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Need to Buy or
Sell a Home!
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Intending to Buy a
Home with Hopes to Upgrade Someday to a Bigger Home - Think Again
First Consider Fluctuating Interest Rates,
Home Values, Job Changes or Layoffs and Real Estate Fees
By Mark J. Donovan
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Buying a home has been known as the American
Dream. But once you've bought it, how long
should you hold onto it becomes the big
question. Well the truth is, most of the time
its not your decision to make anyways. Or at
least the decision is so painful you hesitate
indefinitely to make the next move. Fluctuating
interest rates and home values, job changes or
layoffs, a growing comfortability with the
location, realization of new Real Estate fees
and closing costs, etc. inevitably effect your
decision to make that new home transition. |
Most new home buyers say they will stay in the
home for a few years then upgrade to a bigger
one with all the equity they gain. Others say
they will move to a bigger home once they have
kids or when their salaries increase. All of
these reasons sound reasonable, however much
of the time they are not reality.
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In regards to home equity, the
unfortunately reality is that home values in
the same location rise proportionally to each
other. As a result whatever equity you have
gained in your starter home, by itself does
not increase your purchasing power to buy a
larger home. Yes, it may give you the
opportunity to finance a larger home, but in
the end you also have a much bigger monthly
mortgage payment. The next question is, can
you afford the new mortgage payments. |
Before making the decision to upgrade to a
new home, you next have to figure out what
your net proceeds will be from the sale of you
existing home and what your future mortgage
will be and whether or not you can afford it.
Too frequently we forget that a good portion
of our home equity is lost to the real estate
commissions and the closing and moving costs to
transition to the new home. Only after the
net proceeds are calculated from the sale of
an existing home can we understand how much
additional funds we can put towards a deposit
on another home. The key point to remember; it
costs to move and it usually costs big.
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Unfortunately home prices have far outpaced
salary increases. Quite frankly that chasm
seems to continue to grow. As a result,
waiting for growth in your salary to buy the
next bigger home is sometimes a poor reason to
hold off from buying the bigger home in the
first place, particularly if interest rates
are low.
Once the kids arrive the decision to
upgrade to a new home can become even more
complex. Particularly when the kids get older
and even if you are planning to live in the
same general community.
The bottom line: You will probably be in a
home much longer than you originally plan.
Consequently, it is sometimes wiser to buy
more home on your first home purchase rather
than less. This is particularly true if
interest rates are un-naturally low. So before
you buy that first home think longer term and
buy what you could be happy living in for 20
years, because you just might!
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