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| Home Sellers Warning: Do Your Math Homework |
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If you're thinking about selling your home and moving up to a larger home, do
your math homework before offering your home for sale. Read the following story
to see what can happen to home sellers who don't do their math.
A young
family sold their home in California, before they determined how to buy their
next house. All they thought about was moving into a larger home for their
growing family.
Two years before, after this young couple purchased
their first home, they bought a minivan with payments. They increased their
credit card debt with home furnishings purchases. Then, the wife quit working to
stay home with their new baby. The family still had sufficient money to make all
payments on time.
They fell in love with a larger new model home in a
nearby tract home development. The sales agent convinced them the new home would
only cost them another $200 per month.
The family had no trouble selling
their home. To qualify for the new home mortgage payment, they had to pay off
the minivan, student loans, and the credit card debt. Out of their home sale
proceeds, these payoffs left less than a 10% down payment for their new home.
Because of their changed income and low down payment, they didn't
qualify for the new home of their choice. With only 5% down, the couple had to
pay higher interest rates on a second to avoid mortgage insurance. Without the
wife's second income, the total payment meant that they only qualified for a new
mortgage for a home which cost less than the one they sold!
Before you
put your home on the market, make sure you can buy the home you want.
Consider the following financial concerns:
Talk to a loan
officer and check your credit. Don't get caught after selling your home, when
it's too late, to repair any credit issues. Of course, you may have a great down
payment from the sale of your home, but other bills like credit card debt, auto
loans, and student loans may need to be paid off so you qualify for the new
mortgage payments.
Ask your loan officer how much of a monthly payment
and the down payment amount you'll need to buy the home of your choice.
Do your math. How much can you expect to net from selling your home?
1. Do you have a mortgage pre-payment penalty that could eat up a
significant amount of your equity?
2. Determine selling commission
expenses. Can you sell your home effectively on your own or do you need to pay
4-6% of your selling price for a real estate agent's expertise?
3.
Estimate your closing costs. Ask a local closing or escrow company for an
estimated closing cost amount for a home in your price range.
4. How
much work does your home need to ready the property for a top-dollar sale? Which
upgrades or redecorating expenses make sense financially?
Consider all
the expenses of selling, determine your actual profit, and compare that amount
to your required down payment. How much of a home you can buy with your
qualified monthly payment amount?
After you do your math homework,
you'll be ready to think about selling your home. Don't get caught like this
young family and be forced into a smaller home.
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