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I plan on modifying a switch to control a set of new recessed lights instead of an outlet. The switch is on an outside wall and I planned on routing the wiring up through the top plate, and between ceiling joists. I expect there to be insulation in that wall (the kind with a paper face, fluffy inside, and stapled).

What's the proper way to route new Romex through an exterior wall containing insulation?

Does it go behind the insulation? In front of? Does it go through the insulation?

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If I were you, I'd invest in a fiberglass rod or wall-fish tape. The process to get the wire down is that you will cut a hole for your drywall box and then use the rod/tape to push the wire down inside the wall (use electrical tape to lash the wire to the tape/rod). The hole should provide you enough room to get your hand inside and grab the wire. Then disconnect the wire, pull your tape/rod out, put the wire into your box, attach the box to the drywall and you're set.

The kraft paper on your insulation should be on the exterior wall so it shouldn't be an issue on an inside wall. The wire will be inside the insulation and loose.

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In new construction, the wire always goes inside the insulation (actually the insulation goes in only after the wires are there, and the wires always travel in the center of the stud cavity).

During renovation, the best way is to fish it in the middle too, because you drill the top/bottom plate in the center, so naturally you'll be in the middle of the insulation when you push the wire fishing rod in. If you're using fish tape, it's more flexible and you have less control where it goes, so it basically goes to the path of least resistance.

I think the electrical code says the wire can't be right behind the drywall (in front of insulation) because it can be easily damaged if you drill or put a nail in that wall. For the same reason, leave some slack in the wire, so if someone does puncture the wall where the wire is, your wire will just deflect deeper into the insulation.

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