When you buy a condo, you seldom expect to stay forever. When should you upgrade? It depends. Getting a bigger place could be a great idea, or it could take more time and money than you’d bargained for.
Your Situation
Your Place Was Always Too Small
You thought your first condo was a little tight, but you loved the neighborhood and so you took the plunge. If you’re honest with yourself, it was always too small. And you’d like to figure out a way to move on. Let’s see if you can.
Your Family is Growing
Whether this means you and your special someone decided to move in together, or you and your partner are having a baby, suddenly there’s going to be a new person in your condo. And – spoiler alert! – your condo might not be big enough.
It could be an obvious must-move. A couple sharing a studio? A bad idea. Two people and a baby in a studio? Catastrophic. Even one bedroom and a baby is trying. In these cases, you need to figure something out. It’s pretty cut-and-dry.
But what about a baby arriving in a two-bedroom? Or a significant other who wants a dedicated space of his own, rather than just a one-bedroom? Moving might make sense, but think through some of the other variables.
There’s No Actual Problem
Maybe you’re anticipating your family situation several years down the line, or you want to take advantage of the equity you’ve built. Whatever the reason, you’re set on upgrading, even if you’re relatively content. You still like where you live, so you’re in a position of power.
Ponderables
Personal Finances
Do you have enough in savings, since your new downpayment will likely be larger than your first? Is your job stable? Would you be able to pay more per month as part of the upgrade? What are your long-term financial goals and how does a bigger home fit into that?
Your Equity
If you’ve only lived in your place a year or two, you won’t have paid down much of your mortgage. Often, it’s not until year five or so that homeowners start to break-even, assuming appreciation is relatively modest. Take stock of how much equity you’ve built.
The Housing Market: Value
What is your condo currently worth? What did you pay for it? If it’s appreciated substantially, you may have enough capital in your home to move relatively worry-free. That’d be great!
The flipside, of course, is that if your condo is worth the same, or less than when you bought, you’re likely going to need to come up with some extra cash to upgrade. Go back to step one: are your personal finances in order?
Mortgage Rates
If you bought a few years ago, you may have gotten a stellar rate – perhaps a rate below four percent. That’s awesome! But, be aware that you’ll likely pay a higher rate on your new place. In turn, the cost more per month to an upgrade may be a more substantial hike than you’d thought.
The Housing Market: Availability
How easy will it be to find this upgrade? There’s currently a housing shortage in many cities across the country, meaning it could be challenging. And you may have to outbid someone. Are you comfortable with that? You may need to sacrifice many evenings and weekends to score your next place.
Ideally, of course, the market in your area will be well-balanced, where there are a reasonable number of homes for sale and decent-but-not-cutthroat competition. In this situation, you’ll be able to find a new place and sell your current place without too much difficulty.
On the very other end of the spectrum, you may live in an area where there are too many homes available. Finding a new one may be easy, but it doesn’t mean much if you can’t find a buyer for your current place – or if the only offers you get are lowballs.
Transaction Costs
Up to six percent of the sale price goes to the realtor. Yes, you read that right. But, the sales commission is negotiable. And there are brokerages, like Redfin, that charge considerably less.
And: you’re not just paying the commission on your sale; you’ll also be responsible for the closing costs on your new place. Don’t forget all this when figuring out how much money you’ll need.
Remember the Hassle
It’s easy to fantasize about living in a new place. The actual effort of finding a new place, paying for it, moving and then unpacking and settling in? It’s a substantial slog. Often it’s well worth it, but don’t romanticize the process. If you don’t have a solid motivation to move, you might find your energy flagging soon after your search starts.
Should You Upgrade?
The only person who can truly answer that question is you. Three big-picture questions:
- What is your short-term housing goal?
- What are your long-term life goals?
- Are your finances in a place where they can support both types of goals after the purchase?
Talk it through with your loved ones. Make lists, talk to a financial advisor, get advice from a realtor. If you find an upgrade fits where you want to be next year and won’t hold you back from your broader goals, it’s probably time to go for it!
