Selling and moving up without my savings?

Asked by Eric, Minnesota Tue Jun 24, 2008

I realize that now is a good time to "move up", and I have the income to do that right now. My problem is that in order to sell my current house I will need to lose all of my savings as my home has gone down in value so much (realistically 20 k) since I bought it. So I'll be left with no down payment and very limited money for closing costs. Is this even possible with all of the recent mortgage troubles?

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11
Cameron Piper, Agent, Forest Lake, MN
Wed Jun 25, 2008
Eric,

I think you might be looking at the market as a little more formulaic than it really is. Real estate, as with many "markets" is very dynamic and while the press likes to break it down into nice simple headlines like "the Twin Cities market declined X% last month," this just is too broad a statement to hold any water. Consider that when the evening news says that the Dow Jones Industrial Average rose X% today doesn't mean that each of the stocks in the average rose by X%, in fact some gained by considerably more than X% and some even lost money. So why is this important to you?

You're basing your desire to move on the idea that if you home is more valuable and the market rises, then you will have more dollars in equity than if stay in your current home which is worth less. I think that you would be interested to find that certain types of properties and certain areas have declined far more than other styles or parts of the twin cities market. All of this speaks to the notion that market appreciation is independent of market value. While the two are indirectly tied together when you look at the entire picture, ultimately it is a willing buyer and seller who determine the value of a home, not X% appreciation over X years since the seller purchased the home. The market is unfortunately far too dynamic to fit in this sort of mold.

My advice is still not to move without your cash reserves in place. If you can sell your house for break even and you want or need to move up in value so be it, but don't do it without some sort of safety net, and certainly don't do it because you have been lead to believe that a more expensive house will bring you more appreciation.

I hope that helps.

Cameron Piper
Web Reference:  http://www.campiper.com
1 vote
Susan Hoffla…, Agent, Shoreview, MN
Tue Jun 24, 2008
I guess I would pose the question, just because you can does that mean you should? I would err on the side of conservatism financially speaking and wait it out a little longer until you know you'll have some profit from your current home sale. Sorry if this is disappointing, but that's why you're asking for our opinions, right?
1 vote
Cameron Piper, Agent, Forest Lake, MN
Tue Jun 24, 2008
Eric,

It is never a good idea to buy a house without any saving. Murphy will move right on in with you and bring his cousin Broke, Desperate and Stupid. You should have money in the bank in order to be able to handle those little (or big) things that come up. Buying a house without any cash in the bank is recipe for disaster. Something will go wrong and you will be back on these forumns asking questions about foresclosures and short sales. Stay put for a while, let the market recover a bit and make the move when you can realistically keep 3-6 months worth of expenses in the bank. I hope that helps.

Cameron Piper
Web Reference:  http://www.campiper.com
1 vote
Jennifer Kir…, Agent, Minneapolis, MN
Tue Jun 24, 2008
A few years ago we were in the same situation as you so I can understand your frustration. Despite the negative lending stories out there, there are still programs available to get people into homes. If you would like a referal to a lender, send me an email and I will put you in contact with him. Good luck!
1 vote
Eric, Both Buyer And Seller, Minnesota
Wed Jun 25, 2008
Cameron and Julie,

Thank you for your answers! I really do appreciate the back and forth here, and in fact would much rather hear people tell me what I don't want to hear than what I want to hear. I'm perfectly capable of telling myself what I want to hear!

CP, allow me to address your point about the complexity of the market. Of course every market is dynamic and complex, but it is naive to assume that today I am paying the same price for a home that I would have paid for the same home 2-3 years ago. This information is readily available to the public (at least in Minneapolis and St Paul), and no homes of the dozens that I have checked out are selling for what they actually sold for in 2004 or 2005. The rare exceptions would be homes that have made capital improvements.

What I perceive from that is that many (most?) of us who bought in that time period paid more than we would have now for that property. Certainly that is true of where I currently live, and where I would potentially move. What I also think that means for me is that although I will be taking a loss on my current home, I can also purchase a more desirable home for less than I would have back in 2004 or 2005. In fact, in looking at what currently listed homes sold for in that time frame, I know for a fact that this is true.

I also know that my wife and I have a lot of disposable income right now that we spend away needlessly. Our options are either to put a significant % of our incomes into retirement funds or to purchase a more expensive home. Clearly there are tax implications to both, but we are also growing our family and so that adds non-economic concerns as well.

My question was more about what my options are right now, and what the opinions of real estate pros would be.
0 votes
Eric, Both Buyer And Seller, Minnesota
Wed Jun 25, 2008
I'm not really interested in renting out my current home. I already own a college rental and do not really want to continue acquiring these.

I don't mind that the market is as it is. In fact, that is the only reason that I am considering moving up! My home isn't worth nearly what I'd like it to be, but almost nobody's is. And that includes the owners of the properties that I would like to buy! I do believe that prices will snap back eventually, and if homes all appreciate at rate X, I'd rather have my home worth more so I get more appreciation. That is really my only motivation here.
0 votes
Eric, Both Buyer And Seller, Minnesota
Tue Jun 24, 2008
Julie,

There is no equity in my home. Maybe I didn't explain it better. My home as sold is probably worth about 20k less than I owe on it. And I have about 25k in savings. Savings that I would hope to help be a down payment on a home, but would probably be spent "buying" my way out of my current mortgage in the event that I sell my home.
0 votes
Teri Eckholm, Agent, St Paul, MN
Tue Jun 24, 2008
Hi Again Eric,

Cameron is on to something here. If you have to ask the question of whether or not it is a wise idea, you may have your answer. I know many people who have asked this question. Some have decided to stay put and others decide to move. Realistically, I think there will be bargains in the Twin Cities market for the next few years... But then there are bargains in EVERY market so don't let the low prices today entice you into making a move that you might not be able to afford.

Visiting with a good mortgage broker will help you to time and plan your move up based on your situation. If you would like a referral to a good, low pressure, loan officer, I would be happy to give you a few names...just drop an email or give me a call. I have a short list of very good people in different parts of the metro.

There was an interesting report published a few weeks ago showing how the short sales and foreclosures are affecting the Twin Cities market. I have posted a link in one of my blogs and have the link below. Staying put may be the best option in your situation.

Again, a visit with a loan officer or mortgage broker is the best way to develop a plan of action.

Hope this information is helpful! Good luck with your decision!
0 votes
Eric, Both Buyer And Seller, Minnesota
Tue Jun 24, 2008
Okay, so it is possible. But is it wise? Would I be better off purchasing now, or should I give it another year when I will have more money available for a down payment?
0 votes
Aaron Dickin…, Agent, Champlin, MN
Tue Jun 24, 2008
It is possible! Your best bet is FHA financing with Downpayment Assistance (i.e. seller gift money). I've had several buyers get in to houses for less than $1000 out of pocket.
0 votes
Teri Eckholm, Agent, St Paul, MN
Tue Jun 24, 2008
Hi Eric,

Your best bet is to visit with an experienced mortgage broker. There are very limited zero down opportunities...usually are FHA or farm loan programs. Depending on your situation, there could be a few options for someone with a good job and good credit.

There are wonderful opportunities for buying right now.

Good luck!
0 votes
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