What do you get when you add rising home prices, still-low interest rates and insufficient inventory? Blooming consumer confidence and a growing interest in buying and selling homes, that’s what. Breathless news stories about the housing recovery certainly catch my attention. We’ve been considering a move for years. But there are so many factors that go into deciding whether to buy or sell a house. And it’s important to keep emotions in check. With that in mind, I’m sharing how my family is preparing for a possible move.
Start saving for that down payment. When we bought our first home, we figured we’d stay a few years, wait for our equity to explode, and easily move to a forever house that would better suit our growing family. Then the housing bubble burst and our easy-peasy trade-up scheme popped too. If we sell, our equity will not equal a double-digit down payment.
Lending standards are tighter now. While low down payment options are still out there, having a decent down payment will make it easier to buy. In addition to setting some extra savings aside each month for this purpose in a separate account (otherwise, down payment money looks like “let’s go out to dinner money”), we also moved some money in our Roth IRA retirement accounts from stocks to cash, so we know the money is there if we need it, no matter what the market does. Since Roth IRAs are funded with after-tax dollars, we can take out any money we contributed tax and penalty free.
Check credit reports for surprises. Every four months, we visit annualcreditreport.com and request a free credit report from one of the three credit bureaus – you’re entitled to one free credit report from each bureau annually. If you space them out as we do, it’s the equivalent of a credit monitoring service. Give it a once over and follow the rules for correcting any mistakes you see. We also estimated our credit score using myfico.com/creditscoreestimator. If you have concerns about your score and wish to purchase the real deal before pre-approval, talk to your lender about which credit score they use (yes, there’s more than one).
Get pre-approved. Figure out your financing before serious house hunting begins. That way, you’re ready to pounce when the right house comes along. With inventory low, multiple bids are common these days. Even post-financial crisis, I think lenders are too generous. We were pre-approved above and beyond our comfort zone. We set a ceiling of how much we’d be willing to spend to fall back on if emotions take over.
Make a list of what we can and can’t live without. We’ve learned a lot about what we do and don’t like as owners of our starter home. Now we have a pretty good idea of what we’d really like our next house and neighborhood to be like, from the shape and size of the windows to the proximity to schools. If you’re shopping for a house with someone else, have those conversations. Visit open houses. Spend a lot of time prioritizing amenities and talking through the reasons why they are important to your partner. I’ve lost track of the number of times we’ve had such conversations. They can be tedious, but we know where we stand as a family. Our bigger problem is finding a house that actually fulfills our stringent requirements, or coming to terms with the fact that our dream house comes with a price tag outside our comfort zone.
Don’t wait to get your house in order. If you have a house to sell, have a professional come through your house with suggestions for improvements, touch ups, and staging. I knew we’d have a fair amount to accomplish but the list was pages long, and with three kids and a full time job, it takes time to re-grout tile, clear out toy clutter, and paint walls neutral colors. Moving is stressful enough without pulling all-nighters to get the house in tiptop shape. If you’re thinking about renting out your place, be sure to do the legwork to understand the rules and regulations. It may be more work than you anticipate.
Find a Realtor. You might wonder why a Realtor is even that important anymore, since sophisticated real estate websites and apps make it easy to virtually tour homes before speaking to a professional. With so many new regulations to navigate, buying a home is more complicated than ever. Having someone to guide you through the process is invaluable. Even more important, in my opinion, is finding an agent who is plugged into the neighborhoods you’d like to move into. It’s not uncommon in this low-interest environment for houses to sell before they make it to the multiple listing service (MLS).
Remember the lawn mower. And the cost of utilities. And money for assessments. And cash set aside for home repairs. Homeowners need to factor in the monthly cost of running the house, in addition to the repairs and improvements and unexpected expenses that will come up as the years pass. It’s not just about the down payment and the monthly mortgage. We’ve calculated the number on a couple of older, larger homes, and it’s been eye-opening. This is one reason why we’re not 100 percent convinced we’ll sell our not-so-big-house.
Kara McGuire is a personal finance writer and a St. Paul mother of three.
