If you are selling your primary residence in order to relocate or just move into a different home, you can use today’s market to work to your advantage.
You need to look at the overall picture. Too many sellers are overly concerned with what they need to sell their home for. Does this statement remind you of anyone: “I can’t sell my home for $250,000, last year it was worth $300,000. I paid $275,000 for the home four years ago.”
On the surface Mr. & Mrs. Seller would be losing $50,000 in equity if they sold their house for $250,000.
I asked Mr. & Mrs. Seller what their plans are when they finally sell their home.
Excitedly they told me about this fantastic home, their dream home. A four bedroom home in a great school district. It is a foreclosure that sold for $500,000 three years ago and can currently be had for $300,000.
Do you see where I am going?
Mr. & Mrs. Seller would lose $50,000 on their current home however if they sold their home quickly and were able to purchase their dream home they would have potential $200,000 in equity.
Sold home: $50,000 loss
Bought home: $200,000 potential equity
Assuming a 20% down payment of $60,000, and financing $240,000
Net Gain: $150,000
If they wait until the price of their home comes back up to where it was worth $300,000, so would the price of their dream home.
Let’s examine the numbers with this scenario.
Sold home: $300,000 – gain of $50,000
Bought home: $500,000 – no equity
Assuming a 20% down payment of $100,000 and financing $400,000
Net Gain: $50,000
In this example, you would have a net gain of $50,000 vs. $150,000 and have a much higher payment.
Interest rates were not part of this equation. Interest rates will not be at these historic low levels forever. If they increase 1% during that time frame. Your payment will increase dramatically.
Remember…If selling your current home to buy a new home. Look at both sides of the transaction.