Four Signs That You’re Ready for a Bigger Mortgage
Even if you’ve grown attached to your home, this once perfect space could be starting to feel a little cramped. And sooner or later, you might have to upgrade to a bigger place. But moving into a bigger home can also mean a larger monthly payment. Depending on how much you upgrade, your new mortgage payment could be considerably more than what you’re currently paying.
How do you know when the time is right to upgrade? Here are four signs that you’re ready for a bigger mortgage.
1. You’ve paid off debt
You don’t have to be debt-free to upgrade to a bigger mortgage. However, the less you owe, the easier it’ll be to swing a larger payment. Car loan payments, student loan payments and credit card payments can cut deep into your disposable cash. And if you don’t have a lot of disposable income, you might be reluctant to take on a more expensive mortgage.
On the other hand, paying off debt and eliminating a few monthly expenses can add a little wiggle room to your budget. This can boost your confidence to the point where getting into a higher payment doesn’t seem as scary.
If you’ve recently paid off student loans, credit cards or other loans, and you don’t anticipate getting into any new debt anytime soon (other than a mortgage), now might be as good a time as ever to look into purchasing a bigger home.
2. You have stable income and employment
Taking on a larger mortgage payment is a long-term commitment, and successfully managing this commitment will require sufficient income for the foreseeable future.
You can’t predict the future, so there’s always the possibly of an unexpected job loss. Even so, be honest and realistic about the “current” stability of your income and employment before jumping into a bigger mortgage. Only upgrade if you plan on sticking with your job and if you're reasonably confident that you’ll remain at the same income level for some time.
3. You have enough equity for a down payment on a large home
If you need a bigger space but don’t want a significantly larger mortgage payment, hold off on upgrading until you have enough equity for a sizable down payment on your next property. A large down payment reduces the amount you need to finance, and if you're able to put down a minimum 20%, you won't have to pay mortgage insurance.
A real estate agent can look at comparable sales in your neighborhood and estimate your property’s value. Based on the property's value, your mortgage payoff balance and the amount you’ll pay in realtor commissions, you can then gauge your profit after the sale. This profit can go toward the down payment on your next place. The information you discover through this process can help you decide to either sell now or wait until the property gains additional equity.
4. You can afford a higher monthly payment
Let’s say you’re currently paying $1,200 a month and you anticipate your mortgage payment increasing to $1,500 once you purchase a bigger home. To avoid payment shock, take the higher mortgage payment on a test run before making an offer on a property.
Begin setting aside this higher amount each month, but pay your normal mortgage amount as usual and deposit the surplus into savings. If you’re able to set aside the higher amount with no problem over several months, you’re likely ready to handle a bigger mortgage. Another benefit of this exercise is that you’ll end up with some extra money in your savings account which you could use for costs related to buying your next home! Keep in mind, however, a bigger home usually involves higher utility, insurance and tax costs, so be mindful about how these expenses will also impact your monthly cash flow.
Moving into a bigger property can give you and your family additional square footage, but extra square footage comes with a price. So, make sure you can comfortably manage higher payments before jumping into a new mortgage loan.
If you feel that now’s the time to upgrade, contact the experts at Cherry Creek Mortgage to learn more about your options for a home loan.