Real estate incentives not just for first-time buyers-President's message
With the government's $8,000 incentive for buying a home, a real estate purchase naturally makes sense for first-time buyers who qualify for the tax credit. But today's market also provides less-obvious benefits for those who already own a home.
Although they won't be able to take advantage of the first-time home buyer tax credit if they currently own their primary residence, they will be able to reap the benefits of lower home prices and fantastic mortgage rates.
While some existing homeowners may be anxious to trade in their current home for a new one because of these incentives, there is always the concern that they will take a loss if they sell their house in a buyer's market. However, in some circumstances, it may make sense for the homeowner to sell at a loss because he or she may be able to more than make up the difference by getting a discount on the new home.
I was recently reading an article in Money Magazine, "Sell at a loss, buy at a discount," that detailed this situation. A condo owner was anxious to move out of her existing place into a better neighborhood but was concerned about selling her place for less than she'd hoped. Money's financial planners advised the reader to consider selling her current place because she would likely be able to trade up to a nicer home with the discount on that home offsetting her losses on her current home.
Consider the following example: Let's say two years ago, you would have sold your current home for $200,000. In today's market, however, you are only able to sell the home for $190,000, a loss of $10,000. But consider further that two years ago, the home you wanted to trade up to was $400,000, but it's now selling at $380,000, a $20,000 discount. That gives you a total savings of $10,000. Plus, your mortgage interest rate would likely be much lower today than it would have been two years ago, saving you even more money.
Higher-priced homes generally sell for a greater discount because there is less demand for trade-up real estate. In fact, over the past year, the majority of homes sold along the Wasatch Front have been priced under $250,000. Because of this, owners of pricey houses may be offering even greater discounts than the sellers of more affordable starter homes.
That means the greater activity in the lower price range could draw attention to your home, freeing you up to buy a nicer home at an even greater discount than the one you gave to your buyer.
Nevertheless, if this is a strategy you want to pursue, you'll want to have a plan. Start by contacting a Realtor to get a realistic view of how much you can sell your home for in the current market. Then have your Realtor help you determine how much you can expect to pay for the home you'd like to buy. With that information in hand, you'll be able to better decide if trading up makes sense for you.
There are a number of other items to also take into consideration when selling your property and buying a new one, such as whether you will sell your current home and rent before buying, whether you will try to buy and sell simultaneously, or whether you will own two properties for a period of time.
Trading up can be tricky, but in today's buyer's market, it can also be the perfect time to make a move. Contact your local Realtor to decide if trading up is right for you.