If the answer is yes, there are a lot of factors to consider before making your decision. First, you need to be sure you’re ready to sell your home and whether or not the current local market will make the sale worthwhile. One of the first things to do to determine that is fine out the answer to “What is my home worth?”
If that figure is lower than you hoped, you may need to make repairs or improvements to earn a profit. If you do, it’s wise to prepare a plan in order to increase the value before your home is put on the market.
But there are also some other questions you should ask yourself before determining whether you’re ready to part with your home and the memories made there.
How much equity do you have in your home?
Equity is the difference between the amount you owe on your mortgage and the market value of your home. If you’ve only been living in your house for a couple of years, you’re unlikely to have built up enough equity in it to cover the closing costs you paid when moving in.
With the rising home values over the past several years, many homeowners have at least some positive equity in their homes. Equity allows you to pay off your existing home loan and apply what’s left toward moving expenses and a down payment. When you have enough equity built up, it can be a good time to sell.
However, if you purchased at a high price and the market where you live has gone down, it’s possible that your house is worth less than you owe. That’s referred to as negative equity, otherwise known as “being underwater.”
In the first quarter of 2020, data showed that just one in 15 mortgaged homes were seriously underwater, or about 6.6 percent of all properties in the U.S. with a mortgage. So while that makes the odds slim that you’re in that situation, if it is the case, you’d be better off financially by staying put until that changes.
What’s Your Debt Look Like Beyond Your Home?
In addition to the amount you owe on your mortgage, you’ll want to consider other debt such as credit cards, car loans, student loans, and child support. If you plan to buy a new home, you’ll have to take out a new mortgage. Lenders will take a close look at your overall financial situation just like they did when you took out your current home loan to determine whether you’ll be approved for the loan.
Regardless of the type of loan you apply for, the lender will have a maximum debt-to-income ratio, which means they want no more than a certain percentage of your monthly income going toward your debt, including a new home loan payment.
Many lenders follow the 28/36 rule: you should be spending a maximum of 28 percent of your gross monthly income on all housing expenses. Your total debt should be no more than 36 percent. If you’re spending more than that on debt, it’s better to pay off as much as you can before selling your home and attempting to buy a new one.
Have You Calculated Moving Costs?
When looking at how much cash you’ll have after selling, don’t forget the moving costs. Those could take a big bite out of your profit. If you’re moving across the country, it can be quite costly. But whether it’s a short move or a long-distance one, you’ll need enough money to cover the rental of a truck and packing supplies or moving services.