Make it home

We know we have a topic when the same subject comes up repeatedly. In the past week three families have asked me, "What is the more strategic house to buy? Which one will be easiest to sell for a profit?"

None of these transactions is a first-time home purchase, so these clients know what it's like to see home values rise and fall. What they're trying to get at is a plan to have the best return on the eventual sale of this next home. "Equity" is what we call the difference between any property's current value and the loan owing against it. For example, if your home is worth $400,000 and you owe $230,000, you have $170,000 in "equity".

Remember this: Equity is a figure on a piece of paper unless you are selling your house right now. While you can control the amount you owe on your home, you cannot control what the overall market is doing. Prices may be up because of lack of supply, or some other reason, or prices may have fallen due to any number of scenarios. If you're not literally cashing in on your equity by taking a cash-out refinance or selling, it's not doing anything for you except providing a data point.

One family is determined to do a ten-year payoff on their new purchase, so they own the home outright at retirement. They plan to be able to sell at that time and move out of the area. At first glance it appears to be a great plan, since they would "have tons of equity" when owning their home outright.

But what happens if market prices are down when they sell? Historically appreciation runs 4-7% annually. Will that have happened for this family? We can't know until we get there. My advice to clients is: Make it your home. Be comfortable and happy there. The market will do what it does.

Please be super aware that once you give your money to your house, with a large down payment or by paying off your mortgage, it's not guaranteed that you can have it back. It's worth running an analysis to see if holding cash aside, keeping it liquid, might be the smarter plan over time. I understand the appeal of having no mortgage payment, but you need to know if that is the smartest way to use your money.

There is so much more to say about this but I'm out of room, so if you'd like to discuss what's happening with your situation, feel free to ring me. The point is, there are so many moving parts to financing that it behooves you to work with a proven professional to be sure you're putting your family on the right course.

Tammy Engel is your local Mortgage Advisor, and has been working for your best interest since 1990. Call her at 661/822-7325 about your next purchase, refinance, or reverse mortgage. NMLS #235051 CaBRE#01273839