Homes: Sell at a loss, buy at a discount

Jennifer Galdes wants to buy a home in a better neighborhood, but is now the right time?

(Money Magazine) — The month Jennifer Galdes moved into her condo in the Albany Park section of Chicago, the local paper suggested that the area was up and coming. Six years later, she’s still waiting for a Whole Foods.

Galdes, a self-employed publicist, longs to trade up to a similar-size (2,000-square-foot) apartment in a tonier neighborhood. With area condo prices down 16% since their peak, according to S&P/Case-Shiller, she sees her chance.

The catch: She’ll have to unload her current place first.

So is now really the right time to make this move, she wonders? Wheaton, Ill., financial planner Kristopher Johnson says yes.

Galdes, 43, may have to sell her condo — bought in 2003 for $287,000 — for less than she’d hoped. But the discount on a better place will more than offset the reduction on hers. And she’ll net $86,000 after closing even if she breaks even.

Still, she’s got to be strategic in selling and buying.

The solution

1. Nail down a value. Galdes should talk to agents to get an idea of what her place might sell for. If that price is acceptable to her, she should list it ASAP, as she may need six months to sell, says local realtor David Hanna. (And she should sell before buying, Johnson adds.)

2. Set a budget. Because Galdes is debt-averse, Johnson wants her to keep her mortgage the same ($175,000). He says she can use up to $100,000 from nonretirement savings toward a down payment. If she nets $86,000 on her condo, she can afford to spend about $360,000.

3. Shop like a shark. Area condos are selling 5% to 10% below list price, says Hanna. So Galdes can shop that much above her budget.

First-Time Buyers Race to Beat the Clock, Qualify for $8,000 Federal Tax Credit

Thu Sep 10, 2009 8:15am EDT

Realtor.com Experts Share Secrets of Efficient House Hunting, Financing,
Closing

LOS ANGELES, Sept. 10 /PRNewswire/ — First-time home buyers have just 12
weeks to find and close on a home to qualify for the $8,000 Federal tax credit
before the November 30th deadline. Those just beginning the process today
will have to beat the average time it takes to buy a home, a challenge smart
buyers can meet even though it’s taking longer today to close most
transactions.(1)

Two significant challenges first-time buyers face today include the potential
for a lengthy process related to search and closing if not managed carefully
at every step, and intensified competition.

On average, first-time buyers search 12 weeks to find a home(2), while closing
can take up to 60 days, depending on individual circumstances and local
regulations. Additionally, the tax credit has proved to be extremely popular
this year, since taking advantage of the first-time homebuyer’s Federal tax
credit and relevant state incentives is the most important reason motivating
10.8 percent(3) of buyers today. In fact, approximately 1.14 million buyers
have already filed for the credit. Many more are expected to file for the
credit when income taxes are due April 2010.(4)

Still, while time is short and competition high, historically high
affordability is a major factor driving first-time home buyers today, a
growing group(10) accounting for one third of all purchases in July 2009.(5)
The National Association of Realtors’ affordability index in July 2009 was
36.0 percentage points higher than July 2008. Under these conditions the
typical median-income family can allocate 15.8 percent of their gross income
to mortgage payments, well below the traditional allowance of 25 percent.
Interest rates, which play a major factor in affordability, remain low, at
5.22 percent in July for a 30-year fixed rate loan.(6)

Realtor.com President Errol Samuelson explains, “The national median home
today costs approximately 174,100.(7) By moving quickly to find and close on
a home by November 30, first-time buyers qualifying for the $8,000 tax credit
can actually purchase this same home for only $166,100, an almost four and a
half percent discount off of the price of a typical new home. Because
affordability this year is at its highest level in 28 years(8), and the market
offers an incredible selection of homes within reach of most first-time
buyers, we expect their numbers to grow as they pursue today’s once in a
generation opportunity to become homeowners.”

Samuelson suggests that by combining effective use of technology and the
greater access to information it delivers with expert advice from local
Realtors, today’s first-time home buyers can beat the clock and use the $8,000
Federal tax credit along with any available state-level credits to purchase a
home under the November 30 deadline.

“By moving quickly, being prepared to make decisions in the face of increased
competition, and taking the learnings from others to reduce time without
cutting corners, first-time home buyers starting today can close on time and
qualify for the $8,000 Federal tax credit,” added Samuelson. “To help this
important group trying to enter today’s market, Realtor.com will offer tips
and expert advice in the next eight weeks that can help expedite the search,
negotiation, finance and closing processes so they can beat the clock.”

Tips for the first time home buyer starting their search today:
– Searching – Search While You Sleep – Since 87 percent of all buyers
start online(9), you probably will too. On Realtor.com it’s easy
to sign up for email alerts and create personal portfolios for homes
of
interest. Soon you’ll be searching while you sleep, at the office
or even while you’re at an open house. You’ll be the first to
know if a home you want comes up for sale or receives a price
reduction.
– Negotiating – Freshness counts. You don’t have time to look at
unavailable homes. Stale data on prices, time on market, features, or
property values puts you at a disadvantage when negotiating. Most
listings on Realtor.com are updated every 15-minutes, giving first
timers an advantage.
– Appraisals – Appraisals can be a problem today; make sure the lender
can
deliver the appraisal on time. Your loan will not be approved if it
doesn’t appraise for the agreed price, so don’t delay. If the
property doesn’t appraise for the bid price, ask for a desk
appraisal; you’ll receive a second look.
– Finance – Don’t let the financing process slow you down; 35 percent
of first-time buyers find the mortgage application and approval
process
more difficult than what they expected.(10) Start saving pay stubs
and
bank statements now. Collect your tax returns; anything proving your
income qualifies you for the home you want. If you don’t have a
lender, ask your Realtor or look online. Pre-qualify now!

– Closing – Get your insurance company and the home owner association,
if
applicable, to forward a cost estimate to the escrow company early.
This will make it easier for them to more accurately estimate your
closing costs, which in many states must be paid in cash at closing.