When you buy your first home, it seems like paradise. So much space, all to yourself, with no landlord telling you how to treat the property. Does it get any better?
But as life progresses and your family expands, that cozy paradise might start to feel like a claustrophobic prison cell. Despite the fond memories your home may hold, you’ll eventually come to a conclusion: it’s time to upgrade.
But with that comes a litany of questions and potential problems. The market has likely changed since you purchased your first home, and with a bigger home you’ll run into issues you may have never considered.
Thinking about upgrading your home? Read on to find out whether or not you’re ready.
Can You Sell It?
Even if you want to move to a new house, the housing market can stop those dreams in their tracks. The market may have been increasing when you bought your house, but the fickle nature of housing prices can lead to disappointing prospects when it’s time to sell.
It all depends on where you live. Cities like San Francisco and Seattle are doing well right now, and homeowners who bought a few years ago could likely recoup their investment and more. If you’re living in a city that’s not doing as well, the road ahead is probably more challenging.
Many people can’t afford to drop a down payment on a new home until their old one sells. If your home is only getting a few nibbles from prospective owners, you may find it harder to start the process of upgrading.
Can You Really Afford the New Place?
When you upgrade to a larger home, you face increased expenses in several categories. Mitigating circumstances aside, you’re likely looking at higher utilities, property taxes and maintenance costs.
If you previously took care of the lawn work yourself, a bigger house could require you to hire out some of that work. A larger home might also be more time-consuming to clean, so you may need a cleaner to come once a month.
Your transportation expenses may also change, if your commute gets longer or if car insurance is more expensive in your new neighborhood. You’ll need a new homeowner’s policy when you move, and rates may increase depending on your neighborhood.
Before you even start house hunting, consider how much more you can afford to pay for a home – including all its ancillary expenses. Figuring that out before you become attached to a house can help avoid disappointment.
One of the most significant obstacles to current homeowners is trying to access money that’s tied up in home equity. You may be worth seven figures, but what does it matter if you can’t use any of it?
“Be careful with this strategy because not only will you be paying your original mortgage and the mortgage on the new home, there will be a 3rd payment to make on the HELOC until the first home sells,” he said.
Real estate expert Mindy Jensen of Bigger Pockets said many homeowners find that they have enough equity from their house to put down 20% or even more.
“If you live in an area that is rapidly appreciating – or you purchased right and have seen incredible gains – you may also have enough to make a 20% down payment and pay off debt,” she said.
Many first-time homeowners have access to loans with low down payment requirements or down payment assistance programs that allow them to more easily purchase a new home. But those programs are rarely available to those buying their second home.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.