Homeowners

5 Strategies to Help Homeowners Successfully Move Up into New Residences

There comes a point when your home may no longer fit your life. Maybe the kids have taken over every room, the home feels cramped, and your morning commute is wearing you down. It may be time to move up to a new home.

But before you list your current home and start shopping for a new one, the first step is to pinpoint why you want to trade up.

“The decision to move up should be driven by whether your current home still supports the way you live,” said Chip Lupo, an analyst and writer for WalletHub. “If you’re consistently running out of space because your family is growing, working remotely without a dedicated office…or looking for access to a better school district, those are all strong signs that it may be time to consider upgrading.”

Once you’re clear on why a move-up home is the right choice, it becomes time to explore the strategies to make it happen.

Financial considerations before trading spaces

While there may be plenty of emotional and practical reasons to trade up into a new home, it’s important to also factor in financial considerations

“A larger home can bring larger responsibilities, including higher taxes, insurance costs, maintenance needs, and potentially a more complex buying and selling process,” said Lupo. “The key is to view a move-up purchase as a long-term decision. [It should be] one that provides meaningful benefits today, while also supporting future financial goals.”

Cara Ameer, a real estate agent with Coldwell Banker who is licensed in California and Florida, suggested that homeowners ask themselves these questions:

• How much can I realistically sell my home for? And how much will I net after all the expenses associated with selling? (These include closing costs, taxes, real estate agent fees, etc.)
• How much will out-of-pocket expenses to get my home ready for a sale be regarding any repairs, refreshing, painting, and updating? 
• What if the properties I’m looking at also need work? How much can I realistically budget for any needed upgrades, repairs, and improvements?
• If I need to get a mortgage, how much can I afford based on a certain down payment? 
• What will insurance and taxes look like on this new property?
• How much should I budget for moving costs? 

Once you’ve estimated your costs, you should have a better idea of whether buying a new home is feasible for you now or if you may need to wait.

Strategies that can make a move-up home more affordable

If you’ve figured out that you can afford to move up into a new home, there are things you can do to make it easier.  

“Move-up buyers have several financing strategies available, and the right one depends on their equity, cash reserves, and tolerance for risk,” said Lupo.

With that in mind, here are some options that may help you successfully transition into your next trade-up.

1. Put a contingency into your contract

If a move-up home purchase is only financially workable if you first sell your current home, then consider adding a contingency to any offers you make.

Contingencies protect buyers from being obligated to purchase a new home before they have the proceeds from selling their existing one.

However, keep in mind that sellers may be less likely to accept contingent offers in highly competitive markets. They may prefer offers that don’t have that stipulation.

“Making a home purchase contingent on the sale of your home can be a smart strategy,” said Ameer. “However sellers of the home you are buying want certainty, so you probably need to put a limit on that contingency such as getting your home under contract within 30 to 45 days, or whatever timeframe is realistic in your marketplace.” 

2. Take out a bridge loan to help you buy and sell a home at the same time

Another option is a bridge loan. This is a short-term loan secured by your current home’s equity. It provides temporary funds for the purchase of the next home before your existing property sells.

“Bridge loans can make the transition smoother, but they typically come with higher interest rates and fees,” said Lupo. “They work best when you have a realistic expectation that your current home will sell within a relatively short period.”

3. Consider using a HELOC or home equity loan to fund a down payment on a new home

If a bridge loan feels too prohibitive, it’s possible to use a Home Equity Line of Credit (HELOC) or another type of home equity loan to finance a down payment on your move-up purchase.

This is an alternative option for homeowners with significant equity in their current home.

HELOCs allow homeowners to tap into their property’s equity up to a certain amount in a separate loan in addition to their mortgage. They can then use as much or as little of those funds as they like during the draw period, usually five to 10 years. Then they pay the loan back over the next 10 to 20 years, depending on what you agreed upon when you took out the loan.

Second loans are a type of home equity loan that are made in addition to your mortgage that also allow you to access your equity.

“This can be a lower-cost alternative to a bridge loan in some situations, though it still requires borrowers to comfortably manage the additional debt,” said Lupo.

4. Make a cash offer on your new home 

Another option is to work with a lender who will help you make a cash offer on your new home. Then you rent the home from the lender until your previous home sells. Once your prior home closes, you get a mortgage for the new one through the same lender.

This works to make buyers more competitive in fast-moving markets. It’s also a good option for people who have been losing out on the homes they want owing to the need to add contingencies to their bids.

5. Combine resources for a bigger down payment

If the reason for your trade-up is purchasing a multifamily home to accommodate elderly parents or adult children moving in with you, then it might make sense to combine funds.

“In some cases, a parent selling their home to live with you may be able to help you pay cash for the home upfront,” said Ameer. “You can take a mortgage on it after you have sold your existing home and closed.”

The low-down on a move-up purchase 

The bottom line is that even in a tough real estate market, there are strategies you can use to help you trade up into a new home.

“Many existing homeowners today are sitting on substantial equity, which can give them more flexibility and purchasing power than they may realize,” said Lupo. “While higher interest rates and limited inventory have made the process more complicated, move-up buyers are often in a stronger position than first-time buyers because they can leverage the value of their current home to help fund the next one.”