15 Oct How to Decide When to Buy Another Home
How long should you wait to buy again?
Your home is a great place. But maybe you aren’t so sure it’s the right place for you any longer. The notion of moving to a new home is becoming increasingly tempting—and possibly has gone beyond the idea stage to the point where you are actively browsing real estate listings. Still, you are hesitant, wondering if you should stay put a while longer before thinking about buying a new home.
When’s the right time to buy another home?
There’s no one-size-fits-all rule for how long you must stay in one home before leaving it for another one. Deciding when to sell your home and buy another one is an individual decision influenced by a variety of factors.
There are lots of reasons why you might contemplate buying another home, even if you’ve only been in your existing home for a relatively short time. Perhaps your family has outgrown your current space. Maybe you want to be in a neighborhood that’s more convenient to work, schools or other important locations. You may even need to move to a completely different city or region for work or family reasons.
Issues to consider
Before you make any decisions, there are some key issues you must consider. Chief among those is the financial aspect. You will need to think about how much you will be able to get for your current home—and what (if any) additional amount you would need to add in order to afford the next house you want to buy.
There are also practical issues involved. Moving can be a major undertaking, especially if you have a family. If you are relocating to another area, you may also need to find new jobs and schools, and plan a new life in a new community. Bottom line: this generally isn’t a decision you would make on a whim. But if the circumstances are right, it could be a great move and the start of an exciting new adventure.
The financial picture will be influenced by the real estate market (or markets, if you are buying and selling in two different areas). If the area is leaning heavily toward being a buyer’s market or seller’s market, you will likely be at an advantage for one transaction in the scenario—and at a disadvantage in the other. You will need to weigh the potential outcomes for each and look for ways to balance them out, or make up the difference.
This can get tricky, so a good real estate agent will be a valuable asset in this situation. They can help ensure you get the most for your existing home, while helping you get the best deal on your next one.
The importance of equity
One key element will play a pivotal role in the math of this equation—and that would be equity. This will help you figure out when you have made enough from your current home (on paper, at least) to leave you in a financial position to upgrade to a new one.
The equity in your home will determine whether you will be able to satisfy any existing loan(s), and if you will have any money left over.
There will be several factors at play here, including the type of loan you have, the remaining principal, your payment history and the current market value of the property. If you got a great deal on your current home and property values have risen quite a bit since you bought it, you may already have some decent profit potential. If it’s a seller’s market, this may be the perfect time to cash in and seize the opportunity to sell. This is particular true if you bought the property with the intention of using it as an investment, in which case you likely have less of an emotional attachment to it than if you viewed it as your long-term family home.
There’s also another possibility. Perhaps you bit off more than you could chew with your current home, and are now feeling overwhelmed by the monthly nut and the cost of maintaining the property. In that case, downsizing to a more affordable place can alleviate some financial pressure and considerable stress.
In addition to enlisting the help of a good real estate agent, it’s also wise to consult with your lender. They can assess your current mortgage situation, and advise you as to the best strategy for financing your next purchase.
Red flags that it might be too soon to sell
The prospect of starting a new chapter may be exciting, but in some situations it might not be the wisest move financially. If you have only been in your current home a short time, incurring the expenses involved with another move so quickly can be a big blow to your budget. You might also be making a snap decision because there are some things about the home or neighborhood that are stressful or uncomfortable to you, or you are having trouble adjusting to unfamiliar surroundings. Often, these feelings are temporary and you may grow to love your home if you give it a little time.
Also, if you have a mortgage that involves paying all (or mostly) interest in the beginning, you may have paid little of your principal yet. That means you may have little or no interest built up at this point. You might even be “underwater,” meaning you could potentially take a loss if you sell right now. Depending on the circumstances and your reasons for wanting to sell, that may be a sacrifice you are willing to make. But taking a loss—or even just breaking even—on your current home may make it more challenging to get financing on your next one. Again, this is where the advice of a helpful lender can guide you in making the right decision.