Once you pay off your morgage, Talk To Nook, He will say something like: i heard you payed off your Morgage.... Would you be interesded in expanding your house, and you pess yes or no =D hope this helps
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To expand your house, you have to pay off your mortgage at the town hall.
no
Tom Nook does not have a house, only a shop.
your house can't catch fire.
put it in ur house or you can sell it