Signs are beginning to appear that consumers are more confident that the U.S. economy is improving. Retail sales were up in February, and the stock market has recovered from its January/February fall. Yet many people are still fearful about buying that new TV, or car, our house — there’s no guarantee that the economy is fully out of the woods.
But if you’re a homeowner, if you have a well-paying, stable job, if you have a sizable rainy day fund, might it be time to think about selling your home (or renting it out) and moving up? There are a number of factors you might want to think about as you consider that question:
1. How much equity do you have in your home? Look at your annual mortgage statement or call your lender to find out. Usually, you don’t build up much equity in the first few years of paying a mortgage, but if you’ve owned your home for a number of years, you may have significant unrealized gains.
In the Phoenix real estate market, more than half of all homeowners actually owe more than their homes are worth. But if you bought before the real estate bubble (and didn’t tap all of your equity during the boom), you may well have equity in your home – prices today are about at their pre-boom levels.
If you do have equity in your home, you can use it as a down payment on your next house. Most lenders are now looking for down payments of at least 10% (if you have excellent credit) though the FHA will guarantee loans with a 5% down payment.
2. Will your income comfortably cover the extra mortgage costs and the costs of moving? We all know what happens when people buy more house than they can afford. Today, lenders typically want to see a total debt ratio of less than 36% (including housing expenses). To figure out how much the bank thinks you can afford, take your current income and multiply by 0.36.
For example, say you earn $6,000 per month before taxes. According to the bank, at least, you can afford $2160 ($6000 x .36) in monthly debt. Subtract from that your monthly debt payments (including car payment, credit cards, student loans) of $1,000 and you can afford a house payment of $1,160.
Check out this mortgage calculator to see how much house you could buy with a $1,160 monthly payment:
If you qualify for a 5% interest rate, 30-year fixed mortgage, you could take out a $215,000 loan and keep your payments right at $1,160 per month.
3. Does your Phoenix neighborhood still meet your needs? Often, our needs change over the time that we live in a house. And neighborhoods change, too. Think about your situation and whether your neighborhood meets your needs today. If you have school-aged kids, are the neighborhood schools good? (Check out GreatSchools.org) Is your commute to work relatively short? Does the neighborhood have amenities that you enjoy?
4. Can you add on or remodel? Sometimes, the things you dream about in a new home can be had by remodeling or expanding the home you have – especially if the neighborhood you live in now still meets your needs. If you have a large yard, there might be room to expand your home. Think about HOA regulations, and whether or not you want to undertake the big job of a home renovation. And remember that you probably won’t recoup your investment dollar-for-dollar when you sell your home.
5. How is the Phoenix real estate market? On one hand, with Phoenix homes priced still relatively low, it’s the perfect time to buy. On the other hand, it’s not the ideal time to sell. If you can find a renter to at least partially cover mortgage costs on your current home, you might consider buying up now and renting out your current home until prices rise farther and then selling. If you’re interested, I’m happy to help you figure out what you could get for rent on your current home.
6. How are interest rates? A low rate not only helps you buy more home, but also makes it easier to find a buyer for your current home. And interest rates today are at historic lows.
Reproduced with the permission of Mortgage-X.com
An added incentive to move up now if the $6,500 tax credit available to home buyers who sign a contract by April 30. If you’ve lived in your current home for at least 5 of the last 8 years and make less than $225,000 you can get $6,500 off your tax bill if you sign a purchase agreement by April 30 and close escrow by July 1. It’s too good to pass up, right?
What do you think? Do you have plans to move up? Did you think about it but then decide to wait? Click on the “Comments” link below and join the discussion!
Thanks to REALTOR® Magazine Online for inspiration and some content, which was used with permission from the NATIONAL ASSOCIATION OF REALTORS®.
Subscribe: 
