Intending to Buy a home with hopes to upgrade someday to a Bigger one - Think Again

Apr 27
17:23

2006

Mark Donovan

Mark Donovan

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Buying a home has been known as the American Dream. But once you've bought it, how long should you hold onto it becomes the big question. Well the truth is, most of the time its not your decision to make anyways.

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Or at least the decision is so painful you hesitate indefinetly to make the next move. Fluctuating interest rates and home values,Intending to Buy a home with hopes to upgrade someday to a Bigger one - Think Again Articles job changes or layoffs, a growing comfortablity with the location, realization of new Real Estate fees and closing costs, etc. inevitably effect your decision to make that new home transition.

Most new home buyers say they will stay in the home for a few years then upgrade to a bigger one with all the equity they gain. Others say they will move to a bigger home once they have kids or when their salaries increase. All of these reasons sound reasonable, however much of the time they are not reality.

In regards to home equity, the unfortunately reality is that home values in the same location rise proportionaly to each other. As a result whatever equity you have gained in your starter home, by itself does not increase your purchasing power to buy a larger home. Yes, it may give you the opportunity to fiance a larger home, but in the end you also have a much bigger monthly mortgage payment. The next question is, can you afford the new mortage payments.

Before making the decision to upgrade to a new home, you next have to figure out what your net proceeds will be from the sale of you existing home and what your future mortgage will be and whether or not you can afford it. Too frequently we forget that a good portion of our home equity is lost to the real estate commisions and the closing and moving costs to transistion to the new home. Only after the net proceeds are calculated from the sale of an existing home can we understand how much additional funds we can put towards a deposit on another home. The key point to remember; it costs to move and it usually costs big.

Unfortunately home prices have far outpaced salary increases. Quite frankly that chasm seems to continue to grow. As a result, waiting for growth in your salary to buy the next bigger home is sometimes a poor reason to hold off from buying the bigger home in the first place, particularly if interest rates are low.

Once the kids arrive the decision to upgrade to a new home can become even more complex. Particularly when the kids get older and even if you are planning to live in the same general community.

The bottom line: You will probably be in a home much longer than you originally plan. Consequently, it is sometimes wiser to buy more home on your first home purchase rather than less. This is particularly true if interest rates are un-naturally low. So before you buy that first home think longer term and buy what you could be happy living in for 20 years, because you just might!