In deciding whether or not to sell your home, there are a lot of factors to weigh, from financial to emotional considerations. Talking to a licensed real estate agent can help you navigate them and make a decision that will benefit you and your family for years to come.
This article will walk you through some of the most important financial considerations so you can begin to figure out your level of readiness, and can guide your conversation with a realtor if selling your home seems like it might be the right choice for you.
Money matters
The first thing homeowners need to establish when deciding whether they are ready to sell their home is the financial viability of the decision. Oftentimes, this comes down to seeing whether you have enough equity in your current home to pay off your mortgage and still have money left over to put a down payment on the new home, as well as finance the move.
Twenty percent is generally considered an adequate down payment, though there are options that don’t require as much up front. Keep in mind though that there are other costs involved in moving, from obvious ones like hiring a moving company, to more hidden costs like transfer tax.
These additional expenses can add up to thousands of dollars beyond what you’ll need for a down payment, so it’s vital to understand what they are ahead of time, and to know if your equity or other savings will cover it.
Determining equity
You can determine how much equity you have in your home by subtracting how much you still owe on it from its current market value. The current market value of your home may be very different from what you paid for the property, depending on upgrades you may have made, or changes in the market in your area.
There are free tools online to help determine the current market value of your home, but you can also enlist the help of a real estate agent to give you a Broker Price Opinion (BPO) or a Competitive Market Analysis (CMA).
With a BPO, the agent will look at your house as well as the value of comparable homes in your area and give you an estimate on your home’s current market value. With a CMA, the agent gives you an estimate based mostly on what other homes in your area sold for.
The big picture
Your readiness to sell will also depend on your bigger financial picture. Do you have a lot of debt besides your mortgage? What is your debt-to-income ratio?
These and other questions will matter to any lender you work with if you are planning on buying a new home after selling your current one. Lenders want to see that you will be financially capable of making your mortgage payments.
While the number certainly varies from lender to lender and in different areas and circumstances, many lenders look for a debt-to-income ratio of 43 or lower. This means they want to see 43% or less of your income going towards paying off debt.
Understanding these elements of your financial health and your leverage as a homeowner will help you decide if selling your home makes sense for you at this time. For more information, or to get further guidance on selling your home, talk to a licensed real estate agent.
