So it is time to start thinking about moving into a larger home, a better home, or just one in a better neighborhood. The first thing you need to determine is what the current real estate market is like. Talking to a real estate professional can help you to determine how long your current home might be on the market and what its value may be compared to other homes around you. A buyer’s agent can also help you to figure out what kind of equity you have built into your current home and how much you might have to put down on your next home.
Trading up your home by using your equity as a down payment on a larger home could make financial sense. A more expensive home is an investment that in the future can lead to larger returns when you factor in the difference in equity from a less expensive home. At the same rate of appreciation a more expensive home is worth a considerable amount more even after just 5 years, than the less expensive home. Obviously the rate of appreciate varies from year to year depending on the economy and market conditions.
3 Clever Strategies for Purchasing your Next Home:
1. Clean up Your Credit
Although you may have had a great credit score when you first purchased your home, years of mortgage payments, credit cards, car payments, and consumer loans may have banged up your credit a bit. Late or missed payments have negative effects on your credit profile as do long-term balances on your account. In order to qualify for the lowest interest rate and borrow the amount of money you would like a clean credit record with good scores is really a must. Find out what your credit status is before starting the new home search. Work on paying off some debt, catching up on any delinquent accounts, and removing any inaccuracies before officially applying for a new loan.
2. Loan Shop:
A painless way to get started is to call the mortgage professional who did your last loan, or if you don’t remember who that was ask your buyer’s agent to recommend someone to you. The mortgage professional can pull your credit and let you know of any areas of concern. If there is no major cause for concern you can then continue on with a pre-approval. The loan officer will let you know the maximum loan amount you qualify for. Once you have had a chance to look at some potential homes with your buyer’s agent, make sure to shop your loan around. Some points to consider are how well your current mortgage program worked for you and remember rates aren’t everything. The lowest rate may be accompanied by high points. Consider whether the high upfront costs are worth it.
3. Cash Hunt
An important factor in the equation that determines your buying power is how much cash you are putting up as a down payment and towards closing costs. To review here are the typical closing costs charged to the buyer but like almost every part of an offer are usually negotiable. (insert link to fees). The best mortgage interest rates are available to those who put down payments of 20% or more. If you put down less you may have to settle for a higher mortgage rate or paying private mortgage insurance. Unless you are a saving fanatic, chances are that the bulk of your down payment will come form the equity from your current home. Equity of is the difference in what you owe on your current mortgage and the market value for your home. Speak to a real estate professional to determine the right sales price for your current property. By taking the sales price, subtracting out selling costs (settlement expenses, marketing fees, and paying off your old mortgage, you’ll have an idea of what you’ll have to use as a down payment on your move-up property.
After accounting for your financial situation, don’t be discouraged if you need just a little more time to get things organized in order to get into your target home. Remember it is likely your home is building equity while you are getting all of your finances in order!