Question regarding selling home

[CalDisneyMomof2]

We purchased our home in December of 2012-essentially the best time to buy according to how the market was in our area at that time.(As we were in escrow our house was already increasing in value) When we bought, we went FHA and put 8% down. Even though we put that much down we still owe $450 a month in PMI (granted we DO have an incredible interest rate at 3.25)

When we bought, the inventory was incredibly low so we put offers on whatever was in our price range in the area we wanted. We like our house, but we don't love it. I think what I will miss if we leave is the lot size/yard compared to other homes in the area. However, all of our neighbors are recently retired and elderly couples. No families. There are no children on our block and that's one thing I'd like having a 3 1/2 and 5 1/2 year old myself. Also, our house is a little too much house. We could do without the extra bedroom or 2.

Anywho, I'm really confused on how the capital gains tax works. We've currently lived in our home for 16 months. If we WERE to sell in say the next 3-4 months do we automatically get taxed on the gain? I'm not so sure we would buy immediately(I'd say at least a year). We don't have amazing credit and I'd like to pay everything off gradually with the money we do make. Possibly invest in what we make.

Any advice or insight would be greatly appreciated.

 

[havaneselover]

We purchased our home in December of 2012-essentially the best time to buy according to how the market was in our area at that time.(As we were in escrow our house was already increasing in value) When we bought, we went FHA and put 8% down. Even though we put that much down we still owe $450 a month in PMI (granted we DO have an incredible interest rate at 3.25)

When we bought, the inventory was incredibly low so we put offers on whatever was in our price range in the area we wanted. We like our house, but we don't love it. I think what I will miss if we leave is the lot size/yard compared to other homes in the area. However, all of our neighbors are recently retired and elderly couples. No families. There are no children on our block and that's one thing I'd like having a 3 1/2 and 5 1/2 year old myself. Also, our house is a little too much house. We could do without the extra bedroom or 2.

Anywho, I'm really confused on how the capital gains tax works. We've currently lived in our home for 16 months. If we WERE to sell in say the next 3-4 months do we automatically get taxed on the gain? I'm not so sure we would buy immediately(I'd say at least a year). We don't have amazing credit and I'd like to pay everything off gradually with the money we do make. Possibly invest in what we make.

Any advice or insight would be greatly appreciated.

You need to be in the house 2 of the last 5 years for your gains (under $500k for a married couple) to be excluded. The gain is based on the sale price, purchase price, closing costs (on both sides I think), improvements, etc.

 

[undertheradar]

We purchased our home in December of 2012-essentially the best time to buy according to how the market was in our area at that time.(As we were in escrow our house was already increasing in value) When we bought, we went FHA and put 8% down. Even though we put that much down we still owe $450 a month in PMI (granted we DO have an incredible interest rate at 3.25)

When we bought, the inventory was incredibly low so we put offers on whatever was in our price range in the area we wanted. We like our house, but we don't love it. I think what I will miss if we leave is the lot size/yard compared to other homes in the area. However, all of our neighbors are recently retired and elderly couples. No families. There are no children on our block and that's one thing I'd like having a 3 1/2 and 5 1/2 year old myself. Also, our house is a little too much house. We could do without the extra bedroom or 2.

Anywho, I'm really confused on how the capital gains tax works. We've currently lived in our home for 16 months. If we WERE to sell in say the next 3-4 months do we automatically get taxed on the gain? I'm not so sure we would buy immediately(I'd say at least a year). We don't have amazing credit and I'd like to pay everything off gradually with the money we do make. Possibly invest in what we make.

Any advice or insight would be greatly appreciated.

Since you are in SOCAL, the question is what could you afford to purchase in the future? 16 months in the house isn't very long and would raise questions to prospective buyers. As for gains, sales commission would be 7 or 8% of sales price. Not sure how you could think about selling if you have such a low interest rate and some credit issue? You are in your own home now, could you be comfortable renting?

