Almost every day, someone calls The Dave Ramsey Show to ask Dave if he thinks they're ready to buy a home. But there's another side of homeownership that doesn't get as much attention: When are you ready to sell your house?
It's an important question to answer since selling at the wrong time can cause trouble for years to come.
1. You've got equity on your side.
For most homeowners, being financially ready to sell your house comes down to one factor: equity. During the housing meltdown of 2008–09, millions of homeowners found themselves with negative equity, which meant they owed more on their homes than they were worth.
Clearly, selling your home when you have negative equity is a bad deal. That's called a short sale. Breaking even on your home sale is better, but it's still not ideal. If you're in either situation, don't sell unless you have to in order to avoid bankruptcy or foreclosure.
For the last several years, home values have been on the rise—by leaps and bounds in many cases—and that means most homeowners are building equity. Their homes are now worth more than they owe on them, and that trend will persist as they pay down their mortgages and home values continue to increase.
Figuring out how much equity you have may sound complicated, but the math is actually simple. Here's how it works:
First, grab your latest mortgage statement and find your current mortgage balance.
Next, you'll need to know your home value. While it's tempting to use figures from online valuation sites to determine how much your home is worth, they're not always accurate. Ask an experienced real estate agent to run a free comparative market analysis (CMA) for the best estimate.
Once you have those two numbers in hand, simply subtract your current mortgage balance from your home's estimated market value. The difference will give you a good idea of how much equity you have to work with.
So how much equity is enough? At the very least you want to have enough equity to pay off your current mortgage with enough left over to provide a 20% down payment. But if your sale can also cover your closing costs, moving expenses and an even larger down payment—that's even better. Additionally, putting 20% or more down on a home keeps private mortgage insurance (PMI) at bay. That could save you hundreds of dollars each year!
2. You're out of debt with cash in the bank.
If you didn't have all your financial ducks in a row your first time around the home-buying block, you probably learned a few things the hard way. Like the fact that Murphy can smell "broke" from miles away. If it can go wrong, it will! Put those lessons to good use and be a money-smart home buyer the next go-round!
Start by taking a hard look at your finances. If you've paid off all your nonmortgage debt and have three to six months of expenses in your emergency fund, that's a good sign you're financially mature enough to purchase a home again.
3. You can afford to buy a home that fits your lifestyle better.
Another factor to consider is how well your home meets your everyday needs. Perhaps you could use another bedroom (or even two) to accommodate your growing family. Or maybe your kids have all moved out and you're ready to downsize. Empty nesters can really benefit from selling while rates are low. It's freeing to sell a large home, pay cash for a smaller one, and invest the rest for your retirement.
Whether you're sizing up or down, make sure your mortgage fits your budget. Dave recommends keeping your monthly payment to 25% or less of your take-home pay on a 15-year fixed-rate mortgage.
4. You can cash-flow the move.
Don't get so carried away by the excitement of your next home that you forget to account for the cost of leaving your current one. Hiring professional movers? Save up cash to cover the cost of packing up and hauling your stuff away.
You should also invest a little to get your current place ready for prime time. Focus your home improvement dollars on paint, curb appeal, plus kitchen and bath upgrades. A little bit of fresh paint and elbow grease can go a long way into making a great impression—and getting your home sold fast!
Want a bonus tip that doesn't cost a dime? Clear out the clutter. Neat closets and tidy shelves make your home look larger!
5. You're emotionally ready to sell.
If the numbers show you're financially ready to make a move, great! But don't forget—selling your home is an emotional issue, too. Before you plant the "For Sale" sign in the front yard, take a minute to answer just a few more questions:
- Are you ready to put in the work to get your house ready for house hunters?
- Are you committed to keeping it ready to show for weeks or months?
- Are you ready to hear the reasons why potential buyers believe your home is not perfect?
- Are you ready for honest—and sometimes hardball—negotiations over what buyers are willing to pay for your home?
- Are you really ready to move out and leave the place where your family has made memories?
Don't get us wrong; we're not trying to talk you out of selling your home! We just want you to be completely ready when you do decide to move on to the next stage of your family's life.
A qualified real estate agent will give you a clear picture of what it's like to sell your house, and also help you discern if now is the right time for you, both financially and emotionally.
6. You Understand the Market (a Little Bit)
No one can predict how the housing market will perform. But the National Association of Realtors expects modest growth for existing homes in 2018. Despite the possibility of rising mortgage rates, home sales in 2018 are forecasted to grow around 7% percent, with the median price increasing 5%.
Home Values Are Riding High
With rents up and mortgage rates down, many renters are looking to buy their first home. There's just one problem: They're having trouble finding homes for sale within their price range.
According to Trulia, there are 20% fewer entry-level homes on the market today than there were this time last year. A lot of investors snatched up bargains on entry-level homes when the market was down and turned them into rental properties.
If you took economics in school, you learned all about supply and demand. When supply is down and demand goes up, prices trend upwards as well. That means your home might be worth more than you think. Consider the numbers:
- According to the National Realtors Association, U.S. homes are on the market an average of only 34 days, that's four less than last year.
- Recent listings of starter homes are 8% less than searches, which means there are more house hunters than homes available for sale.
In other words, the market's hot for just about any home seller—but especially if you've got a starter home to sell.
7. You Have a Real Estate Agent
The reasons already mentioned are essential to consider before selling your home this year. But remember, your real estate market is unique—and so is your financial situation. Consult an experienced real estate agent to find out how the 2018 housing market is shaping up in your area so you can decide if a sale makes financial sense for your family.
Partner with a pro you can trust to provide honest advice so you can do what's best for you and your budget. A good agent puts service before sales—but knows how to get things done when it's time to sell.
Selling your home is a big deal. A real estate agent does more than just schedule showings of your home. They bring experience and confidence to the table when they handle their many job duties, which include:
- Giving you advice about updates or repairs that will make your home more attractive
- Helping you set a price for your home
- Marketing your home so it receives as much exposure to potential buyers as possible
- Scheduling showings with potential buyers
- Advising you as you negotiate offers
- Handling all the required paperwork
We can put you in touch with several agents in your area who have earned Dave's recommendation as a real estate Endorsed Local Provider (ELP).
When it comes to selling homes, our ELPs rise to the top. According to a six-month survey of home buyers and sellers who used an ELP versus those who used other real estate agents, our ELPs are twice as fast at selling homes and twice as likely to sell your home above asking price.
Don't trust an amateur with one of your biggest financial investments. Work with a high-octane agent who knows your market
An experienced real estate agent can help you navigate the search for your next home, too. Be sure to have some backup options ready in case your home sells quickly and you can't find a new place you love right away. You don't want to rush into a home you can't afford or don't really like just because it's available.
Source: Dave Ramsey