The past decade saw wild swings in home values not just in the Twin Cities, but throughout Minnesota. It looks like the next decade will be a much flatter pattern. Depending on your price point prices could already be climbing (homes under $250,000), or staying relatively flat ($250-350,000) or still potentially open to free fall (anything over $500,000).
Current predictions are that homes in the above $500,000 range will not begin to return to the high values experienced at the peak of the market until 2015 or possibly even 2017. The reason why is simply supply and demand. Many homes were built in this upper bracket price range, but now that people have to actually prove they can afford to make the payments on them the number of potential buyers for executive homes in the Twin Cities is dramatically reduced, maybe by as much as 80%.
This creates a great opportunity for people who are looking to move up in price range in the Twin Cities, as they can buy homes today that sold for hundreds of thousands of dollars more at the peak.
That also means a lot of pain for people who are looking to move down.
The biggest question to start with is, do you have a home to sell?
- I have a home to sell as part of buying a new home
- Can I afford to buy another home in the Twin Cities before I sell my current home?
- I do not need to sell my current home before buying a new home in the Twin Cities.
- I want to buy a second home
There is information further down the page for each of these situations.
When you are preparing to buy up in price or move down to a different price range home, the primary considerations are:
- What type of home do you want to buy?
- Where do you want to buy a home?
- What can your budget afford
- Financing options
- Choosing your team of real estate professionals
Follow the links tied to each of these topics to get more information about each of them. You will want to get them squared away before you begin looking to hard at homes. If you haven’t started searching online for homes yet, you can use our Search Tool: Homes for Sale in the Twin Cities.
Let’s return to that initial question, do you have to deal with selling your home before buying a home?
I have a home to sell as part of buying a new home
If this is your situation, then the first step is to find out the straight scoop on selling your home. You need to get an accurate idea of what price your place will sell for and then determine what that means in terms of how much money you will have to use when buying a new home–or how much money you might need to bring to closing to sell your home if you are upside down (you owe more than you can get selling your home).
Start this process by requesting a Free Online Market Analysis from the Sweet Home Minnesota crew. We will provide you with a no hassle, no pressure, no bull assessment of what your home will likely sell for in the current market. This gives you a ball park number to use, if it looks like things will work out for you, then you will want to get an in person market analysis. You can just request that from the team member that contacted you with the online market analysis.
Once you get the price range from the market analysis you then need to figure out how much you will net when you sell your home. The standard formula is to take the price you will sell for, the subtract 10% from that for selling costs (this includes real estate commissions, seller closing costs and some money for staging and little fix ups). After subtracting the 10% you then need to subtract what you owe on your mortgage(s). The actual payoff figure is higher than your outstanding balance. You can get pretty close to your actual payoff figure if you take the current balance and add one months payment.
Here’s a sample:
$200,000 sales price
-$ 20,000 for selling costs (10% of the price)
-$160,000 for current mortgage balance
-$ 1,500 for monthly payment
=$ 18,500 would be the “net profit”–the money you walk away with from closing
Now that you know what your profit will be from selling, you can accurately determine how much money you will have available for a down payment on your next home. This will by important when determining your financing options.
Can I afford to buy another home in the Twin Cities before I sell my current home?
There are two keys to make this work. First is you need to qualify for the payment on the new home while also factoring in the payment on your current home. Second is if you don’t sell your current home, where is the down payment going to come from for the new home? In the past Swing Loans or Bridge Loans would allow you to pull equity from one home and use it for the new one. It is very, very difficult to get one of these loans in the Twin Cities right now. If you have an existing Home Equity Line of Credit (HELOC) on your home that might be an option. Another option is a 401k loan.
One trick that was used in the past was to rent out your current home so the income from that rent payment could be used to off set the payment on the home when you qualified for the new home. That rarely works anymore. To even have the option of doing this you need to prove you have 30% equity in your current home and six months worth of payments for the current home and the new home left in reserves after you buy. Usually if you have that kind of equity you will be selling your home as part of moving.
I do not need to sell my current home before buying a new home in the Twin Cities.
If you are in a position where you can qualify for both house payments (or you don’t need loans to make it work) and you can access money for a down payment on a new home without selling your current one, you are ready to go. Figure out your financing options and start hunting for the best buy.
I want to buy a second home
While buying a second home was much more popular when real estate values were increasing, it still is something people want to do. Because of the great drop in prices there are some great deals to be had. But, mortgage lenders have been burned by people claiming to be buying a second home when they were really looking to use these more favorable mortgage terms to buy investment property (yes, this is mortgage fraud, a Federal offense). The first thing a lender will want is for the second home to be at least 50 miles from your current home. If you want to buy something closer (a condo in down town Minneapolis to go with your home in Lakeville) you will have to buy it using the same terms investors have to use when buying homes–which means larger down payments and higher interest rates.
Do you have questions about your next move? Send it in and we’ll help you figure it out.
