When you bought your first place, it was perfect for you. But then you got married, had a kid or two, adopted a dog and were recently promoted. Your starter home is starting to feel a bit cramped.
How You Know It’s Time to Trade Up
Jennifer Lawrence and her husband owned and lived in a 1,000-square-foot condo in Placentia, CA, for four years. “It was a great home to start in,” she says, “but we basically outgrew it.”
They had one small bathroom, three bedrooms, a living room and a kitchen, and anytime they bought anything, they were struggling to find a spot to put it. But what really did them in was adding two boxer dogs to their household, which meant that they were “basically stumbling over one another.”
In search of more space, the couple found a 2,020-square-foot house planted on a quarter acre, part of which has become a lengthy dog run.
“It’s amazing how much the dogs have calmed down, with having more space,” says Jennifer, whose house features two and a half baths, living room, dining room, kitchen, large walk-up attic and four bedrooms to make life easier when children eventually come into the picture. “Boxers are typically hyper to begin with, but we used to come home, and they would bark in our faces because they wanted to play. Now, they’re able to play all day with each other safely and relax with us when we come from work.”
Whether you have hyper dogs, expect children, have come into some money or got a job promotion, you know it’s time to trade up when your current quality of life is suffering. For you, a larger, nicer house or better neighborhood will not only mean more room to live, but a happier you.
What to Consider Before Trading Up
Ask yourself these questions:
Can I afford it?
A bigger house or better neighborhood usually means more money. You may be comfortable with your current mortgage payment, but can you handle a larger one? Also, a bigger home means more floors, rooms and outside areas to clean and maintain. How will that affect your budget?
Can I sell my house?
If you own your current home outright (meaning you don’t have a mortgage or any liens) or you have enough cash to cover the purchase of a new home without depending on the profit from selling your current home, then good for you.
But if you’re like most people, you need to sell before you buy — unless you’re prepared to carry two mortgages. Hopefully you’ll make a sizable profit from the sale and can use it to cover the upfront expenses on your new home, including the closing costs, down payment and moving expenses.
Can I sell and buy my new home at the same time?
Yes, you can. For those who choose to sell first, the process is relatively straightforward other than the additional cost of a rental between homes. However, there is the option of a rent-back agreement, where you negotiate with the lenders and buyers to be able to remain in the property for a maximum of 60 to 90 days—often in exchange for rent paid to the buyers. This can relieve some of the pressure of finding a new home, giving you additional time to house hunt.
But if you’re buying first, talk to us about ways to decrease your financial burden and risk. Here are the two most popular options for buyers:
Contract contingency: Buyers can request that their new home purchase be dependent on the successful sale of their old home. If you’re looking in a competitive market, this may not be a good option; however, if the seller of your intended home has had difficulty attracting interest, this may be a good deal for all parties involved.
Bridge loans: Bridge financing allows you to own two homes simultaneously if you don’t have deep pockets for a second down payment. This option is especially attractive if you’d planned to sell your home first and use the proceeds to buy the second. It functions as a short-term loan, intended to be repaid upon the sale of your original house.