by Teresa Larson, Village Real Estate, Murray, Utah
20+ years real estate experience
Nov. 10, 2014
So You Want to Move Up. Many times people buy a home and think of it as a place to start. From the first thought of purchase they know they will not live in the home forever but think of it as a stepping stone. Buying a first home that does not meet all of your desires is a natural step. Make sure that if this is your scenario that you are buying a home that you will be happy in the home for at least to 7 to 10 years. The real estate market goes up and down. Long term it generally shows a steady rise. If you are hoping to move up eventually please consider some of this advice.
Make Your Home A Savings Account
Start paying a little extra each month. Watch your loan balance drop at a quicker pace. Even if you don’t move up you will pay off your house sooner. Think of your house as a super savings account benefiting you. When your loan balance drops you will have more money to use for the next home if you want to move up. The way the financial industry has been you will likely make more money on your savings than if the money was put in the bank. Remember that real estate has always been a long term investment for best results. Putting your money into your super savings account works best to your advantage rather than the bank making so much money off of you!
Examining the Numbers
You paid $200,000 for your home on a 30 year mortgage loan at 6% your total payment with taxes, insurance, mortgage insurance and all is $1,459.10. after seven years your balance would be about $182,224. If you paid $200 more a month, after seven years your loan balance would be about $164,768. Your home would be paid off in 21 years if you keep this up. If you paid your total payments at $1,947.71 monthly your balance after 7 years would be about $138,600 and your home would be paid off in 15 years. You can see this is a big difference in equity you can get by just using your house as a savings account.
Do Not Refinance Your Home
People seem to refinance their homes a lot today! Lower interest rates are enticing. A lower payment is the goal. Long term if you plan to stay then it is fine to refinance. The problem with refinancing is that it uses up some of your equity, most of the time thousands of dollars. Equity is the money you are making on your home as the loan balance goes down and the home value is hopefully going up. Equity builds slowly at first since most of your payment goes to interest. After five years it starts to move down a little faster.
New Loans Cost Equity When Refinancing
Know what you are getting into. New loans cost money and the lender is going to make a profit from you one way or the other. It is common for the lender to say that the refinance will cost you nothing. It may cost you nothing out of pocket but your loan balance will be more on the new loan using up your equity. It takes several years to build in a home. If you really want to move in the near future less than seven years it might be best to hold off on refinancing.
The house you will want most likely will cost more than the value of your present home. When you move up you are usually going to a larger home, sometimes people want different areas that have higher real estate values. If you haven’t been in your home long enough you may not have enough savings built up to achieve the same payment you have currently. Over the years I have talked to several people who want to move up but want the same payment or less. Usually they haven’t been in the house long enough to make this possible. Moving up could mean that you will have a larger house payment.
Why Move Up?
Examine your wants and needs. You have had the idea or dream in the back of your mind for some time. The house is too small. Yard too small. Not enough parking? You want to get into a different school district or school? You want a different floor plan, no more stairs? You don’t like your neighborhood any more Troublesome neighbors? Did I cover all the reasons . Just not enough room for yourself or your family. When you bought your home you were possibly in different circumstances and now you just need more room. Not enough parking when friends or family come to visit. Not enough room for all your toys. You don’t like your neighborhood any more, troublesome neighbors? Whatever is for wanting to move many people will need to move up in the future.
Moving Up you will have both seller and buyer closing costs. So remember that some of your profit from your home will go towards the cost of selling. Your selling cost will vary depending on a lot of personal factors. The person buying and the market you live in might expect you to pay some closing costs for the buyer. Real estate fees are negotiable. Sellers usually pay for a title policy for buyers as a standard closing cost in our area. Your selling costs will average between 7-10% depending on the situation.
Make Moving Up a Reality
Keeping your home in first-rate condition will help you to make the move easier when you are ready. If you don’t have to fix and replace things, paint and clean up it will be a lot easier on you. Keep your home in excellent form inside and outside. Remember that buyers want houses that look like new. You will get the most money out of your home keeping it in good condition. Pride of ownership is always visible and buyers will appreciate this. Your home will have more value because of this. Moving up is not that difficult. It is done all the time. A little bit of planning early on can make moving up a lot easier on you.
©Teresa O Larson PC, 2014