With the turn of the new year many people are considering selling their house and looking for a new one. They ask, “Should I sell my home, or is it the right time to sell?”
Traditionally speaking, early in the year has been a good time to put your house on the market. After the holidays buyers are typically out on the market looking for houses. But even if it’s not the beginning of the new year, spring will soon be upon us and the market will pick up with potential buyers looking for the right house, at the right location and the right price. So, if you’re considering selling your house, is it the right decision?
Truthfully, there really isn’t a right answer, or one size fits all answer to meet all situations. It will vary across different situations and you have to do a little bit of thinking and planning to determine what makes sense for you.
Should You Sell Your House? New 2 Post Series
Today I’m starting a two post series here at Bible Money Matters titled: Should You Sell Your House? This week I’ll cover financial considerations of selling your home and in next week’s post I’ll go beyond the numbers and discuss other factors that may play into your decision. Both weeks will provide a list of things to get your mind thinking and help you determine the best decision for you.
Making It About The Money
Will you profit on the sale of your existing home? A good real estate agent is likely to ask you how much you need to sell your current house for and what is the highest price you can pay for a new house?
It’s important to run some numbers to find out. Consider these costs (hint: look at a previous settlement statement to get estimates):
- Real estate sales commissions
- Fees paid at closing: In looking at my last settlement statement we paid some
- Title charges
- Government recording and transfer charges
- Any additional settlement charges
- Pay off for existing mortgage
- Home repairs if this is included in the sales contract. Or, perhaps you need to make repairs before putting your house on the market.
- Pre-sale preparations such as landscaping, painting, etc.
You’ll need to know how much your house is worth and what you plan to list it for on the market. Your real estate agent can help by pulling comps to show you what other houses are selling for in your area. You can also use websites such as zillow.com to get ideas.
If you have good cost estimates and a realistic sales price, you should be able to determine if you can expect to walk away from the deal with any profit, or get the cash back that went into purchasing your house.
There is always a buyer, but the price has to be right. Remember that you can’t just list your house for whatever your heart desires. Basic economics applies to the housing market. There is a price point for every area in which people will buy unless it’s a special circumstance. You just have to find that price point and consider whether or not it is going to leave you with a profit or loss in consideration of the costs.
How much will it cost to get into the new house? Once you know how much you’re expected to make on the sale of your house, consider the costs to get into a new house:
- Costs associated with the new loan
- Title charges
- Government recording and transfer charges
- Prepaid expenses such as insurance and taxes or reserves deposited with the lender
- Moving costs
- New house purchases (such as window coverings (if not a new house).
Do you still have any cash left after these costs for a down payment? If so (or not), you should be able to determine how much house you can afford. If you use Dave Ramsey’s mortgage rule in which the mortgage payment, taxes and insurance cannot exceed 25% of your monthly take home pay, you’ll be able to determine the purchase price required to make those numbers work.
What interest rate can you get for your new loan? Determine current interest rates for home loans. Bankrate.com can be a good source to use here. I would also recommend contacting some lenders to find out in advance how much you can qualify for, but don’t consider that amount your purchase price. Know what you can afford and use the estimates to make sure you can get a loan with a good interest rate. At the time of this post, interest rates are still low, so this is definitely some added incentive.
Will making the move put you into a position of paying off your home sooner? I think this is a question not often considered. Are you planning to one day pay off your house? If not, you should because a mortgage is still considered debt.
I realize there is a whole other discussion about whether or not you should pay off your house because of the tax deductions, but for now, think of it as a step towards a life without debt. Factors to consider here include the total interest you’ll pay over the life of the loan and the amount of years to pay off your loan. Try to get this number down.
How long have you been in your house? It’s often said you need to be in your house 5 years to recover the costs associated with the original purchase. What do you think? Perhaps there is less to consider here if you can sell your house for enough to get all of your money back and more. But if your house price isn’t as high as you had hoped for and you’ll lose money, it may be wise to wait until the housing prices rise, until you can cover original costs and make some money for a down payment.
Home buyers tax credit incentive. Finally, consider the home buyer tax credit available right now for first-time home buyers ($8000) and repeat buyers ($6500). It’s certainly a consideration in buying since a home buyer tax credit is a reduction in the amount of taxes owed!
There are probably many other money related considerations when deciding to sell your house. Do you have any examples you can share? Tell us in the comments!