I coach my clients to buy a home that will serve them — given their best guesses about the future – for the next seven to ten years. Many of them heeded my advice. Therefore, it will often be 15-20 years later when I hear that my clients are looking towards their next move.
Many of my clients listened to me about planning ahead for moving, too. I will be telling their stories in a later post. Some are planning to move into a bigger, “forever” home, some are done with their “forever home” and want to turn their equity into a paid-for retirement housing, and some are looking for a second home.
Today, I am reviewing what goes into buying more real estate, when you already own a property and are moving.
Any change of owned housing has the same hurdles:
- You need to qualify to hold both mortgages. That means that you are financially capable of closing on your new property while still owning your current one. Most sellers will not accept an offer that is contingent on the sale of your current property. This is a rational decision. Sellers hesitate because something can go wrong with the sale of your current property; they know your purchase could fall through, a month later.
- You need a down payment (or cash) for the next move.
- Many people cannot save a big enough down payment without drawing on the equity in their current property. You may need to draw a home equity line of credit for your down payment. This must be done well before you decide to move. Many lenders would not extend the line of credit if you are about to sell immediately.
- Some lenders have special loan programs for people who are planning to sell when they buy their next place. You would need to qualify for your current mortgage, this line of credit, plus the mortgage for your next property; or qualify for a specific mortgage designed for people who are selling their current home when they buy their next one.
- If you cannot borrow or save enough for your next down payment, you cannot buy without it being contingent on selling your current property. In that case, you may need to sell your current property, then rent for some period of time.
- Moving out and moving in can involve:
- A need to plan to move out and into your next property on the same day, or
- A need to be able to afford to fully pay for the closing and hold both mortgages during the moving time.
- A third alternative is to arrange to stay in the current property for some time after the new owner purchases (this is called Use and Occupancy).
- Then there are all the decisions you make for any real estate purchase:
- Choosing where you want to live, what town, what commute, what school district, what services and recreation you want near you.
- Choosing how much space you’ll need for the next ten years.
- Balancing your budget to allow for work that might need to be done or having a budget that allows you to purchase a new or newly renovated space.
I am adamant about starter houses being a bad idea. Buying involves spending thousands of dollars in services and fees. Selling does, too.
- Although there is no set commission fee, these fees are often into the 5-digits. Buyers don’t “feel” this fee because it is currently included in the sale price, most of the time. But, the buyers are paying it in that sale price. The sellers are “feeling it,” as a deduction before they take their profit from the house at closing.
- Sellers pay transfer taxes, capital gains taxes, Registry fees, cost of getting CO/smoke detector certification, costs of clean-up, and staging and repairing or otherwise preparing your place for sale.
- Then there’s moving costs. If you are moving once, then one moving cost. If you are moving twice, then two. Plus storage of some stuff. Plus security deposits if you rent in between.
- Also, don’t minimize the cost of your time, effort, and inconvenience during the for-sale period and during the move(s).
In most cases, a homeowner will spend about 10 percent of the purchase price of their house on the cost of fees, services, moving activities, plus resale. That is a lot of money to spend if you are not staying in your house for at least 7-10 years.
Planning ahead will make it all go better. You know where to find us!