If your family is growing, you're earning more money than you were five years ago, you want to live in a more desirable neighborhood, or you want a larger or better-appointed house, you might be considering selling your house and "moving up."
Many homeowners are also motivated to move up because of increasing appreciation rates; they can sell their existing house and have a hefty down payment for their new house. The National Association of Realtors reported last week that 33 areas had double-digit increases in the median existing-home prices in the fourth quarter of 2003 versus the same quarter a year prior. Twenty-two had small price declines and 74 appreciated faster than the national historic norm.
The national median price went up 6 percent -- from $161,100 to $171,600. The biggest increase was in the Riverside/San Bernardino area of California,
where the fourth quarter price rose 28.9 percent to $239,400. Sarasota, Fla. went up 26 percent and the Los Angeles area went up 24.5 percent.
Meanwhile, the NAR, in its "2003 Profile of Home Buyers and Sellers" report, says 40 percent of the buyers the previous year were first-time buyers. The other 60 percent have gone through the process before and are moving up, down, or are relocating to a new area.
There are a host of things you should do as you consider whether now's the time to move up, including:
Keep your options open. With prices continuing to rise and inventory low in many areas of the country, you're likely to encounter a depleted inventory at high prices. "Supply in quality resale Las Vegas homes is the shortest we have seen in seven years," said Michelle Francis, a Vegas Realtor. If you wanted something fairly new, think about something a few years older. "Many 'older' homes have been refurbished, turning them into desirable properties for either new or move-up buyers," said Realtor Stu Osder, of West Hills, Calif.
Get an accurate picture of your financial situation. How much more of a mortgage payment can you really afford? Just because a bank approves you for a certain amount, it doesn't automatically mean you should spend that much on a house. Factor in other debts and expenses and long- and short-term savings goals like college for the kids and retirement for you. Lenders generally say your mortgage should be about 25 percent of your gross monthly income. And always factor in some reserve savings to put aside each month.
Be realistic about how much you can sell your house for and how much of the proceeds you'll have available for a down payment on your next house. Ask a real estate professional for a market analysis. And don't forget closing costs -- points, which are extra fees paid to secure a lower interest rate, origination fees, taxes, title insurance, and financing costs. The higher your down payment, the lower your monthly mortgage payment and the possibility of qualifying for a better loan. Freddie Mac says you should expect to pay about two to seven percent of the cost of the property.
Get pre-approved for a loan. This way you'll know if you can get approved and how much you can spend on a house. It also puts you in a stronger position when you ultimately make an offer on a house.
Be specific about your needs and don't cater to emotion. If you have two kids with another on the way, be on the lookout for houses with plenty of bedrooms and areas to entertain and raise growing children. Take play and study spaces into account.
Consider the neighborhood, as well as the individual house. If you have kids, check out the reputation of the schools that your kids would be attending. Contact the local police or sheriff's department to get an idea about crime activity in the area. And factor in the neighborhood's proximity to work, shopping, restaurants, and other important places you'll be frequenting.
If you're considering an existing house, check out the property's insurance history. This could affect your ability to obtain insurance if you buy it. Begin by making sure your credit report is accurate -- credit histories are sometimes used to determine whether a company will insure you, and, if so, at what rate. Also, the Insurance Information Institute says you should get a copy of your loss history report, such as a CLUE report from ChoicePoint or an A-PLUS report from Insurance Services Office. This is a record of home insurance claims you have filed. If you have not filed any insurance claims in the past five years, you won't have a loss history report. The better your report, the better chance you'll have of obtaining reasonably-priced insurance on the house you buy. Ask the seller to provide a copy of their history report, too.
Published: February 16, 2004
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