With interest rates dropping to their lowest levels since 2004, the home equity loan re-finance bug is itching a lot of folks again. As we approach the Spring Market which traditionally swings into full gear around March, home buyers will be able to take advantage of low interest rates and a large inventory selection of homes to buy as well.
If you currently own a home and intend to sell it, it's important to coordinate your transactions properly so you do not find yourself making two mortgage payments. Failing to sell one home before purchasing is a tremendous source of financial hardship to many home owners. There are some steps which you can take to help you to avoid being trapped by your Trade-Up Home.
1. Know Your Values?
Many home owners make the mistake of relying on old data to determine the equity that they have in their home. In today's market with the shifting sands of changing value, an appraisal which is older than 60-90 days is probably NOT an accurate indicator of the current value for homes in your neighborhood. The average home Sale in Grand Rapids, Michigan has decreased almost 26% since the end of last year from $121,000 to just under $100,000 today.
2. Steer Clear of the Loan Guessing Game!
It is vitally important to get pre-approved for a new loan. Credit lending standards have tightened considerably within the last 3 months due to the sub-prime lending crisis. But with the New $8,000 Buyer's Credit AND the fact that interest rates are trending downwards below 5%, there's plenty of incentive to get a professional review of what you can afford.
Don't assume that because you qualified for a mortgage last year, the same terms and conditions still apply. To avoid an unfortunate surprise, get an updated, valid pre-approval letter from your lender which includes: verification of your credit, mortgage or rent payment history and verification of your employment.
If you own a home you intend to sell, verify the balance and pay-offs for your current loan. This will give you an accurate indication of how much money you may be able to spend towards the purchase of your new home.
3. Sell First!
If you own a home and don't want to be strapped down with supporting two mortgage payments...Sell Your Home First and then buy your new home. With the incredible array of properties for sale, the idea that your dream home will vanish if you don't act now is probably not as big a problem as holding onto your old home for a year while making monthly payments will be.
This is NOT the time to get into the Bridge Loan Trap just because interest rates are great. Although the spring market has definitely picked up, you don't want to create a bad deal for yourself while trying to get a good one!
4. Don't Leave Cash on the Table!
If you're buying another home, most home owners want to get as much as possible out of the home they are selling. This is normal and has a certain logic to it. However, taken to extremes, many home owners have inadvertently hurt themselves by holding on far too long to a declining asset. If you're moving to a more expensive home, negotiate hard to get concessions on your new home purchase.
A 10% concession on a $200,000 home will more than make up for a 5% loss on a $100,000 home. When you factor in the additional 3 ~5 months of mortgage payments which you may be making while you wait for a buyer rather than pricing your home to Sell...well, it can run up to be quite a loss.
5. Spiff, Clean & Repair!
In a market with a lot of competition, your home must look it's best if you intend to sell it at the best price the market can support. Home buyers are looking for value and the first indicator of value is curb appeal and general appearance. Here's a link to a Staging article which provides some tips about staging your home for sale.
6. When You're Ready to Look...
When you're seriously ready to start looking, you might want to consider a Brand New Model rather than a Re-Sale. You can get a lot for your money right now. I've created a search for a variety of of areas in Grand Rapids and the surrounding communities in which BRAND NEW HOMES start at around $100,000! NO KIDDING!
7. Coordinate Your Exit Strategy...
There are few things more stressful than closing on your home and having nowhere to stay. If you are buying a new home, sometimes there can be delays in obtaining permits or in completing the building process.
Even a home which is not new can present unforeseen challenges with move out dates. It is best to give yourself a little overlap time if you need to coordinate a move to a new home or currently occupied home. A good real estate agent will factor this into your contract negotiations.
Don't allow the purchase of your Brand New Trade Up Model to become a nightmare. At Audu Real Estate, we strive to coordinate the home purchasing and home closing process for a smooth stream-lined transaction. If you would like to learn more about our services, please visit our website.
*this blog post was originally published in the Spring of 2008 and has been updated to reflect current market realities. Questions about the myriad of possibilities which may be open to you can be directed to the author @ info@auduhomes.com
Copyright 2008 Audu Real Estate All Rights Reserved
Lola Audu, is the Designated Broker & Owner of Audu Real Estate. Our company specializes in helping people buy and sell homes in the greater Grand Rapids, West Michigan area. We've had the privilege of helping hundreds of clients succeed in their goals of purchasing and selling property including demonstrated success in the negotiation of Short Sale Transactions. You can contact us via e-mail @ info@auduhomes.com or by phone at 616-791-0511.
