Buy Your Next Home

Some people who buy their first home actually do stay in their home forever.  However, its more common that a couple starting a family moves into a home, then in 5-7 years they have “Life Changes” where they are compelled to move on.  5 to 7 years is a typical time frame, because your life tends to change significantly in that time frame.   Newly married couples have newborns and toddlers; then 5-7 years later, the kids are starting school.  At this point in time, they might be outgrowing their starter home.  Then 5-7 years after that, adolescents become young adults and your family’s needs will continue to change .  Things are typically changing on the career side for young professionals as well; entry level jobs, lead to more senior positions and later on, perhaps management.  All of these “Life Changes” are significant events.  As your life changes, your housing needs and your housing priorities and personal wants/needs change too.

It’s likely that you will consider selling your home and buying another one to match your new situation when “Life Changes” occur.

For some, if you’re successful enough financially and you can afford it, you might choose to make a long term investment into your Dream Home.  This is a decision that you would want to give a lot of thought.  It important to take a really broad long term perspective on such an endeavor, because it will probably be the biggest financial decision of your life.  You will want to take a long view of your future life and have a good understanding of how the new house matches your personal and financial goals.

Finally, in your later years, usually in retirement, life changes again and you typically have more house than you need.  At this stage of your life, many retirees decide to downsize and simplify their lives by scaling down.  It is, of course common for retirees to move to a different local community or even a different state, as they again match their wants and needs against their other newfound priorities.

If you’re selling your current home, chances are that you’ll be using the proceeds from the sale of the property to buy your next home.  As such, you’ll want to fully understand the costs that are involved.  The gross proceeds from the sale of the property is of course, the sales price.  After the expenses of the sale are deducted, what’s left over the is your NET spendable money.  For simplicity, you can get a ball park estimate of your net proceeds by multiplying the expected sales price by 92%.  That means that you expect the cost of selling your home to be about 8%.  You will want to make sure that this 92% net figure will be sufficient to cover both the down payment and the closing costs for your new home.  If not, you’ll want to make sure that you have sufficient liquid funds to cover the difference.  Your trusted advisor, your lender, will be the best consultant for this important task.  However, depending on the complexity of your estate it might be a good idea to involve your accountant and attorney as well.

If you’re planning on retaining your current home that means that you won’t have access to the equity to use for the acquisition costs on the new home.  In addition, buying the new home, means that you will need to be able to make both mortgage payments.  If you decide to rent out the retained property, a percentage of the rent collected can be used to offset the retained property’s expenses.

Unless you are incurring new debt that is significantly below your financial means, this type of transaction has a lot of moving parts.  It is likely that you will be pushing the limits of your qualifying ability so that you will want to make sure that you do everything according to plan.  You’ll also want to fully understand how all the pieces fit together.

The closing costs for this type of loan are the same as any other mortgage.  As such, the costs could vary widely based on the interest rate and the type of loan.  As a very general rule of thumb, it is safe to assume 3% of the purchase price as the total cost for the loan.  You can use this figure to get a first cut on the additional funds that you will need beyond the down payment.  As you begin to fine-tune your price range and the terms of purchase, down payment, etc., you will also want to fine-tune your closing costs.

If you’re planning on retaining your current home and perhaps turning it into a rental property, there are a host of other considerations as well.  Nowadays, there are minimum equity requirements that your retained home must have before lenders will even consider lending you money on a new home purchase.  25% equity or 75% loan-to-value is the requirement today.  This means that the outstanding loan on your retained home cannot be greater than 75% of its value.  This is a relatively new rule that came into being because many homeowners whose home was likely “underwater” would buy a new home, then allow their old home to go into foreclosure.  Lenders developed this new rule to discourage that practice.

Please click here to complete the PRE-QUAL questionnaire to get a quick cursory view on what we can do for you.  

If made your decision and you’re ready to move forward, click here to schedule a time to talk to us.  We can meet in-person of via phone or net-meeting over the internet.  After our meeting we’ll be able to provide an electronic PRE-APPROVAL for you.  These days a PRE-APPROVAL Certificate is a required prerequisite to making an offer on a property.  Sellers will not usually even consider your offer if it is not submitted without a PRE-APPROVAL and proof of “cash to close” funds (bank statement).

Discovery… Now that you have been a homeowner for a while, you have a much greater awareness of how your current home serves your needs and its shortcomings as well.  You will need to go through a period of discovery by listing the things that are important to you in your next home, then asking this question for each item on your list :  What’s important about “blank” to me ?  The answers will be very revealing. 

Fine-tuning… The next step is to do some actual and virtual tours of homes in your price range that meet the new “wants and needs” criteria.  You’ll discover quickly that it might be difficult to find a house that meets fulfills all of the criteria.  As you ponder your list, you will start to form a hierarchy of needs.  This will assist you greatly when you have to decide between options as you make compromises. 

Searching… Time to get serious, talk to us about a local realtor who is familiar with your target area, we’ll refer to a realtor who is very professional and resourceful.   Now it’s time to start your adventure!