They say there are two sides to every story, and there are always two sides to every real estate transaction. There is a buyer and a seller. In most cases, people are both buyers and sellers simultaneously. You are selling one home and using that equity toward the purchase of a new one. Whether you are downsizing or ready to be a move-up buyer, it can be a complicated process to manage.
Move-Up Buyers On the Fence
Today, we want to talk to all the move-up buyers out there. We know many of you are sitting on the fence during this fast-moving seller’s market that we’ve been experiencing. It’s been a strong seller’s market for years because of low housing inventory, and then things have gotten even crazier because of the pandemic. Buyer demand is high while seller inventory remains woefully low.
These market conditions create great opportunities for home sellers. Houses are selling fast and getting top dollar, especially when the seller is prepared. These results are excellent for a seller. However, the tricky part comes when that seller now becomes a buyer.
We are seeing a lot of would-be move-up buyers hesitating right now, and it is understandable given the seller’s market conditions. They know they can get really good money out of their house, but they aren’t sure how far that money will go when purchasing a new home. They are also concerned about how competitive and fast-paced the market is. Most well-prepared listings will attract a frenzy of eager buyers and multiple aggressive offers. This can be intimidating to shift from the “easy” side of the real estate transaction to the “difficult” side.
We understand the hesitation, but waiting it out may not be your best option. You could be missing out on an incredible opportunity to move up into your dream home.
Plan and Prepare for Your Move
This is where careful preparation and planning are absolutely necessary. If you go into a home sale and/or purchase unprepared, it will likely be a mess. This fast-paced seller’s market could chew you up and spit you out. As a move-up buyer and/or seller, you have to be fully prepared. You have to know what you are doing now and where you plan to go next before you take your first steps.
Why it’s a Good Time to Move Up
First, let’s take a look at why now is a good time to move up into a bigger and better home. Obviously, you’ll be getting a healthy amount of equity out of your home sale—assuming you’ve live there long enough to pay off some principal and gain from the high rate of appreciation in the past few years. That money will help you afford a nicer house and put more money down toward its purchase.
A bigger down payment and healthier financial profile will also give you an advantage when making offers. Sellers don’t want to take chances, and they don’t really have to take chances in this market. A sizable down payment and secure funding will help you stand out from the other buyers making aggressive—though sometimes questionable—offers on the same home you wish to buy. Speaking of funding, you should make sure you are pre-approved for your new mortgage loan before you start searching for homes or making any offers.
And while we’re on the topic of mortgages, that is another huge reason why now is a good time to buy. Mortgage rates are still at historic lows and loans are relatively cheap. It is true that homes are more expensive, but your money will still go a very long way in today’s market. You can get a bigger mortgage loan with lower interest rates. You can use your home equity to apply a larger down payment or pay down points to secure an even lower rate. You may also want to use your savings as down payment to secure your new loan in lieu of making a sale-contingent offer.
The Problems with Sale-Contingent Offers
One common challenge some move-up buyers are facing is making sale-contingent offers. This means the purchase of your new home hinges significantly on the sale of your current home. Unfortunately, sale-contingent offers are weaker and present more risk for the seller. They complicate the sale. Any problems with your selling transaction (which are not completely under your control if the buyer’s funding falls through) can delay or derail your purchase transaction.
As a move-up buyer in this market, you should be prepared to carry two mortgages for a certain “overlap” time period. You are much better off if you are qualified to carry both simultaneously and have the funds already available to make a down payment. You can always use your equity later to pay down the loan principal even more, but depending on it to get your purchase mortgage can put you at a disadvantage when making offers. If your first sale must go through before your purchase can happen, then you should consider selling first. Get into something else (rental) temporarily and then buy later. Removing any contingencies will give you much more buying power!
Why You Might Not Want to Wait
With high rates of inflation expected as the year goes on, we could see mortgage rates rise while home prices also continue to go up. This eventually puts a move-up buyer at a disadvantage as their money won’t go nearly as far. Waiting too long to make your move could end up backfiring on you as market conditions change!
If you are in a good position to be a move-up buyer, don’t wait too long but also don’t act too recklessly. You must plan and prepare before you sell your house and before you start searching for a new one. Get your finances in order and talk to your mortgage lender and real estate agent. Have a plan for where you want to move and what kind of purchase budget is realistic. Maybe even consider selling sooner and renting for a little while as you figure out your home purchase plan. There are many different ways you can achieve a successful move up.
The point is it depends on your living situation, financial plan and your housing goals. Don’t let the market scare you from making the best move of your life. At the same time, you must understand this unique market and how to properly prepare for both your home sale and your home purchase.
If you are looking to sell and/or buy a home in the Southeastern Pennsylvania or Northern Delaware area, let The Cyr Team help you plan for a brighter real estate future. Contact us today to schedule a no-obligation personal consultation.