With interest rates dropping to their lowest levels since 2004, the home equity loan re-finance bug is itching a lot of folks again. As we approach the Spring Market which traditionally swings into full gear around March, home buyers will be able to take advantage of low interest rates and a large inventory selection of homes to buy.
If you currently own a home and intend to sell it, it's important to coordinate your transactions properly so you do not find yourself making two mortgage payments. Failing to sell one home before purchasing is a tremendous source of financial hardship to many home owners. There are some steps which you can take to help you to avoid being trapped by your Trade-Up Home.
1. Know Your Values?
Many home owners make the mistake of relying on old data to determine the equity that they have in their home. In today's market with the shifting sands of changing value, an appraisal which is older than 60-90 days is probably NOT an accurate indicator of the current value for homes in your neighborhood. The average home Sale in Grand Rapids, Michigan has decreased almost 22% since 2005 from $121,000 to just under $100,000 today.
2. Steer Clear of the Loan Guessing Game!
It is vitally important to get pre-approved for a new loan. Credit lending standards have tightened considerably within the last 3 months due to the sub-prime lending crisis.
Don't assume that because you qualified for a mortgage last year, the same terms and conditions still apply. To avoid an unfortunate surprise, get an updated, valid pre-approval letter from your lender which includes: verification of your credit, mortgage or rent payment history and verification of your employment.
If you own a home you intend to sell, verify the balance and pay-offs for your current loan. This will give you an accurate indication of how much money you may be able to spend towards the purchase of your new home.
3. Sell First!
If you own a home and don't want to be strapped down with supporting two mortgage payments...Sell Your Home First and then buy your new home. With the incredible array of properties for sale, the idea that your dream home will vanish if you don't act now is probably not as big a problem as holding onto your old home for a year while making monthly payments will be.
4. Don't Leave Cash on the Table!
If you're buying another home, most home owners want to get as much as possible out of the home they are selling. This is normal and has a certain logic to it. However, taken to extremes, many home owners have inadvertently hurt themselves by holding on far too long to a declining asset. If you're moving to a more expensive home, negotiate hard to get concessions on your new home purchase.
A 10% concession on a $200,000 home will more than make up for a 5% loss on a $100,000 home. When you factor in the additional 3 ~5 months of mortgage payments which you may be making while you wait for a buyer rather than pricing your home to Sell...well, it can run up to be quite a loss.
5. Spiff, Clean & Repair!
In a market with a lot of competition, your home must look it's best if you intend to sell it at the best price the market can support. Home buyers are looking for value and the first indicator of value is curb appeal and general appearance. Here's a link to a Staging article which provides some tips about staging your home for sale.
6. Coordinate Your Exit Strategy...
There are few things more stressful than closing on your home and having nowhere to stay. If you are buying a new home, sometimes there can be delays in obtaining permits or in completing the building process.
Even a home which is not new can present unforeseen challenges with move out dates. It is best to give yourself a little overlap time if you need to coordinate a move to a new home or currently occupied home. A good real estate agent will factor this into your contract negotiations.
Don't allow the purchase of your Brand New Trade Up Model to become a nightmare. At Audu Real Estate, we strive to coordinate the home purchasing and home closing process for a smooth stream-lined transaction. If you would like to learn more about our services, please visit our website.
Copyright 2008 Audu Real Estate All Rights Reserved
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Plan Plan Plan! Great article and great consumer info.
Lola- Very well written post with very important action steps that sellers need to be taking in this market. Katerina
Hi Kirk, Planning is extremely important. Hopefully, this article gives home owners some pointers on what to plan for.
Thank You Katerina. Appreciate your comment.
Lola - I love this...very well written - I'd like to do up something similar to this that I could e-mail to all my prospective buyers/sellers this spring. It just might be the shot in the arm that gets them motivated!
Lola I agree- this is a well written post. Good job! Too often sellers trap themselves into very tight financial corners by putting the cart in front of the horse and try to purchase the next home before selling the one that currently have. Few people can really afford to make two mortgage payments.
Lola: As you said, most people are afraid of losing their 'dream home' or being homeless if they sell their home first. Maybe the plan should be to have secondary lodging and storage available for a short period of time. If they do that cost benefit analysis you may be able to convince them that they would be saving money in the long run.
I have a friend from Atlanta that had to move back into their old home when they couldn't sell it after purchasing the new home. They sold the new one at a loss. Not a good scenario.
Lola...you are so on it. This is incredibly informative. Thanks L!
Excellent advice, Lola. It is difficult for sellers today, yet if they can sell they can get a really good buy. Trading negative equity in the home they own into a home they want to be in, is a great idea, if they can just see the light at the end of the tunnel.
Good advice as spring time approaches. There will be people who are positioned for a good payoff and then the other group.
Lola, I think number one is the most important. Values! Money causes so much stress and some of it can be avoided, so true.
Mary, Thanks for stopping by to read and comment.
Allison, Thanks for your comment. It's a real drain on resources and although we hope for the best, it is important to plan with a contingency in mind and avoid if at all possible having two payments for any length of time.
Wow, Tara...that would be a real disappointment to have to move back into an old home because you couldn't sell it.
Yes, Missy...it's not easy to see this sometimes because as home owners we have a bigger attachment to the home we own and don't want to take any loss if at all possible. But if the gain is going to be much larger in the trade -up, this can sometimes make sense.
You're Welcome Larry. Thanks for your comment.
Thank you for stopping by Robert. Best Wishes with your new endeavor.
Hi Carole, Thanks for your comment. The Values issue is a biggie...it's hard for many people to comprehend the dip in re-sale values in many communities.