Sometimes you have to say goodbye to the home that’s meant so much to you and your family, and say hello to a new place that gives you what your old place couldn’t. If you’re facing this bittersweet transition, you’ll want to separate myth from reality as your take the next steps toward your new home. Here are the five financial myths to educate yourself on before upsizing.
Myth one: More space means spending more money
Upsizing can mean more than square footage. You could be moving to a nicer neighborhood, upgrading to a newer home with reduced maintenance costs, or relocating to a place with a different cost of living. If you’re moving from an urban center to a less expensive suburb, or moving from a condo to a house, upsizing doesn’t necessarily mean a more expensive home. When considering new places, think about how you’ll be using the additional space, and if the home’s layout works for you. In most cases, additional square footage will result in higher maintenance and utilities, but it’s important take all of the variables into account when calculating the long-term costs and savings of a new home.
Myth two: You should buy as much house as you can afford
Financial planners used to recommend people buy as much house as possible, given their income. A more prudent approach is to keep a buffer for additional repairs, investments, or in case of a job loss or other financial set back. Don’t let the maximum the bank will loan you become the basis for your new house payment; a conservative approach will serve you better in the long run.
Myth three: If you don’t have kids, school districts don’t matter
In real estate, location is key, and one of the key factors in a neighborhood’s desirability is the quality of the school district. Even if you don’t have kids, when it comes time to sell, you’ll have a lot more demand for your home if it’s in a good school district. Resale matters when the average person moves every 10 years.
Myth four: Avoid jumbo loans
If you want to buy a home that costs close to half a million dollars or more – and you don't have that much sitting in a bank account – it’s likely you’ll need a jumbo mortgage. You’ll need an excellent credit rating (700 or above) and a low debt-to-income ratio. But there’s no reason to avoid a “jumbo” loan, particularly now, with the interest rates of conventional and jumbo loans being comparable.
Myth five: You have to sell your old house first
As any housing market starts to cool, there are usually more sellers willing to look at contingent offers, where you don’t have to buy until you sell. In addition, there are bridge loans and other methods for buying before your current house sells.
Don’t be fooled by the myths that surround upsizing as most as misperceptions. Talk to your lender to best understand the options and identify the best solution for your goals.
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