Why Do You Want to Make the Move to a Larger House?
The purchase of a home ranks right up there with making a baby decision. Decisions like these tend to be life-changing decisions – at least relating to the money you’re going to have to commit to them. And, as with everything that’s life-changing, you want to be sure that your decision is going to be the right one.
“Is this the right house for me?” “Should I buy this house?” “How much house can I afford?” “What can I truly live with?”
Those are all questions I’ve asked myself over the course of my life as I’ve searched for the perfect house to call my own.
What’s the Situation with Your Current Home?
You’ve been living in a 1500 square foot vernacular home for a few years now and you’re getting kind of cramped in there. The problem is that you don’t want to disrupt the neighborhood with a construction project so you’ve decided it’s time to go bigger. It’s time for an upgrade.
This is the typical situation that a lot of homeowners find themselves in once or twice in their life. It’s understandable because living in a house of this size can be downright uncomfortable once everyone is living in there.
Before you rush to make the decision to build a larger home or move to a bigger house, you really have to stop and consider your situation. Some people do their homework and decide to move to a larger house based on a number of different factors. More often than not, however, people find themselves in a situation like this without having given it much thought.
As they say, the devil is in the details. That’s because there are a lot of details and considerations that you need to take into account when you’re upgrading your current home. Before you do anything, you need to make sure that you’re making the right decision for all parties involved.
Are You Prepared for the Costs of Moving Up?
Have you been saving up for your dream home? One with your own private swimming pool, a finished basement, and a log cabin out back. All Americans dream of having enough money to purchase a large, high-quality home. It’s the American dream after all.
But, before you check out real estate listings for your ideal home, it’s important to have a plan for the expenses that come with moving up. After all, you’re going to have to pay for moving trucks, professional movers, thousands in real estate closing costs, and anything else associated with purchasing a new home. It’s important to know that the expenses related to moving up aren’t limited to the purchase price of the home you’re purchasing … they include mostly everything that comes after the purchase.
If you’re prepared, you might be able to afford to upgrade to your dream home. However, if you’re not prepared, you can look forward to paying all the expenses on top of what you owe on your current home.
So how much should you save up for, and what moving costs can you expect?
Can You Handle the Home if it Doesn’t Appreciate?
How much house you can afford depends in part on whether you’re using an adjustable-rate mortgage and how much you pay each month. When you pay an adjustable rate, you can afford a greater amount at a higher interest rate than those with fixed-rate loans.
If you’re in the market for a 30-year fixed-rate mortgage, you should know that most mortgage lenders don’t take into account recent price patterns when writing your loan. They generally lend what’s available at the time you apply for your loan.
This is one of the main reasons why people complain about not being financially prepared when the time comes to move in to a bigger home. You may have run the numbers, but the house you want to buy may seem affordable based on your monthly payments at the current house price. But when prices begin to rise, you may end up with a bit of an unexpected surprise when it’s time to sell. This is why you must consider the recent appreciation rates in your target market as you make a buying decision.
In sum, in a low-inflation environment such as the one we’re in currently, paying down the mortgage at 4% interest is a great deal. As long as you’ve taken your home’s tax deduction (see below for more on this), you’re being paid over 5% to borrow money. Most people are looking for better returns than that!
If you’ve finished paying your mortgage, your savings upside is less, but you still have the opportunity to dramatically increase your savings rate, which can quickly compound your retirement assets.
As we pointed out above, the one thing you can control that can have a substantial impact on your financial situation is your spending on housing. If you’re ready and able to move to a smaller home in a cheaper location with significantly lower property taxes, you should be able to follow our plan.