Refinance your home or move?...
By Lori Rozsa • Bankrate.com
While the tumultuous real estate market has many people hunkered down hoping it will all blow over, proactive homeowners are looking beyond the uncertainty. They're weighing a decision about whether to refinance their current mortgage or trade up to a house they couldn't afford three years ago.
Making a move more alluring, interest rates continue to hover at 4 percent to 5 percent and tax credits of up to $8,000 for first-time homebuyers and up to $6,500 for buyers who have been in their homes for at least five of the last eight years consecutively are available.
But before you take the leap, real estate professionals caution that the same basic rules about buying a home still apply.
Here are four questions to ask yourself:
How long do I plan to stay in the new home? (The rule of thumb is at least five years to make a new mortgage worthwhile.)
Do I really need to move or just want to grab a deal? Can I cover the costs to close and relocate? With every winner, there's usually a loser, and you could be both if you find a great deal on a bigger house but can't sell your current home.
If I stay in my current home, does it make sense to refinance and maybe add that extra bedroom or build a deck to improve the property?
Take a deep breath and analyze what you really need, not what the market seems to be telling you to do.
"The decision depends on the individual. Are they looking to move because their family has grown or has their job changed locations, or do they want a shorter commute? Those are reasons to look at buying," says Bernard Markstein, senior vice president of the National Association of Home Builders in Washington, D.C.
But don't move just for the sake of moving, says Elizabeth Blakeslee, an associate broker with Coldwell Banker Residential Brokerage in Washington, D.C. Now is a great time to buy, but prospective homebuyers should make sure that's what they really should do. "You have to figure out your motivating factors," Blakeslee says. "If you're just trying to get a deal, you might want to think about it a little longer. These low interest rates are certainly a consideration for people, but as with every decision in life, you have to ask yourself, 'What is my goal?'"
Markstein says there are several good reasons to buy a house now. "Rates are historically low; it's essentially a buyer's market. And for people moving up, obviously they won't get as much for their own home as they would have a few years ago. But if they're reasonable and set a good price and they find another house at a good price, the two together could be a real benefit," Markstein says. If you're not really looking to move, but you just don't want to miss the real estate bargain boat, Markstein says it might be smarter to stay put.
"If you look around and say, 'I like my neighborhood, I like the schools and the services, I like my house, and I don't really want to move,' then you have two choices," Markstein says. "You can do a simple refi, and that's straightforward and will save you money in most cases. Or if you have enough equity, you can refinance and add a room or upgrade something in your house." Loans based on actual equity homeowners have sunk into their property for years are worth asking about. If you bought your house in the last four years and didn't put much money down, "I'd say forget" refinancing, Markstein says. Home prices are down around 2003 levels.
"If you've been paying your mortgage for six to 10 years, chances are you have built up a lot of equity," he says, "unless you live in one of the real estate-depressed areas, like Detroit or South Florida, Phoenix or Las Vegas."
Refis for home improvement usually pay off if you stay in your home for at least another three years, Markstein says. Again, the time may be right. Contractors' fees have come down substantially from the real estate boom.
Blakeslee says if you're on the fence about whether to sell and move or stay and improve, do your research. Get your credit score. Find out what kind of mortgage you could qualify for. Look at the tax credit deals which expire June 30, 2010 (although binding contracts must be signed by April 30) and figure out your real motivation. If it's just to save money, you could stay where you are and add a little extra to every month's mortgage payment.
"You'd be surprised how that adds up and saves you money in the long run," Blakeslee says.
And if you're determined to take advantage of this buyer's market? "Contact a competent Realtor. Get busy doing your homework. Have them run an analysis for you on prices in your current neighborhood and prices where you're looking to buy," Blakeslee says. "It's a great time to buy, but all the other basics still apply."