If you are thinking about selling your current home so you can move up to a bigger, better home, first you need to decide if the time and conditions are right for your situation. Consider the following questions:
- Have you built substantial equity in your current home?
- Has your income or financial situation improved?
- Have you outgrown your neighborhood?
- Are there reasons why you can't remodel or add on?
- Are you comfortable moving in the current housing market?
- Are interest rates attractive?
OK. So, you have answered those questions to yourself and decided that yes, you would still like to buy in a better area, or a bigger home, or a nicer home. But, you think it may be better to wait for prices to go back up so you can get more cash out of your existing house for the down payment on the next house. Let's look at the numbers.
Let's say that the house you have now is worth $400,000, and the home that you want to buy will cost you $800,000. For the purposes of this example, let's assume that the price of each home will increase 10% total in 3 years. The $400,000 house value will increase to $440,000, and the $800,000 house will increase in value to $880,000.
That would give you an extra $40,000 for your down payment, right? Well, not quite. Remember that you still will have closing costs that include commission, title insurance, escrow fees, taxes, termite certification, etc. But, for purposes of this exercise, let's assume that you also manage to pay down the mortgage an additional $12,000. Just to keep it simple, let's be generous and say that, after all expenses, you actually do have an additional $50,000 for your down payment.
Interest rates today on a jumbo loan (over $417,000) are about 7.5%. Nobody knows what they will be in 3 years, but it is probably a safe bet that they will be higher than the currently historic lows we have today. So, let's assume the rate on your jumbo loan in 3 years will be 8.5%.
Let's also assume that you will finance the new home with a conventional loan at 20% down, and, if you buy in 3 years, it will be 20% down plus the additional $50,000.
So, the loan amount at today's purchase price will be $640,000 ($800,000 - 20% down pmt of $160,000). The monthly payment (Principle, Interest, Taxes and Insurance) is going to be approximately $5,575.
The loan amount at the purchase price in 3 years will be $670,000 ($880,000 - (20% + $50,000)). The monthly payment (Principle, Interest, Taxes and Insurance) is going to be approximately $6,348.
So the bottom line is that by waiting 3 years for the prices to go up on the house you sell, you will be paying about $773 more per month for the advantage of waiting 3 years to move up. The biggest factor in this huge increase is the interest rate, but the other factor is the higher purchase price.
Note that the above figures are just examples. Please see your accountant or lender for more accurate amounts or advice regarding financing.
Bob Willis, Realtor®
Prudential California Realty
16218 E. Whittier Blvd.
Whittier, CA 90603
DRE License # 01788371
Phone: (562) 639-9400
Email: bob@willisrealtor.com
Search for your new home online at http://myhome.listingbook.com
Learn more about Whittier real estate at http://www.WhittierWelcomesYou.com.
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