Several years ago, if your home no longer suited your needs, you bought another one that worked better. Generally, listings sold quickly, so many homeowners bought first and then sold the old home. Today’s challenging residential real estate market makes this process more risky. For some homeowners, it’s impossible due to tight credit markets.
One option is to remodel your current home so that it better suits your needs. This can work provided the neighborhood isn’t the most compelling reason for your move. If you just need more space, adding an extra bedroom, bath or family room might solve the problem.
Keep in mind that remodeling also carries a financial risk if you overimprove for the neighborhood. To keep from making this mistake, consult with an architect and/or contractor to find out the feasibility of the project and approximate cost. Be sure to factor in unexpected cost overruns.
Then check with your real estate agent to find out recent selling prices in the neighborhood. You’ll want to know about sales of homes similar to yours in its current, and in its proposed post-renovation condition. If the margin between the current and the renovated values for your home is much less than the renovation cost, it’s may not be wise to proceed.
Also, if you find yourself having to sell within a few years of completing a major remodel and the market is soft as it is today in many areas, you might not be able to sell for enough to cover what you paid for your home plus the remodeling costs. For most homeowners, a large-scale renovation doesn’t make sense, unless you plan to stay in the house for the long term.
HOUSE HUNTING TIP: Financing a renovation can pose problems today. In the past, many homeowners used home-equity lines to finance home improvements. Recently, many lenders announced that they would be cutting back or closing some equity line financing. So, even though you may have a large untapped equity mortgage secured against your home, you may not be able to rely on it to cover your renovation costs. Check with your lender before finalizing any plans to move ahead.
It’s often impossible or undesirable to renovate your home to make it work for you. In this case, it may be preferable to buy another home. Interest rates are low and prices are soft in many neighborhoods. The house you currently own may take longer to sell and sell for less than anticipated, so plan accordingly.
Some markets are still low on inventory. So, it could take you awhile to find the right home to buy. In this case, if you can’t afford to buy before selling, you might want to consider selling and renting until you find the right home.
The recent changes in the financing markets have posed a challenge for many homeowners who would like to trade homes at this time. No-cash-down, easy-qualifier, stated-income, negative-amortization and interest-only financing are more difficult to obtain today than they were a year ago. Check with your lender or mortgage broker to see how these changes affect your ability to buy now.
If trading homes at this point isn’t an option due to financial constraints, consider doing a modest remodel. A basement, attic or garage might be able to be converted to add more living space, at least temporarily. De-clutter your home to improve your storage space.
THE CLOSING: The home-sale market and finance markets are always changing, particularly now. Have your real estate agent and mortgage person keep you posted on new developments so that you don’t miss an opportunity to make a move.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide," Chronicle Books.
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