Instructions
Go to Town Hall.
Speak with Tom Nook.
Pay off part of your mortgage. The amount of bells you pay determines how much your house will upgrade. In general, the more bells you pay the bigger the expansion.
Pay 19,800 bells to get the first part of your house. This will be a four-by-four square you can decorate with various pieces of furniture.
Pay 49,800 bells to add a basement to your house. You can't paint the walls in your basement but you can use it to store extra items.
Pay 398,000 bells to add a second floor to your house. The second floor provides additional storage space for your furniture and you can have a separate theme than your first floor, which increases your HRA score.
Pay 798,000 bells to add the final expansion to the second floor of your house, increasing its size from a four-by-four square to a six-by-six square. Again, the extra room lets you distribute furniture more evenly throughout your house, increasing your HRA score.