will feel like you are keeping people from walking through the gardens and guiding them to the yard through the gates.