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Following the housing bubble burst in 2007, when home values fell by 60 percent or more in some areas, approximately 23 percent of homeowners owed more on their mortgages than their houses were worth by the end of the third quarter of 2009.
The lack of equity froze these homeowners in place for years, leaving them unable to sell their houses or refinance to pay for improvements. Today, as the housing recovery takes hold and the move-up market grows, more families are again looking at their options.
Here are answers to a few common questions that homeowners have when they’re weighing whether they should move up or stay put.
Q. Is it better to add on to my house or move into a larger home?
A: It depends. Generally speaking, when you consider all the costs involved, on a strictly financial basis it is almost always less expensive to add additional space than to move. However, you should consider non-financial factors as well.
When you build a home addition, you are getting a portion of your home customized in a way you can’t when purchasing a home. You are also adding square footage that increases your home’s value. In fact, you probably will be able to recoup part of the cost of home additions down the road.
However, a home addition can also mean months of disruption for your family and neighbors as contractors work on the project. Factors beyond your control can cause the project’s cost and length of time to get out of hand. If you have construction skills, you may want to try to save money by doing some of the work yourself.
Q. How do I know that I need more space?
A: Here are a few signs it’s time for a bigger house: Your kids are sick of living in bunk beds and lack private space. You haven’t seen the floor of your garage in a year. You need a home office, but the only available workspace is the dining room table. Your storage spaces are overflowing. You want to have more children, but there is no room to put them.
Q. How do I go about simultaneously buying and selling a house?
A: The answer is simple: Carefully. Owning two houses at once is no fun, even if it’s for a short time. Before putting your house on the market or committing to buy a new one, investigate the prices of houses in the areas where you’ll be selling and buying. To figure out how to sell high and buy low, you’ll need a realistic idea of the prices of comparable houses.
Focus on whether the local real estate market is a buyers’ market or a sellers’ market. Because you’re both a buyer and a seller, you’ll need to protect yourself in your weaker role while making the most of your stronger role.
In a buyers’ market, you may have your pick of a large pool of houses for sale at reasonable prices, but you may have trouble selling your own. To protect yourself, you might want to consider buying a second house, as well as asking the seller to make your purchase contract contingent upon you selling your current home. A seller having a hard time finding a buyer may accept this contingency, even though it means waiting for you to find a buyer.
In the event you can’t find a seller who is willing to accept this contingency, make sure you can arrange financing. Talk to a mortgage broker, and then be ready to act quickly to put your first home on the market after going ahead with buying a second one.
In a sellers’ market, selling your house will likely be easier than buying a new one. To make sure you don’t end up without a home, you may want to start by looking for a house to buy, then line up enough cash to tide you over during the presumably short period when you own two houses at once. You can also try to negotiate with the buyer of your house to have the sale contract include a provision that makes the closing contingent on you finding and closing on a new house.
No matter what option you choose, be sure to fully research the market before you buy, or sell. In doing so, you’ll help make the transition from your old home to your new home a smoother one.
Steve Cook is editor of Real Estate Economy Watch and covers real estate and mortgage finance for leading news sites. He is a member of the board of the National Association of Real Estate Editors. Twice he was named one of the 100 most influential people in real estate. Cook was vice president for public affairs for the National Association of Realtors.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
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