Page 9 - SellerGuide

How Move Up Buying Works
As you might have expected, over the last five years we have seen one of the most aggressive housing markets in history, with the average sold price increasing nearly 61% over that time in the greater Sacramento area. As a result, many homeowners are now sitting on significant amounts of equity, even those that purchased in the last few years. Ordinarily, the process of building equity is slow and steady. But the extreme price appreciation over the last five years has provided homeowners with more equity in a shorter time than what may have been expected. As a result, some people might be interested in what we call “move up buying”, which is simply selling the house you’re in to purchase a larger, more expensive home. While it is probably true that the home you’d be looking to buy has also gone up in value from the overall market appreciation, it is the creation of equity in your current home that allows for the potential of move up buying. Below is a simply example to illustrate
Down Payment: Loan:
Purchase Price:
$40,000 $360,000
$400,000
$640,000 $324,000
$336,000
5 Years Ago
Today
Market Value: Loan Balance:
Total Equity:
As you can see in this simple example, someone with initial equity of $40,000 now has well over $300,000. Most of this is from the significant price appreciation but there is also principle being paid down over those 5 years that contributes additional equity. A homeowner in this position may now be in a much stronger position to buy a new home given the significant equity buildup. The larger down payment allows not only for a larger purchase price, but also potentially better financing terms.
Note: Example assumes a 4% interest rate. Market Value today is based on an average price appreciation of approximately 61% over a five year period.
9