Moving To Chicago
Do you NEED to upsize or do you WANT to upsize?
Stop for a second and really think about the reason why you wish to upsize. Do you want to upsize because you honestly NEED more space, or is it because you WANT more space?
Many homeowners wish to upsize because they truly feel like their current home is way too cramped. But that feeling isn’t always due to not having enough square footage of living space. In many cases, their home feels small because of poor layout of furniture, appliances, etc.
If you’re planning to upsize because you feel your current home doesn’t have enough space, take a close and honest look at your current home. Gauge whether all of your living space is being used efficiently or not.
If one of your bedrooms has become a storage room packed with boxes, sports equipment and tools, it’s pretty much a dead giveaway that your problem isn’t a lack of space, but rather an inefficient usage of it.
On the other hand, you may legitimately need a larger home. If you live in a one bedroom condo, and you’re looking to start a family (or already have a baby on the way), sooner or later you will definitely need to move to a larger home.
Of course, there’s nothing wrong with simply WANTING to live in a larger home. If that’s really what you and your family want, by all means, go for it. However, it’s important that you’re honest with yourself, and admit that the real reason why you wish to upsize is to fulfill a want.
Making the distinction is extremely important, because a larger and more comfortable home comes with a larger amount of responsibilities and expenses.
You’ll need to spend more time and money maintaining a larger home. You’ll pay more property taxes. Your utility bills will be more expensive. And even if you sell your old home to finance your next home, you could easily end up with a larger monthly mortgage payment as well.
What to look for in a larger home?
Before you start looking at new homes, talk with your spouse, children (and any family members that are moving with you) about what features you will need in your new home.
Make a list of those features (such as a larger garage, a yard, barbeque pit), and include the number of bedrooms and bathrooms and approximate square footage you want.
Next, make a list of neighborhoods or areas in your city you would be interested in. Is there a particular neighborhood you like because of its convenient location to schools, malls, parks, and other amenities? Are you willing to move to the suburbs, where you can find better home prices, or would you rather be closer to the action, even if it costs more?
Knowing what you need (or want) in a new home will make the home hunting process a lot more efficient, and will help your real estate agent find the right property for you.
Once you know what you need in your new home, share that info with your real estate agent. The more specific your list, the better, because it will narrow down the list of potential homes to see.
You should also think realistically as to how your needs will change in the future. For example, if you already have a child, and plan on having another one, you probably won’t need more than 3 or 4 bedrooms.
Find an Agent
A trusted real estate agent or real estate team is essential for your success in an upsizing. That’s because an upsizing effort isn’t as simple as buying a new home (which itself isn’t that simple, as I’m sure you’ve already experienced).
An upsize typically requires that you coordinate selling your old home and buying a new one. This process can be very complex, and needs to be timed just right in order to keep costs manageable. You could run into a huge number of costly pitfalls if you don’t know what you’re doing, and don’t have someone to guide you through the process.
A great real estate agent can help you go into the process more confidently through the ups and downs you will inevitably encounter.
Your real estate agent might even be able to help you find suitable accommodations while you transition from one home to the next, or even put together a rental agreement with the new home owners so that you have a place to live until you move to your new, larger home.
Determine how much home you can afford
While part of the excitement of upsizing is shopping around for homes, and seeing what’s the biggest and nicest home you could technically purchase, it’s essential that you slow down and crunch the numbers before making a decision.
How much home you can afford should not be determined by the maximum amount of financing you can get. You should NEVER live “house poor.” In other words, living in a situation in which you’re just barely able to pay off your monthly mortgage payments.
Life is uncertain, and if you live house poor, even a small economic difficulty or sickness could threaten your ability to pay off your mortgage.
An even in the unlikely situation were you would be able to successfully pay off your new mortgage without any economic downturn, living house poor would inevitably lead you to sacrifice many life comforts.
You would have a hard time saving money for retirement, you might have to cancel vacations, etc. Getting those comforts back would require you to find a way to significantly increase your household income.
A good rule of thumb is the 28/36 rule, a rule often used by mortgage lenders and creditors to gauge their borrower’s debt repayment capacity. This rule states that a household should spend a maximum of 28% of its gross monthly income on total housing expenses, and no more than 36% on total debt repayments.
For example, if your household monthly income is $6,000, your household expenses (including your mortgage) should not exceed $1,680, and you total debt repayment (including credit cards, student loans, car loans, etc.) should not exceed $2,160.
In fact, mortgage lenders and other creditors often use this rule to gauge their borrower’s debt repayment capacity.
Should you buy your new home first, or sell your old home first?
You may have already found your dream home, and fell in love with it. You may be inclined to buy that home before you sell yours. Typically, it’s better to sell your old home before you buy a new one. By doing so, you’ll have the funds from your sale already, you’ll be able to make a larger downpayment on your mortgage, and you’ll avoid spending time with two mortgages at the same time.
If you absolutely must buy a home before you sell yours, you should at the very least do the following:
- Work with your real estate agent to get a market analysis of what you can expect your old home to sell for (do a conservative estimate to be safe). Study the current market, and see how long it takes on average to sell homes comparable to yours.
- Set up a clause that lets you list the day after your offer’s conditions on your offer are waived.
- Get a 90 day closing, so that you have enough time to sell your home.
Prepare your home to sell
Declutter your home, and have all the interiors professionally cleaned. Do all the handyman work you’ve been putting off, and get an inspection so you know for sure if there are any hidden issues with your home.
If there are any issues, get them fixed as quickly as possible.
Speak to your real estate agent for recommendations about how to stage your home. If possible, get your agent to hire a professional stager.
Be prepared to take action
At this point, you should be getting ready to list your old home, and you also have a pretty good idea of the type of home you WANT to purchase and CAN purchase.
As mentioned earlier, the best case scenario is that you’re able to get your home purchase to coincide with your home sale. This is especially important when you want to use your home sale earnings to purchase your new home, or use them to make a substantial down payment.
Of course, getting the timing right can be tricky. There are many issues to be aware of, such as:
What kind of market are you in?
If you’re in a seller’s market, there will be more buyers than homes for sale, and selling your home would be fairly easy and quick.
At the same time, that would mean a lot more competition when buying a home. You could easily lose to another buyer, or you would need to offer more money and fewer contingencies to get your next home.
Writing a contingent offer means that the purchase is contingent upon you selling your old home. In essence, this would protect you in case the sale falls through for whatever reason. And while this would seem like a good way to protect your own interests, said clause could actually keep a home seller from accepting your offer.
There are two types of contingent offers. One where your home is currently listed, but you don’t have a buyer yet, the market. The second one is when you do do have a buyer lined up, and the transaction is already in escrow, just waiting to be close.
As you can imagine, the second one will be more attractive to the home seller, since it has a high percentage of success.
So if you’re trying to purchase a home in a strong seller’s market, your best bet is to submit a non-contingent offer, or find a way to make a more competitive offer (usually by raising your offer’s dollar amount) in order to have a greater chance of having your offer accepted.
It’s very tricky to negotiate two closes in parallel. Though its possible to have a simultaneous close, you do need to have all dates aligned, and use the same escrow company for both transactions for the process to work..
In case you do end up selling your home before you buy a new one, you have to consider where you would live in the meantime. Would you get short-term rental, stay with friends or family, stay at a hotel, or negotiating a rent-back with your home buyer?
And what about your possessions? Are you going to keep them in a storage facility, or at a friend’s home? Or would negotiate with your moving company so it can store your items for some time?
Upsizing can be a very exciting process. But it also needs to be approached with caution, and with plenty of knowledge about what to expect. Be sure to consult a trusted real estate agent that can guide you through the entire process as smoothly as possible.