The desire to move to a bigger house is natural, especially if you’re currently living in a starter home. And even if you love the home that you have now, there will come a time that it no longer fulfills your spatial needs. When this time comes, how do you know you’re ready to upgrade to a bigger home?
Needless to say, buying a bigger house is a huge financial responsibility that you must be ready for–even more so than when you bought your starter home. So before looking at any property for sale, take a look at these signs that you’re ready for the upgrade.
You have more than enough savings
First things first, can you afford to put down money on a bigger house?
If you have equity in your current home, you’re naturally going to use it for your new down payment. But if it’s not enough to cover the percentage of down payment that you want, you’re most likely going to use your savings.
That said, determine if you have more than enough money saved to make a good down payment on the property that you want (or the price range you’re aiming for). Emphasis on the word ‘more’ since you also have to have funds for other costs that come with buying a new house, such as taxes, closing costs, and broker fees.
Your debt-to-income ratio is low
While having more than enough savings is crucial when upgrading to a bigger house, you should also consider your debt-to-income ratio. In general, borrowers need to have a debt-to-income ratio that is equal to or below 43% in order to qualify for a mortgage. So if, for example, your monthly debts are $2,000 in total and your monthly income is $5,000, your debt-to-income ratio is 40% and you have a good chance of securing a good mortgage.
Your debt-to-income ratio may have changed since you bought your current house. If it decreased, then that’s a good sign that you can afford a bigger home. But if it’s the other way around, it’s safer to downsize your debts first before consider a bigger property.
Your household is growing
A growing household is one of the most common reasons for upgrading to a bigger house. The birth of a new child, the kids growing up, parents or siblings moving in with you–whatever the case may be, each additional person that is added to the household needs a corresponding amount of space.
There are, of course, other ways you can make do with the amount of space that you currently have. However, if you’ve already exhausted all of your options (read: turned your home office into a bedroom or had the kids share rooms), then it might be time for a bigger house.
Your current home feels cramped
As your household grows, your current home may feel more and more cramped. Soon enough, there will be too much stuff in every storage space available, people will be arguing about each other’s messes constantly, and you will find yourself regularly stressed because of the lack of space in your house.
If your current house is already starting to feel cramped despite all your efforts to make it otherwise, it may be time to start looking for a bigger home.
You have a healthy emergency fund
Having an emergency fund with at least three to six months of living expenses is a must when buying a new house. And if you’re planning to upgrade to a bigger one, your emergency funds need to be able to cover unexpected expenses in case of a job loss, sudden illness, or a pay cut.
Furthermore, consider the additional expenses that come with a bigger home, such as bigger mortgage payments, higher utility bills, and more expensive maintenance fees. Your emergency funds must be enough to cover all of these inflated expenses as well as your basic needs in case of an untoward incident.
You know the financial implications involved
When you buy a bigger house, it will come with bigger mortgage payments, utility bills, maintenance fees, and property taxes in exchange for more space. That said, the weight of this financial responsibility will be heavier, and you must be ready to take on that load when you buy a bigger home.
If you are worried about these financial implications throwing you for a loop, hold off on upgrading until you are confident that you can handle the responsibility.
Buying a larger home is the dream of many homeowners. While it shouldn’t remain as just a dream, there are many factors that you have to consider before signing up for an even bigger financial responsibility. Hence, if you tick off all of these signs, then there’s a large chance that you are ready to buy a bigger home.