No Place Like Home—Is it time to buy, sell, refinance or remodel?
Are you toying with the idea of starting a remodeling project in your home this fall? Or has refinancing to lower your monthly payments crossed your mind? Maybe you’ve even thought about selling your home to buy something for that next season of your life? With interest rates still hovering at historic 100-year lows, it is definitely a good time to be doing all of the above if you know what you’re doing, or know someone who does. But which option is right for you?
If selling your home is on your mind, a few key questions can help you decide if now really is the right time. “It depends on several pieces of the puzzle,” says Christine Thompson, top-ranking realtor with Baird and Warner in Naperville. “The number one question is asking what is the equity in your house?” It may not make sense to sell, after all, if you will only break even, or worse yet, if you might even lose money.
“Second, you need to know what is the potential of the house—how much remodeling would you have to do to sell it, and would you get your money back, dollar for dollar?” said Thompson.
While low interest rates mean this is currently a buyer’s market, that doesn’t mean buyers hold all the cards. Play your cards right, and any house can sell. According to Thompson, it depends on your listing price and how your home is being shown.
Setting the stage
As the economy tightened its noose around the housing industry over the past few years, home staging has become one of the most powerful weapons in a seller’s arsenal to enable a home to stand out and get noticed. But it takes a fresh perspective and some creative strategies.
“A key thing we say is, ‘People need a new set of eyes on their property’,” says Steve Thomas, president and owner of Showhomes, a home staging company in Naperville. “We’ve seen people do some strange things on their own like buying big furniture pieces that don’t go with anything when it’s important to coordinate furniture and accessories to match the house. Or they’ll paint the house a terrible color and make things even worse. Or their hearts are in the right place and they make the home a style they like personally, but it’s not neutral and it’s over the top.”
With decorating styles leaning toward simple, fresh and green, less has become more. For many of us, that means the first step in preparing our home is to get rid of the excess.
“De-cluttering is the very first thing,” says Thomas. “That is a huge project.” Homes tend to look very lived in and it’s only natural that clutter will accumulate. But having a fresh pair of eyes identify what needs to go, what can stay, and how to best arrange what remains, helps take the guesswork out of the homeowner’s de-cluttering process.
“Probably the next step in staging your house is to replace outdated furniture with more neutral pieces,” Thomas says. “You can take an old house and when you remove the inside items and add our pieces to it, it makes such a difference because buyers don’t realize that the walls are 30 years old, or the cabinets are dated, because it doesn’t look dated with new furniture and new accessories. The transformation is shocking, we do it all the time.”
But staging doesn’t have to be all-or-nothing. First impressions (a.k.a. curb appeal) can be tremendously powerful by simply keeping the lawn mowed, making sure leaves are raked, snow is shoveled, and a welcoming potted plant is at the entrance of a newly painted door.
Thompson agrees that staging a home -–or at least hiring a staging consultant for even a couple of hours to get the benefit of their input before making decisions of what to change—is one of the smartest moves a homeowner can make when preparing a home for a sale. It’s all about due diligence.
Even if a homeowner wants to remodel for their own personal enjoyment, it pays to know how much, how little, and what kind of remodeling project to do. A job well done can pay dividends in the future or reduce a home’s marketability.
If you’re not looking to sell and just want to lower your mortgage payments, you might want to consider refinancing. “I tell people that it’s always a good time to refinance,” says Scott Deter, a licensed loan officer with Key Mortgage Services Inc. “It’s a myth that refinancing costs too much money. It’s not true. The savings that they will recoup is a lower payment. There are also things people don’t look at like taking their term down to 20 or 15 years.”
In fact, according to Kiplinger’s Personal Finance, refinancing makes perfect sense if you plan to keep your home long enough for the monthly savings in reduced mortgage costs to eventually cover the closing costs which usually average around two percent of the loan amount.
If you are planning to keep your home for the long haul, as in the case of Sarah and Jim Roscoe of Grayslake, it makes sense to reduce the term of the mortgage. The Roscoe’s changed their 30-year fixed mortgage at six percent to a 15-year loan at three percent. Even though it meant paying $200 more per month, in the end they will ultimately save $155,754 in total interest over the life of the loan.
However, refinancing isn’t for everyone. In fact, not everyone will qualify. Standards set by Fannie Mae and Freddie Mac require a FICO credit score of at least 660 to 680 and a housing-debt-to-income ratio of no more than 28% or total debt-to-income ratio of 36% or less. A poor mortgage payment history can also mean an immediate disqualification.
But refinancing may be worth further consultation with the help of a broker or lending expert if your credit is good, if your current interest rate can be reduced by more than two percent, and if you plan to remain in your home long enough to recoup your closing costs.
Thompson agrees that it is a buyers market. However, before you make the move, he suggests you know why you want to buy. Is it necessary? Are you a retiree needing to downsize? Or are you a first time buyer wanting to make an investment? Or do you just want to move? Depending on your answer, it may or may not be a good time to buy.
Regardless of your reason, the single most important factor in buying a new home is your credit score. “The best credit scores (anything over 740) will get you the best interest rates,” Deter explains. “Your credit is a very important part of the preapproval process, and there are ways to increase it like changing the percentage of the balance of credit cards to their limits or paying things on time.”
First time buyers and veterans are also eligible to qualify for the Illinois Housing Development Authority (IHDA) down payment assistance program. The program provides down payment assistance (up to $10,000) and can provide a federal tax credit to reduce income tax liability by up to $18,000 over the life of the loan.
With interest rates at all-time lows the question is: Remodel, buy, sell, or refinance?