The typical investor’s mantra is “buy low, sell high.” This holds true in the home-buying process. We all want to get the most for our money especially when buying a house. The trick is to know when to buy and when to sell. The market is getting better but still shows signs of instability. Here three ways that can potentially help with the decision of when to buy and when to sell.
Don't try to time the market
I’ve talked about this before. When the market dropped, we witnessed a huge historical drop in home prices and interest rates. There was a period when it seemed as if the interest rate dropped few percentage points each day. With that said, some buyers want to wait to see if the rate and the price drop so they can get the best deal possible.
You have to know, that it is hard to predict any market, but especially the housing market. You could wait yourself out of a great rate and your dream home. Between 2006 and 2011, home prices fell an annualized 7.7% a year, or 27%, according to Fiserv Case/Shiller. Since 2011 and 2014, they've gained back that much and more on an annual basis.
It is also best to lock in a rate, even the slightest quarter of a point increase could increase your monthly payment by approximately $25 or more. Plus, locking in a decent rate will give you peace of mind and in the position of a serious buyer with the seller.
Buy within your means
You may dream of the huge house on the hill and want a house high in square footage and more bedrooms and bathrooms than you really need. But houses like that also come with a high selling price. If that is the type of house you really want, make sure you can afford it before buying it.
It was the irresponsible lending practices of some mortgage companies and banks that lead to the fall of the housing market a few years ago. Many on the borrowers that were granted huge mortgages with not enough income to pay have lost their homes. You do not want to be in that situation so make sure you can pay your mortgage comfortably before committing to a lender.
There are far more restrictions on lending now that prior to the fall of the housing market a few years ago. Your mortgage payment cannot be more than a to a third of your gross monthly income. Not up to half as it was during the housing boom.
Buy long term
It’s quite simple, the longer you stay in your home, the more equity you build in your home. You can think of equity as “money” you get back when you finally do sell your home.
Another mantra is “you have to spend money to make money.” You should spend some money on keeping your house up-to-date as well on maintenance. This will make your home more appealing to buyers when you do decide to sell.
Unless you are an investor, buying a new home every couple of years is like throwing away money. You don’t build up equity that way plus you waste money on moving and closing costs.
If you have to move, it may be a good idea to keep your home as a rental, depending on the mortgage, you may use the rent as another source of income.
Bottom line, choose the best home for your money, treat it well and in the long run, you can make a profit.