Lola, if a person can methodically and with discipline follow your steps they will be way ahead of the game.
Can I borrow # 4. I need to print it and give to some sellers who don't understand the value of the offer on the table.
I just gave similar advice to a prospect and they went with another agent who told them all of this type of advice was stupid... especially # 3 and # 7.
Lola what you said about getting pre-approved again is very true. With the new add hit for points if you are doing a conventional loan and your credit score is below 740 you could quickly find yourself without enough funds to close. Better to know up front and alert your Realtor that you are going to need Seller paids now not after the fact. Also we are no longer getting Approved/Eligible from Automated Underwriting at the high ratio's that we were in the past.
New construction for $100,000? Wow!
A very thoughtful post, Lola, and some sound advice.
Great way to present the options available and the pitfalls of buying before you sell.
That's good prudent advice for any economic condition. I really support the sell first strategy, unless the client is independently wealthy. I've never had an independently wealthy client, but if I ever do, they can buy before they sell. Great post.
Great advice it's a lot harder to sell your home than to buy another one.
Thanks Gary, your comment is appreciated.
Joan...it's all about results. You always wish folks well, but this is not the time to take silly risks.
George, always appreciate your insights from a lender's perspective. The mortgage industry is undergoing a lot of change & I am a firm believer in working closely with great lenders.
You read it right Claudette! New construction starting at $100,000 is possible in West Michigan! But you have to factor in the significant drop in home prices overall to below $100K within the past couple of months.
Thanks Terry. Appreciate your comment.
Wayne, love your comment about 'independently wealthy clients.' Even they are watching their pennies these days with the issues revolving around the stock market. A common sense approach to home buying is good for everyone!
Mike, thanks for your comment.
This post will be helpful to a lot of home buyers and sellers these days.
Hey thanks for stopping by Joetta. It's a post directed straight to home owners and prospective home buyers. So much has changed that even people who bought or sold within the last 2-3 years may be unaware of some significant issues which may impact the home buying/selling process today.
Very good info, Lola....thanks!
I love and use the info in #4, as well - it's our job to remind our clients that to expect to do equally well with a sale & subsequent purchase, particularly in the current market, is simply NOT reasonable or realistic.
While they may walk away after selling with a bit less in their pocket than they hoped, they can typically more than make up for that when they buy again, with the availability of homes & great interest rates!
Hope all is well in your corner of the real estate world!
Edith Schreiber - Dallas Texas
i really like to way you presented your article and bullet points. Good information. May i pass on some of the points you make to others in my market, Kansas City, Missouri?
thanks so much
Lisa
Great points, and don't assume they will qualify to buy more house. With changing guidelines they might have to buy less.
Excellent points, thanks. #3 is mandatory (except for the clients Wayne mentions). #4 is priceless and tricky. I just declined a client because they couldn't see this exact point. Wanted to win big on both ends rather than looking for an overall net win.
Great advice. There are many sellers who incorrectly assume they will be able to cover themselves with a home sale contingency.
Lola - Very good advice for many of our clients. #7 is the most challenging for clients and their agents. However upfront planning the exit strategy helps a lot, it reduces unnecessary stress and makes the sellers-buyers position much stronger.
Lola, This is truly one of the best "how to" posts for sellers that I have seen. You take them through the entire process and didn't leave out any of the critical considerations. You really should write a book if you aren't already!
I am with everybody, great advice. Finding a home is a lot easier then selling it. Not only in today's market but even sooner, not all of the sellers can carry a wrap around mortgage for a long time as mentioned by Bill.
Most definitely worthy of the Gold Star! As usual, Lola, you serve up some really excellent consumer content!
You have the BEST thought provoking blogs. The "trade-in" trap. LOVE THAT summation! New construction . . . did you read this blog: http://activerain.com/blogsview/1005630/Is-Chinese-Drywall-the-next-asbestos-or-lead-based-paint
The positive thing about re-sale is this: It's still standing!! Stands through the tests of . . . TIME! Buyers should consider older properties very seriously. Sellers wanting to have new can really upsell a resell. Most of the older homes in our area have the larger lots . . .
By the way the graphic you used is great too!
Portland, Oregon has a wonderful, perserved area called Laurel Hurst. I should "Localize" that . . . OH, brother. You're making me think . . .
