Thinking of Upsizing? 3 Tips to Help You Be Smart About Upsizing
Posted by Patrick Rivers on Saturday, January 15, 2022 at 11:34 AM By Patrick Rivers / January 15, 2022 Comment
Thinking about up-sizing your home but a little nervous about taking the leap? The starter home that you bought 6 years ago was a dream come true, but since then you're family has been growing and your need for more space has increased. Here are 3 things to consider to help you make the smart decision for your family...
The first and most important thing to think about, is to consider how your current mortgage fits in your life. Are you barely getting by, or are you comfortably affording your current monthly expenses? A bigger home almost always means a larger mortgage payment, so you will want to take an honest look at your finances and make sure that up-sizing makes solid financial sense for you and your family. Staying a little while longer while you get your family in the best financial position possible may seem a bit uncomfortable, but it's nothing compared to jumping into a situation where you commit to more house than you can comfortably afford.
The next thing to consider after taking a close look at your family's financial situation is the potential profit that you'll get from selling your current house. Equity is the difference between what your house could sell for in today's market and what you currently owe on your home's mortgage. For example if your house will sell for $200,000 today and you still owe your mortgage company $150,000, that leaves $50,000 in equity. Equity can be gained by paying down your mortgage principle balance. Equity is also gained when your current home appreciates due to a rise in housing prices. This equity can go right into your next home as a large down payment to make your next mortgage payment more affordable. Get with a local realtor to find out what your home could potentially sell for in the current market and see how much equity that you may have in your home.
The last thing to do is to put it all together and crunch the numbers in order to set a conservative budget for your next home. Take into consideration your current mortgage payment and how it fits into your lives and estimate how much more you could potentially comfortably afford. Also, you will want to consider the current equity in your home to determine how large of a down payment that you will have to go towards your next home. For example consider John and Susan they bought their first house for $150,000. They mad a 20% down payment at the time they purchased their first home which brought their mortgage balance to $120,000. Over the past several years they've made their mortgage payments and paid their principle down to $105,000. Also, the home values in their neighborhood have risen 15% since they purchased their home. So, the amount they originally purchased their home for $150,000 + 15% = $172,500. Now, that they know what their home could possibly sell for today they can determine how much equity they have. They owe $105,000 on their current mortgage, so (current home value) $172,500 - (mortgage principle balance) 105,000 = (equity) $67,500. After paying the realtor commission closing costs and moving expenses they'll be looking at an approximate net profit of $60,000 that can go toward their next home. Now John and Susan, knowing that they have $60,000 to go towards their next home and knowing what they want their next mortgage payment to be, they can now get with a realtor and use a mortgage calculator to determine the budget for their next home.
Deciding to up-size your home can seem like an overwhelming task. But having a real estate professional that knows your goals and can help navigate you through the process can increase your confidence dramatically. A good real estate agent will help you run your numbers by pricing your current home, helping you realize your equity position, and help you find your next home within your budget. We want to make sure that your next home is a blessing for you and your family. If you have any questions you can reach me anytime by call or text at (251) 273-2339.