What to do with house/moving

[wikiwiki]

We have been in our current home for nearly 3 years and it was always meant to be a "starter" home and we've now outgrown it. We have 2 interest-only mortgages on it so we basically owe the same amount we bought it for 3 years ago. Fortunately, it has appraised for 12k higher but that only assumes we can sell it at that price. We have no equity in the house due to this loan, only it's appreciation.

We would like to move to a new school district before summer 2010. So now the question is-should we try to sell this spring and if we can get a decent price for it, move out and rent (for less than our current mortgage payment) until we can get a decent deposit for our next house? Or do we stay here in the house until we have the deposit? (Should be by the end of this summer...) I'd like to take advantage of this buyers market.

Not sure what to do...

[creditcardfree]

I think accumulating enough money for the downpayment is more important than which market we are in. If it turns into a seller market, then you do better on the sale of your current home.

Will you qualify for a traditional mortgage? I don't think interest only loans are available any longer. I say stick where you are while you accumulate some cash.

[Scanner]

Buckle down the hatches. With 12K of equity at the most, I don't think you are likely to go anywhere.

Make the most of your current school district. With parental involvement, your child can still get a good education in public schools.

[ksluis62]

The problem is there's a lot of uncertainty with what you can get out of your house. Of the $12k you think you have in equity (based on appreciation), a portion will go to commissions on the sale. Keep in mind that even if you sell it yourself, buyers often have an agent who will demand a commission. Other buyers automatically assume they can offer 6% less than your asking price. In any case, in this market, buyers are frequently getting deals, so that $12k is probably too thin to count on much of anything.

You could test the waters in late spring, and just be firm on the price. Set your asking price a bit high and hold firm to get what you want after all commissions are considered. If you get no offers, you know you need to stay where you're at for a while.

The new $8k tax credit may help get the market moving, especially in the starter home price range.

Finally, you may consider whether you really can afford a bigger house. Experts like Dave Ramsey say you need to spend no more than 25% of your take home pay, and you should get a 15 year mortgage. If you can't afford that, you are stretching too far.

[Ronin]

Originally Posted by ksluis62

The problem is there's a lot of uncertainty with what you can get out of your house. Of the $12k you think you have in equity (based on appreciation), a portion will go to commissions on the sale. Keep in mind that even if you sell it yourself, buyers often have an agent who will demand a commission. Other buyers automatically assume they can offer 6% less than your asking price. In any case, in this market, buyers are frequently getting deals, so that $12k is probably too thin to count on much of anything.

You could test the waters in late spring, and just be firm on the price. Set your asking price a bit high and hold firm to get what you want after all commissions are considered. If you get no offers, you know you need to stay where you're at for a while.

The new $8k tax credit may help get the market moving, especially in the starter home price range.

Finally, you may consider whether you really can afford a bigger house. Experts like Dave Ramsey say you need to spend no more than 25% of your take home pay, and you should get a 15 year mortgage. If you can't afford that, you are stretching too far.

Experts can say things like that all day, but its often unrealistic... for me to get a house that's only 25% of my pay with a 15 year mortgage, I'd be living in the ghetto.

[ksluis62]

I understand your sentiment. That is the conservative advice, that if you follow it, you are much more likely to stay out of financial trouble. It is a spectrum of risk, though. Moving away from that advice gradually increases your risk. Events outside your control (like a recession) have a higher probability to hurt you badly financially.

The caution I would give you is that if you decide to take the higher risk on the housing side, make sure you don't also have higher risk in other areas of your financial life. Be a miser everywhere else, and understand that if the unexpected happens, you may have to get a second job, sell assets, even sell your house to keep your head above water.

[AlligatorBaby]

Well I think you could at least try to sell... Put it on the market and see what happens. If you sell, then you can look for a reasonably priced home. Rates are low so now is the time. Something is gonna give, either you don't make much on your house but you buy a cheap house with low interest or you make more on your house but buy a more expensive house with not as good interest. It all evens out. Plus the government has these great loans for home buyers now that you can get with your tax return for I think $8,000 with 0% interest and you just pay back at $500/year or until you sell the house.

[wikiwiki]

Thank you for the tips. We plan to put it on the market this spring to see if we get any reasonable offers. We don't expect to see any profit from it due to the agent's fee, etc. So essentially we would have "rented" these past 3 years. But oh well, at least we had a roof over our heads!

We plan to purchase only 20k higher than this house - where we want to move has slightly larger homes for good prices. We have no desire to live in a large house, just needing an extra bedroom and larger yard. And we will be putting down a deposit on the next house - we know better now! I'm still kicking myself for not doing so 3 years ago...

[creditcardfree]

Best wishes!

[maat55]

Originally Posted by wikiwiki

Thank you for the tips. We plan to put it on the market this spring to see if we get any reasonable offers. We don't expect to see any profit from it due to the agent's fee, etc. So essentially we would have "rented" these past 3 years. But oh well, at least we had a roof over our heads!

We plan to purchase only 20k higher than this house - where we want to move has slightly larger homes for good prices. We have no desire to live in a large house, just needing an extra bedroom and larger yard. And we will be putting down a deposit on the next house - we know better now! I'm still kicking myself for not doing so 3 years ago...

I have sold two homes FSBO. I would suggest that you give it chance before getting an agent.

[wikiwiki]

When you calculate the debt/income ratio to determine the affordibility of a mortgage payment, what all is included in the housing factor - P&I, insurance, taxes - anything else? (ie. utilities, etc?)

[maat55]

Originally Posted by wikiwiki

When you calculate the debt/income ratio to determine the affordibility of a mortgage payment, what all is included in the housing factor - P&I, insurance, taxes - anything else? (ie. utilities, etc?)

Just P&I with taxes and insurance, PMI should be considered as well.

[wikiwiki]

And best to keep it under 40%? (25% according to Dave Ramsey, I know!)

[maat55]

Originally Posted by wikiwiki

And best to keep it under 40%? (25% according to Dave Ramsey, I know!)

30% or under tops. You cannot prosper at 40%.

[ksluis62]

You might consider talking to a mortgage lender or broker to figure out what you qualify for. Times are much different now than 3 years ago. Lenders will have strict guidelines about debt-to-income ratios. They aren't as harsh as Dave Ramsey (yet , but they're not over 40% either.

Here's one calculator to look at what you might be able to afford:

Affordable Home Calculator from CNNMoney

[swanson719]

Look for a manual under-writer too. They help out a lot. Also, when you look for a listing agent, look for a 3% or less, and when you list it, put the price a couple grand higher than the appraisal - no more than 5K. That way, you have some wiggle room to come down, but at the same time aren't pricing yourself out of the market. Might get lucky and have someone buy it for asking. If you figure 6% in commission, and another 2% in closing costs - which the seller is going to have to pay in this market - you might end up having to stay in it a little longer to have enough to put down on your new place. We bought our house at 27% on a 30 year, but have no other debt, and live comfortably. We pay more towards principle each month, but I would suggest keeping your entire monthly payments, including car, under 50% absolute max. You probably won't get approved if your Debt to Income is over 40%. You won't get the $8K tax credit either - it's for "first time home-buyers" who haven't owned a home in at least 3 years. The only upside is you won't have to pay taxes on the sale of the property because there won't be any income.