Selling your home is a big step. How do you know you’re ready to sell your home? Here are 8 signs that you’re in a good position to sell your current home and buy a new one.
1. You have positive equity in your home
Equity is the difference between what your house is worth and what you owe on your mortgage. So if your house is worth $300,000 and you owe $200,000, then you have $100,000 of positive equity. Most homeowners have positive equity in their homes, but it’s possible to have negative equity if your home is now worth less than what you paid for it. How much equity do you need to sell your home? Unless you have to do so to avoid foreclosure, don’t sell your home unless you can sell it for more than you bought it for. In terms of what you need to buy a new home, it’s best to have enough money from the sale of your current home to make a 20% down payment on a new home and to be able to pay for closing costs and moving expenses.
2. You’re free from debt outside of your mortgage
The best case scenario for buying a new home is that you are financially secure, with no debt outside your mortgage and enough cash in an emergency fund for at least 3 months of expenses. However, it is possible to carry some debt outside your mortgage and still be approved for a loan for a new home. Lenders will look at your DTI, or debt to income ratio to decide if you’re eligible for a loan. A favorable DTI is less than 43%. To figure out your DTI, add up all your monthly debt and divide it by your monthly income. For example, if your monthly debt is $500 and your income is $3,000, then your DTI is 16%.
5. You have cash for home improvements
In order to get the most out of the sale of your current home, it may be necessary to make some upgrades. Typically, the best places to invest money are in paint jobs, the exterior of the house, and upgrades to the kitchen and bathrooms. Home improvements aren’t a must-have, but having the cash on hand to update your home and maximize its value is a good sign you’re ready to sell.
6. You're emotionally ready to sell
While you may be in good financial shape to sell your home, it’s also important to assess whether or not you are emotionally ready. Can you handle the criticism of your home that potential buyers may make without taking it personally? Are you ready to let go of the memories that you created in your home? Are you prepared to put in the work to get your home ready for the market and keep it ready to show for weeks or months? These are some of the questions you will need to answer in order to determine if you’re emotionally ready to sell.
7. Your current home no longer fits your needs
Whether you need more space to accommodate new family members or you’re ready to downsize, it’s important to assess whether your current home fits your needs. Changes in your family size or lifestyle indicate that you’re ready to sell.
8. You’re in a sellers market.
Do some research and find out the state of your local market. If you're in a seller’s market, meaning that demand for homes is greater than the number of homes available, it’s a good time for you to sell. In a seller’s market you’re likely to get multiple offers on your home that are competitive and you’ll be able to make money off the sale of your home, which is always the outcome you want as a seller.
In summary, to determine if you’re ready to sell your home, you’ll want to take stock of your financial situation, your emotional situation, and the state of the local market. If these three factors are all working in your favor, it’s a sure sign that you’re ready to make the move of selling your home.
In our last post we introduced some strategies for buying and selling a house at the same time.
But the question still remains, which should you do first, buy or sell? Whether it’s best to buy or sell first will depend on the particular situation you’re in, with variables such as the timeline in which you need to move, the market you’re buying in and the market you’re selling in. In this post we’ll explore why it can be best to sell first, looking at specific scenarios and tips for selling first.
Here are two sample scenarios in which it would be better to sell your home first, and some steps to follow for making it all work out.
In this scenario it may take up to a year to find a new home. Rather than stressing over getting the timing of buying and selling just right, sell first and plan to rent until you find your perfect home. That way you have no particular deadline for buying and can wait until you find just the right place to buy. In a hot market selling first is important because making an offer contingent on selling your current house can put you at a disadvantage to other buyers.
Steps to Follow
This is actually a very common scenario, and most people in this situation need the money from the sale of their current home to be able to buy in a new city.
It may be best to rent for a few months in the new location to help you get familiar with the new area. It can also help to have a local agent help guide you. If you are planning such a move, I'd be happy to connect you with a qualified agent in your destination city across the country. Shoot me an email.
Steps to Follow
Pros and Cons
However you choose to go about selling your current home and moving into a new one, there are some pros and cons to consider for selling first and buying later. Here are a few of them.
Pros to Selling First
Cons to Selling First
Here you have a case for selling first, but there are scenarios in which it may be better to buy first. We'll explore buying first in our next post!