Things to consider before buying your next home

The following is a guest post by Betsy Fallwell

My husband and I have been in our current home for the past six years. During that time, we’ve seen the housing bubble burst, home prices drop, and interest rates approach historic loans. Now, as the housing market is finally showing signs of sustained recovery, we’re thinking about buying our next home, and taking the lessons we learned as first home buyers to heart.

Examining Your Motives

Like many first home buyers, we didn’t plan on staying in this house long term. This was a starter home, purchased by newlyweds with a newlyweds’ lifestyle in mind.

Today, we are a family with children, a dog, and a wife who works from home. Our needs have changed when it comes to real estate: we need more room.

But not everyone is buying their next home because they need more room. As my parents approach retirement age, they – and many of their friends – are thinking about downsizing. They’re looking for less square footage and a more senior-friendly floor plan. A new job may also motivate you to move; maybe you no longer work in the same city you live in, and want to relocate closer to your workplace to reduce your commute.

What You Need In Your Next Home

Before you start searching for your next home, spend some time thinking about exactly what you need and want out of it. How many bedrooms do you need? What lot size is right for you? Should it be in a neighborhood or rural setting? Does it need to be turnkey, or are you ok with handling repairs or upgrades? How much are you able to spend? Knowing these answers before you start viewing properties can keep you on the right track and help you avoid falling in love with houses that don’t meet your needs or – even worse – are out of your budget.

Selling Your Current Home

Buying your next home often involves selling your current home. Unless you have large amounts of capital, you’ll likely have to sell one home before you can buy another. When you purchase a home, you don’t have to pay your real estate agent anything for helping you along the way. However, when you sell a home, you’ll have to factor commissions for both the buyer’s and seller’s agent into your expenses. You may also find yourself paying for all or a part of the buyer’s closing costs, home warranty fees, or repair expenses.

Understanding your current home’s market value – plus the fees you’ll owe at closing – can help you know exactly how much you stand to profit (or, on the flip side, how much you stand to lose) from selling. This is crucial if you plan on using the proceeds from the sale of your current home to help finance your next one.

Bridging Finance

What if you can’t sell your current home, or the sale is delayed, and you’ve already fallen in love with a new property? There’s a solution for that. It’s called bridge financing, sometimes referred to as a bridge loan. Say you’re buying your next house and closing on the sale on June 1; but the closing on the sale of your current home isn’t until July. The bridge loan literally bridges the gap, providing you with short-term financing as you wait for the cash from the sale of your home.

Your mortgage broker can help you weigh the pros and cons of these types of loans. The longer the term for the bridge financing, the higher the interest rate and closing costs associated with it. You’ll also pay less for the bridge loan if your current home is already under contract, indicating the sale is imminent. Generally, this financing comes with higher interest rates and closing costs than traditional mortgage products, which is why many homebuyers work to avoid them.

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