Smart Moves by Ellen James Martin

Tips for Trading Up

Many first-time homeowners now feel trapped in the original property they bought several years ago. They’d love to upgrade to a larger place with more amenities. But as home prices continue to rise and with inventories still tight, they fear getting priced out of the market.

“Without enough listings on the market, affordability is decreasing, and buyers are increasingly saying that finding the right home is their top struggle,” says Jessica Lautz, who directs survey research for the National Association of Realtors (realtor.org).

As Lautz notes, home prices have risen year-over-year for 67 straight months, and multiple offers are still a “common occurrence.” This has led to a variety of reactions from prospective buyers.

“Some folks are wary and refuse to wait to buy that better home. But others believe waiting for prices to settle down is their best avenue. Consequently, there’s lots of friction in households that are divided about their next steps,” says Eric Tyson, a personal finance expert and co-author of “Home Buying for Dummies.”

Here are a few pointers for potential trade-up purchasers:

-- Review your reasons for planning to move.

Anxiety can prevent people from moving ahead, even when it’s against their interest. But those convinced that now is a good time to buy a bigger home shouldn’t let unwarranted fears constrain them, says Sid Davis, a real estate broker and author of “A Survival Guide for Buying a Home.”

“Assuming you’ve found your dream home and are itching to move forward, don’t let baseless fears block you,” Davis says.

Davis says one way to put your fears about real estate in perspective is to re-examine your original reasons for trading up. Has your growing family outgrown its small space, meaning that your kids must share bedrooms? Are your plans for a home-based business on hold?

“Remember that waiting to acquire that larger house means that your intentions are delayed, which would postpone improvement to your quality of life. Anyway, there’s no guarantee you’d get a better deal a year or two from now,” Davis says.

-- Research your local real estate market.

In many areas, inventories of unsold homes are still very tight or shrinking, making multiple bids commonplace. But in other neighborhoods, the inventory balance is gradually getting better for those seeking to move up. And in still other areas, the picture is mixed. It all depends on your target market.

Suppose, for instance, that you’re selling a property in a starter-home community in great demand by millennials. Meanwhile, you’re intending to buy in a luxury-home neighborhood where there’s an ample supply of properties and buyers don’t outnumber sellers. In that case, you could do well on your dual transactions.

“Entry-level buyers are still having a crazy time trying to burst into ownership,” Davis says.

If you live in an area with many available housing options, you can afford to take somewhat more time to make your selection and seal a deal. But Davis cautions against waiting indefinitely to buy in any area that remains red hot.

“Assuming this is really the right time for you to buy and your numbers work, don’t let past disappointments with real estate --like losing out in a multiple bidding situation -- haunt you,” he says.

-- Find an experienced mortgage lender to help you crunch numbers.

Unsure whether you want to go forward with a trade-up move? Worried that the numbers or your credit history could scotch your chances for better housing?

If so, Davis recommends you fact-check your concerns by visiting the office of a mortgage lender who will analyze your personal situation and determine whether you’d be eligible to buy that bigger house you have in mind.

Even if you’re confident you can qualify for a mortgage on a bigger home, it’s good to gain pre-approval to enhance your chances of acquiring your dream house.

As always, lenders want certainty that any mortgage they originate will be solid. This means you’ll need to be prepared to answer the lender’s request for documents.

“It’s true that lenders are a little less stringent than they were in the past. But you still need to have all your paperwork in order,” Davis says.

As proof of income, many mortgage lenders currently insist on much more documentation than the customary pay stubs and W-2s. They may also require federal tax returns. Also, most lenders now want proof that the funds you’ve amassed for your down payment have been in your savings or checking accounts for some time and weren’t just borrowed last week from a family member.

“For almost everyone, trading up to fancier quarters means proving you have the wherewithal to handle a heftier mortgage,” Davis says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)