I would suggest you make part of your decision process be dependent on how the addition impacts the integrity of the home design. The goal would be to insure the addition blends seamlessly with what is already there.
From a cost standpoint, giving up the garage to the converted space is probably the most economical, but consider your traffic flow. Would this make it difficult to access the house from the parking area? Do you have room to add a garage to the property later? If the addition could be added in the attic with a practical way of accessing the space, this might be the best alternative but as you mention it will be more expensive. Again, think about what this will do to the exterior of the house. You don't want your neighbors to be upset because your changes impact what they see of your house. Contact a professional residential design expert in your area to help with the architectural options. Don't rely on the building contractor to design the space unless they partner with a design professional. Take a look at the American Institute of Building Design web site, www.aibd.org for qualified professionals.... more