Funny thing about houses – we often outgrow them. Especially in the throes of family-building, pretty soon a house is like our kids’ shoes – it gets tighter and tighter until it’s time for a new one.
The new year promises to bring a different real estate market than we’ve grown accustomed to. Hopefully, multiple offers on homes are a thing of the past and homebuyers can slow down and take their pick from among several homes, priced attractively.
If you’re considering moving up, we think 2019, especially the early part, before the Feds hike interest rates again, will be the ideal time to sell that cramped home and set your family free in a larger space.
Naturally there is more to moving up than merely needing to. So, let’s take a look at some of the factors you’ll want to consider.
Consider the financial aspects
“Bigger,” when it comes to homes at least, generally means “more expensive.” That in and of itself shouldn’t scare you away from your hunt for more room.
The equity you’ve built up in your current home may surprise you. Consider using it to make a larger-than-20 percent down payment on the new home. This may just bring your monthly mortgage payments close to what you’re paying now.
But, as we both know, there’s more to homeownership than a house payment.
- Larger homes cost more to heat and cool.
- Your property taxes and homeowner insurance may be higher
- More space comes with the cost of more money spent on home maintenance.
If it looks like a larger home may negatively impact your budget, take a look at where you can cut expenses. Put your budget on paper (or created digitally) to make it easier to scrutinize every penny you spend.
Good credit will help you afford the larger home
Depending on when you bought your current home you may find that the lending landscape has changed. Rates are still relatively low, although they aren’t expected to remain this way for long.
While lending standards tightened significantly in the wake of the housing implosion, over the past few years they’ve become more relaxed.
Credit scores, however, are still relied on when it comes to the rates offered to homebuyers.
Order your credit reports from all three major credit reporting agencies. By law, every American is entitled to one free credit report every 12 months from AnnualCreditReport.com.
Because mistakes are common, financial experts agree that even those of us who aren’t planning on buying on credit should check their reports annually.
Check yours for discrepancies in your name, address, date of birth and other personal information. Then, go over each account, looking for errors. ConsumerFinance.gov has a walkthrough of what to look for when checking your report.
If you find mistakes, file a dispute with the credit reporting company. Learn how to do so at USA.gov.
There’s more to financing than a credit score
Lenders use what is known as a DTI, short for debt-to-income ratio when calculating how much you can safely pay each month for a house payment.
You can determine your DTI by adding up how much you pay in debt payments every month. This includes items such as your car payment, the minimum amount due on your credit cards each month and all other recurring monthly debt payments.
Take the sum of these payments and divide it by your monthly gross income and then multiply that result by 100.
The last step expresses your DTI as a percent, which is what lenders look at, and, as a rule of thumb, it should never exceed 43 percent, although some experts say that the ideal DTI is no higher than 36 percent.
If yours does, consider ways to lower it. These include raising your income (taking on a part-time job) or paying down debt.
Learn more about the importance of your debt-to-income ratio at the U.S. government’s Consumer Financial Protection Bureau website.
Your current home
Lucky you if the home is paid off because you’ll have lots of equity to spend on the new home. It is estimated that 63 percent of U.S. homeowners have a mortgage payment, however, according to Lending Tree.
We’ve come a long way since the housing bubble burst. In fact, “homeowners gained more than $15,000 in home equity between the fourth quarter of 2016 and the fourth quarter of 2017,” according to CoreLogic, a property analytics provider.
Most economists expect 2018’s numbers to be even more stunning, but we’ll have to wait until spring for study conclusions to be published. The bottom line is that you may be pleasantly surprised by just how big of a nest egg you’re sitting on.
As we move into 2019, we’re facing a changing real estate market. Home prices have slowed their previously skyward trajectory, the tight inventory of homes for sale is easing and the year looks like it will be far kinder to buyers as we move forward.
Upsize your home before the Feds raise rates again and you’ll have made one of the wisest financial moves of your lifetime.
Speaking of which, we aren’t tax or financial experts, so consult with yours about upsizing.