One thought thrown around by home sellers is… I will wait until my home was worth 5 years ago before I purchase a new one.
Seems to makes sense…. or does it? On the surface it probably seems to make sense for many Massachusetts homeowners that are looking to sell their home and buy a new one.
I would like to show you why, you might want to reconsider. Selling your home in a down market or buyers market to purchase a larger more expensive home can make a lot of sense from a financial standpoint. It can save you money on your new home purchase or allow you to buy more home for the same mortgage payment!!
Of course every home owner remembers what their home was worth 5 years ago. I could of, should of, would of….. What the home owner tends to forget is that even though their home dropped 25 or 30% from peak, so has the price of homes that would have been in their price range, making that new home more affordable.
Lets take a look at a few numbers.
|
Current Home |
New Home | ||
| Peak Value | $400,000.00 | $600,000.00 | |
| Proceeds after Expenses/ Down payment | $147,500.00 | $147,500.00 | |
| Previous Mortgage Balance/ New Mortgage | $230,000.00 | $453,100.00 | |
| Difference in New Mortgage Balance vs Old | $223,100.00 | ||
| New Mortgage Payment at 5% | $2,432.34 | ||
| Lets look at the numbers after a 25% drop in Value from peak | |||
| Current Home | New Home | ||
| Fair Market Value Today | $300,000.00 | $450,000.00 | |
| Proceeds after Expenses/ Down payment | $52,800.00 | $52,800.00 | |
| Previous Mortgage Balance/ New Mortgage | $230,000.00 | $397,200.00 | |
| Difference in New Mortgage Balance vs Old | $167,200.00 | ||
| New Mortgage Payment at 5% | $2,132.26 | ||
This only makes sense if you either have equity to work with or cash in the bank and you are moving up. You will still have to come up with a minimum down payment and maybe closing costs. The other thing to remember is that interest rates are still at an all time low. You may even have more savings if you are dropping a half a point or more in interest rate.
The other advantage is while we are in a neutral to buyers market it is not unusual to get home sellers to pay all or some of your closing costs as well as the fact that home sellers are more willing to do necessary repairs to get their house sold.
If you have been waiting for the market to turn around to purchase a new one maybe its time to reconsider crunch some numbers and you may find it is more advantages to buy and sell now.