All of your post is very true. It can really be a trap. Owning two homes is not worth the chance of not selling one of them, especially in this market!
There are contingencies that can cause the failure of transactions. Agents need to have an open relationship with buyers to make sure they understand the pitfalls of today's market from down payments, rented properties, appraisal, etc.
Things are not what they used to be and we need to be on our toes.
Great post Lola. All agents should read it.
Edith, thanks for your comment. The spring market is blossoming in Grand Rapids, MI. #4 is the point which some sellers really struggle with. I've watched people loose all kinds of money because they were unwilling to give up a little gain on their old home and then ended up loosing more money than was necessary because the market trended down so rapidly...
Thanks for your comment Lisa. I do not allow reblogs on my articles.
Dee Dee...you're right that banking standards have changed dramatically. There are no guarantees.
Steve, making #3 mandatory was something that was not to deemed to be as crucial a few years back. Today, you're gambling with a lot to take on 2 payments...and banks are much more conservative in assessing a borrowers ability to qualify for this type of financial obligation.
Bill...a very dangerous misconception in some cases.
Svetlana...#7 is where a great agent shines. This is the nuts and bolts of negotiation and making sure that a clients' interests are well served.
Diane...the book is on my 'to do list' :) Always appreciate hearing from you.
Bettina...increasingly more people can't carry a wrap-around mortgage. And just because you can...doesn't mean you should.
Rich...Thank You! Appreciate your comment. :)
Lola, that is a power packed post. (PPP for short)
Great read.
Me
Carla...I'm a lover of older homes. My first home was 109 years old and I loved that home so much that I actually looked into the cost of moving it! It was cost prohibitive though. I hadn't read that blog post, but I'll have to check it out.
In our area...the price of new construction has gone down. We have a number of excellent builders still standing although many have succumbed to the unfortunate realities of the market. With older or newer homes, it's important to thoroughly inspect the purchase. Thanks for commenting here today. Appreciate it.
Very useful information for buyers and sellers Lola. You make great points especially #4, sellers often get so focused on a price they don't realize they are actually losing money in the long run.
Wow Lola -- Exceptional and thorough advice here, especially the part about not using a bridge loan, that is so risky today. Beyond well written and comprehensive post. :-)
"holding on to a declining asset" WOW am I going to use this.
What a phrase.....
Good information on getting closing costs, didn't realize it could help in 5% of loss on current home.
YOU are ONE smart, wise woman, Lola.
Celebrity look alike- completely off subject. You favor Michelle Obama to me. Has anyone told you that before?
Amen to that Norma!
Lenn you make a very important point...ALL potential ramifications should be covered with buyers and sellers to the greatest extent possible. That's what agency & fiduciary duty are all about. Reminds me of how differently we do things from lets say the medical profession.
Doctors pretty much make you sign on the dotted line for every conceivable outcome even for routine procedures. Which underscores what every experienced agent has long since discovered...routine is rarely the norm. There's always something to make the transaction interesting. :)
Hey there YOU! :) Thanks. Enjoy following your updates on Twitter too.
Patricia...sitting down and doing that basic arithmetic with a seller is powerful...very effective.
Chris, Thanks. In my opinion, Bridge loans have always been a riskier product. A lot of things have to go just right to make them work well. During a period of economic instability, they would not be a recommended financing alternative to most sellers although there are always exceptions...
Missy...isn't that really what a home becomes in a buyer's market which has a severe downward trajectory. Every month you hold on to that home...the value is declining. No problem if you don't have to move, but if you do...well, this should be factored in.
La Toya...Maybe I can make that another career. :)
"Knowing your exit strategy."
I think the reason a lot of people get into trouble with real estate is that they have not thought far enough ahead.
Lola, my advice to sellers AND buyers is to try to overlap their move. In other words, sellers should have a new place ready and have started moving out a couple weeks before COE. This eliminates a lot of stress.
Join my new AR group and post your blog at http://activerain.com/groups/virtualoffice
Regina P. Brown
You make many good points that sellers need to consider and often need pointed out to them.
This is a really great post. People for sure need to be aware of the market drop in their area. 26% is a high percent to not know.
Good advice, Lola. I may be using it myself as we contemplate putting our home on the market.
We're seeing builders offering new construction for less than exisiting homes, the same models, on the same streets.
Now is the time to buy...
Well said, Lola! It is obvious that clients are in good hands with you! I hope at some point we have a mutual buyer one way or the other! Take care!