Stepping Up to a Bigger Home and Saving Money!

The current market is ideal for those wishing to upgrade their housing situation!  Years of steady property value appreciation, coupled with historically low-interest rates may make it possible to step up to a larger home and lower your monthly expenses.  How is this even possible?  With careful budgeting and debt restructuring, we may be able to lower your monthly expenditures while finding you a bigger or better housing situation. 

Let’s take a look at some market data and budget statistics in various local neighborhoods, shall we…

Let’s consider an average townhouse in Bristow, Virginia.  Current market conditions in Braemar, Pembrooke/Victory Lakes, Kingsbrooke, and New Bristow Village, are perfect for stepping up.  The average sales price, currently, for a townhouse in Bristow is roughly $350,000.  The average sales price of a townhouse in Bristow 5 years ago was $300,000.  That’s a price increase of roughly $50,000.  That is a good amount of equity for those families wishing to consider a move-up purchase.   Mortgage rates were about .5% higher 5 years ago.  So assuming an interest rate of 4.25% with 5% down payment and 5 years of principle reduction or a balance of $258,000 and a monthly P&I of $1400 per month.  Current equity position is $92,000.  After the cost of sale, this buyer can have 10% down on a $500,000 home and still have some funds for closing costs and debt reduction available.  This buyer can opt to use some of this capital to reduce his debt position and perhaps improve his cash flow and still have a 5% or 10% down payment for a $500,000 home. 

Let’s take a look at some potential scenarios here.  With a 10% down payment and mortgaging $450,000, the monthly P&I is $2214.  That’s an $814 a month increase for a bigger home option.  If this buyer has two car balances of $40,000 and is paying $900 per month on the car notes, it may make sense for him to pay off the car debt and put only 5% down.  Let’s take a look at this scenario, the monthly payment will roughly be $2337 per month, but $900 per month consumer debt goes away.  The total change in monthly expenditure is $37 per month for the larger home.  In some cases, we have actually restructured debt expenditures to have an actual monthly savings when upgrading homes. 

Here’s a money saving scenario.  Let’s consider a townhouse in Aldie that was purchased for $415,000 5 years ago with 10% down payment.  Anticipating a sales price of $480,000.  That’s a price increase of $65,000.  Assuming a 4.25% interest rate with 10% down payment 5 years ago, the monthly P&I would be $1840 per month.  The current loan balance is estimated at $338,500.  This makes the equity position, roughly $116,000 after cost of sale.  Purchasing a home in Aldie at $650,000 would allow for this borrower to put 10% down payment and still have a little more than $50,000 for debt reduction and closing costs.  So if this family has $25,000 in credit card debt, they would likely be paying $1250 per month if their card rate is 15%.  This family would still have almost $15,000 to pay of an auto loan and save perhaps another $400 per month in average car payment.  So let’s take a look at the numbers here!  With 10% down payment on a $650,000 single family home at 3.75% interest rate, P&I will be $2709 per month.  Consumer debt savings of $1650 per month by paying off credit card and auto debt will take the total monthly expenditures from $3130 per month to $2709 per month, a savings of $421 per month and a larger home!

Please remember, I have years of budgeting and financial experience and have helped many of my clients reduce debt and improve their monthly expenditures, even when upgrading their homes.  My years working in the banking industry have been so very beneficial to me and my clients.  I always am happy to review your specific situations to find ways to help you grow your wealth or improve your housing situation! 

Here’s some really interesting data that may be helpful when considering stepping up in this market!