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You dream of a quiet place in your home to escape from the
hustle and bustle of family life. The kids are fighting over bedroom
space. Even the dog wants more room! So one Saturday you load everyone
into the car and head out in search of a larger home. Emotionally, it
makes sense.
But financially, are you prepared to part with some of your hard-earned
equity (not to mention a bit more of your
paycheck) in order to purchase a larger home? It's going to cost you
money to move up.
Equity is the difference between what you owe on your home (all its
mortgages, liens, etc.) and what you could obtain on the open market
less your cost of sale (something that's overlooked by many over zealous
move-up buyers. Looking -- carefully -- before you leap can make the
difference between a financially prudent new purchase and a haunting
economic disaster. Let's evaluate the costs.
Some increased costs of purchase are obvious: You'll be paying a larger
mortgage payment monthly to own a larger home (depending on your down
payment), your taxes will increase and your homeowner's insurance will
cost more. And if your down payment isn't at least 20 percent of the
purchase price, you may even have to buy private mortgage insurance.
There are additional costs that aren't so obvious. What about upkeep and
maintenance? Utilities? Even the extended period of time it takes to
clean the home on the weekend, taking time away from your family and
other "fun" things, should be factored in.
One expense many people overlook when buying bigger is the cost to sell
their existing home, the cost of real estate commission and moving
costs. (Though the cost may seem daunting, remember that using a real
estate professional to sell your home often saves you money in the long
run.) You'll also need to factor costs associated with title
insurance, transfer taxes, deed preparation and property taxes, which
you pay in advance.
So should you move up? The answer depends on what you're trying to
achieve. If you're purchasing a home that will appreciate faster than
your current one, gives you more space, is in a better neighborhood, and
will make you happy, it may make sense to move. And, frankly, happiness
often becomes the overriding factor to the move-up buyer. Yes, they may
want different features than they have in their current home, but they
also know that housing is housing -- being happy where you live is
paramount.
Homebuyers purchase with their "gut" and justify the purchase
with their wallet. Long after you've crunched the numbers and consulted
with an expert to evaluate a new neighborhood, you're still likely to
follow your gut instincts and purchase the home that tugs hardest on
your heartstrings. |
