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Refinancing vs. Moving

Posted by  on Jan 12, 2011
 

Not a day goes by that there isn't a story somewhere in the media about how much the U.S. housing market continues to struggle. Many economists and housing experts don't expect the housing market to improve much for some time to come. In fact Freddie Mac's CEO, Charles E. Haldeman Jr., recently told a meeting of mortgage bankers that the housing market will need the involvement of the government for some time to come, according to the Wall Street Journal.

If all the negative messages have you confused about what you should do with your home, join the club. Should you refinance and take advantage of the best mortgage rates on record? Or should you try to sell and buy another house since prices are so low? Here are some things to consider when deciding which route to take.

Sell low, buy low

No matter what you do it's unlikely that you'll sell your current home for as much as you'd like to get. But depending upon the location, there may be enough activity in the local housing market to make it worth your while to try selling. Don't cut corners if you really want to find a buyer. Hire an agent who is an expert in the local housing market and has continued to regularly sell homes in this economy. This is not the time to throw business to a struggling relative who just got a real estate license. Get your home in tiptop condition to be competitive.

The more home equity you have the better. Having a lot of equity means that even if you must sell for less than you want, you may still be able to clear a profit on the transaction. Making money in the deal means there will be more cash to put toward a down payment on the next house. Play it safe and wait to begin shopping for a new home until your current residence has been sold. It's not uncommon for real estate deals to fall through because a buyer wasn't able to get a mortgage or lost a job. Having money in your bank account for a down payment will make you a more attractive buyer when it's time to house hunt.

A home refinance

Unless you really have to move because of a job or a need to downsize, it's probably a good idea to stay put for a while. Refinancing could help lower your monthly mortgage payments and the amount of interest paid over the life of a home loan. The best mortgage lenders will help you compare several mortgage products so you can choose the best refinance deal. One of the things that needs to be considered is how long it would take to recoup the cost of refinancing. If for example you plan to be in your home for five years, make sure you'll break even by then.

Also, consider whether or not you can actually qualify for refinancing. Mortgage lenders are very cautious about underwriting home loans for people with bad credit, irregular income, or questionable job security. Be prepared to provide documentation of income and assets when applying for a mortgage refinance. If you live in a neighborhood that has been hit hard by foreclosures, it may be tougher to get approved for refinancing.

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