Although selling a home doesn't come with the same whirlwind of excitement as buying one, it’s a major life decision that affects you and your wallet.
As William Soniat, Realtor and broker/owner of Soniat Realty (3940 Canal St., 504-488-8988), points out, people may move so they can be closer to work or loved ones, or because they prefer a lifestyle more conducive to a certain neighborhood. Young families outgrow their starter homes and need to upsize. Or the kids move out, and parents find themselves with a home that offers more space — and requires more upkeep — than they’d like, so they downsize.
Regardless of the reasons you’d like a new home, you must decide whether or not selling your current one makes good financial sense.
What can you afford?
Rachel West, a mortgage lender with NOLA Lending Group (citywide, 866-872-5399), a division of Fidelity Bank, believes you should sell your home if it has become a financial burden. Otherwise, you may become “house poor.”
Many of her clients, especially young couples, yearn for a spacious house that eventually will accommodate a family. But she warns them that if they don’t “start off small,” they will get hit with a burdensome mortgage payment.
“People will calculate their monthly payments using mortgage calculators, or online tools, and they don't necessarily take into consideration everything that comes along with that payment — which is not only your principal and interest payment, but also homeowner's insurance, flood insurance, property taxes and mortgage insurance,” West says.
For example, a client may want a house that costs $250,000, and think they can manage a monthly payment of $1,100. But when those extra expenses are added to the bill, the monthly payment rises to $2,100, West explains.
Even the most financially savvy future homeowners should talk to a lender in-person when considering purchasing a house.
“Everything you're making is going towards your home,” she says. “I think you should be able to live your life and not have to put every penny you make towards your home.”
Do you like your home but not the location? Or vice versa?
If you’re looking for a change of scenery, consider your home’s resale value. If you are in an up-and-coming location, you stand to make money by selling your home, West says.
“It's a smart investment,” she adds.
She encourages house-hunting clients to think of the big picture: Will the new neighborhood increase or decrease in value in the near future?
If the layout or design of your home no longer works but you like your location — and it’s a location that will increase in value — a renovation loan to revamp the house is the way to go. However, if the property needs work and you’re not thrilled about the location, it's best to pack up and move, West says.
“You don't want to dump a lot of money into a house that you can't … get back by selling,” she says.
When you're in the midst of the mid-year doldrums, a little change can go a long way.
A bigger house often comes with a higher value, especially in certain areas of the city, West says. Renovating and enlarging a home often means a better price if you eventually sell it.
“I think a renovation is a great thing to do, as long as you stay within your means,” she says.
Soniat believes that if you are willing to deal with the disruption of moving every few years, you could buy a home, make improvements, sell it, cash-out the equity and then re-invest and repeat.
Is turning your home into a rental realistic?
If you decide to move, you should consider whether or not you need the equity from the sale to invest in another home elsewhere, Soniat says.
“Selling is not the only option,” he says. “If you feel that you, a family member or a friend may want to move into the home in the future, you may consider renting your home or condo unit in the interim.”
IF YOU'VE EVER TOYED WITH THE IDEA OF MOVING INTO A NEW PLACE, you know the factors to consider: budget and location, of course, along with pe…
Some homeowners realize the market isn't strong enough for them to sell and pay off their mortgage or recoup their equity. They may want to use the house as a rental property until they aren’t “upside-down on their mortgage,” he says.
West thinks rental properties are a great investment, but she warns that a landlord needs the organizational skills necessary to manage their properties and keep their personal finances separate from those of the rentals. She adds that there isn’t a financial benefit to running a rental if its profits are not covering most (if not all) of the mortgage.
Your debt-to-income ratio also is a major factor in deciding whether to rent out your home. If you lack the income to support a few different mortgages, that can prevent you from getting the loan you want for a new house, she says.
“Even though you can use some rental income for qualification purposes, it's usually not the amount of the mortgage,” she says. “You really have to be careful if you're trying to get approved for a certain amount; it can hold you back if you hold onto properties and you can't necessarily afford them in your budget.”
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