Moving on Up? Thinking About it?
Sometimes, making the decision to sell your house and buy a new home is relatively easy. Sometimes it is not.
What will you gain by moving? What will you lose?
Get out a piece of paper. Draw a line almost halfway down to the middle, then put a circle about the size of a quarter at the bottom of that line. After that, continue the line down to the bottom of the page.
On the left side you are going to write down everything you expect to gain by moving. Do the kids fight over bathroom time? Do you run out of hot water? Do you need a better backyard atmosphere for barbecues? Better schools? Better neighborhood? More rooms? More living space? Bigger garage? Better kitchen? Get your family to help.
Can you fix it by improving your present house? Do you want to?
Write four things down at the top of the right column. Current mortgage. Sale of home. Moving. New home. If you have a second mortgage or home equity line of credit on your present home, write that down, too.
Before you do anything else, you have to know what it would take to pay off your existing mortgage. This will include your balance, any pay-off fees, approximately 30 days of interest, and (heaven forbid!) any prepayment penalties.. Most people forget to include the interest.
You get this from your mortgage company’s loan service department. Often, you just have to punch buttons on your phone and they will fax it or mail it to you directly.
Write the total payoff figure on the right side of the page.
Repeat those steps for any second mortgage or home equity line.
Now you need to call your friendly neighborhood real estate agent so you can learn two things: how much your home is likely to sell for and how much you will net from the sale. Your agent cannot determine your net without knowing your mortgage payoff, which is why you got that information first. Your agent won’t make a big production out of it. You’re dong research. They understand.
Write down how much you will net on the right side of the page. If it isn’t a positive number, you probably shouldn’t move unless you have to. If the number is positive, continue with your research.
The next step is to call a mortgage loan officer. Not to apply for a loan (though you can get pre-qualified or pre-approved if you want), but because you need to know how much cash you need to buy a new home. You need to know the down payment, closing costs, prepaid items like homeowners insurance and property taxes, and 30 days prepaid interest (everyone forgets the interest).
Remember, you’re not shopping for a loan right now. You are deciding whether to move or not. You don’t want the “best case” deal…you want the “worst case” possibility. The most it might cost you under different down payment scenarios. You want your lender to include inspections and stuff that might not normally be in a Good Faith Estimate.
Then you need to know how much it costs to move.
If you're thinking of hiring a traditional moving company, there are moving calculators on the web that will estimate your moving expenses. There are other options, too, and you can get an estimate by making a simple phone call. Your real estate agent or loan officer will know local options and companies you can call.
Just in case you're thinking you don't know with real estate agent or loan officer to call to get this research going, look at the bottom of this page and see if (by golly!) there isn’t a phone number down there.
Okay, subtract the moving expenses from how much you will net from selling your home. You should still have a positive number. If so, move on to the next step.
Subtract how much the lender says it will take you to move into the new house, including down payment, closing costs, prepaid expenses, and all the other "stuff."
Hopefully, you still have a positive number. If not, don't panic. There is a lot of "fudge factor" involved here and purchases can be structured to limit the out-of-pocket cash necessary to close the deal. Or perhaps you knew you might be a little short and always intended to use savings, borrow from your 401K, or get help from family members.
Or...you might have a positive number that is fairly BIG.
If so, put that number on the left side of the page because that is "cash left over" (or it could be). It is also money that you could use to make a larger down payment or to buy new furniture or help stimulate the economy.
So the right side of the page is for calculations and reasons not to move, sort of like a right-brain vs. left-brain kind of thing. Or vice versa.
Oh. We forgot.
What about that circle you drew in the middle of the page?
(We didn’t really forget).
By the time you get through this process, you’ll know whether moving is a good idea or not. That circle is where you write your decision in big bold letters.
© January 2005 by RealEstate ABC
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