 

[havaneselover]

Since you are in SOCAL, the question is what could you afford to purchase in the future? 16 months in the house isn't very long and would raise questions to prospective buyers. As for gains, sales commission would be 7 or 8% of sales price. Not sure how you could think about selling if you have such a low interest rate and some credit issue? You are in your own home now, could you be comfortable renting?

We sold a condo in northern Virginia after owning it for 10 months and a home in Tampa after owning it for 13 months. People are mobile these days and that generally is not much of a red flag.

I've never paid more than 5% to sell (sold 5 properties in 12 years).

I think you're other questions are very valid.

 

[CalDisneyMomof2]

Since you are in SOCAL, the question is what could you afford to purchase in the future? 16 months in the house isn't very long and would raise questions to prospective buyers. As for gains, sales commission would be 7 or 8% of sales price. Not sure how you could think about selling if you have such a low interest rate and some credit issue? You are in your own home now, could you be comfortable renting?

Comps are selling for 40-50% more than what we paid for our house. A house a lot smaller than ours is pending at $407 a square foot. We paid $237 a square foot. We'd be comfortable renting considering rentals are approximately $400-600 less than what out mortgage plus HOA are (including taxes, PMI and insurance). I've never heard of a 7 or 8% commission. Our agent and seller 's agent took 6 and I'm fairly certain our agent if we choose her again will accept 5% If not 4.

We don't necessarily have terrible credit just average. With our gains I'd like to pay down debt. We could pay it all off and still have enough to put 20% down on a house.

 

[havaneselover]

Comps are selling for 40-50% more than what we paid for our house. A house a lot smaller than ours is pending at $407 a square foot. We paid $237 a square foot. We'd be comfortable renting considering rentals are approximately $400-600 less than what out mortgage plus HOA are (including taxes, PMI and insurance). I've never heard of a 7 or 8% commission. Our agent and seller 's agent took 6 and I'm fairly certain our agent if we choose her again will accept 5% If not 4.

We don't necessarily have terrible credit just average. With our gains I'd like to pay down debt. We could pay it all off and still have enough to put 20% down on a house.

If your house has appreciated 70% in 17 months, who on earth is buying if it's cheaper for you (paying $237/square foot) to rent than buy. Seems like you got a nice deal and if your numbers are right, your plan makes sense to me. But wait until December to close so you don't have to worry about capital gains.

 

[CalDisneyMomof2]

We wouldn't get $407 a square foot. I was just giving an example of what homes are selling for.Our house is only semi updated while that house is right out of a magazine. I would imagine we'd get closer to 330-350 a square foot.

We did get a stellar deal on our home. It was at the bottom of the market that we got it and like I said as we were in escrow our home was appreciating. We got lucky.

Remember, our payment has our PMI factored into it which is $450 a month. That's why we'd be saving with rent. Also, we'd like to downsize so we could essentially lower our price range compared to what our current home 's worth.

I'm going to agree with you and say we're going to have to wait until November to put it up for sale. I wasn't sure if there was a way around the capital gains tax. Not trying to cheat the system, just wondering if I was missing something.

 

[undertheradar]

We wouldn't get $407 a square foot. I was just giving an example of what homes are selling for.Our house is only semi updated while that house is right out of a magazine. I would imagine we'd get closer to 330-350 a square foot.

We did get a stellar deal on our home. It was at the bottom of the market that we got it and like I said as we were in escrow our home was appreciating. We got lucky.

Remember, our payment has our PMI factored into it which is $450 a month. That's why we'd be saving with rent. Also, we'd like to downsize so we could essentially lower our price range compared to what our current home 's worth.

I'm going to agree with you and say we're going to have to wait until November to put it up for sale. I wasn't sure if there was a way around the capital gains tax. Not trying to cheat the system, just wondering if I was missing something.

If homes are appreciating at that high of a rate, what could you afford when ready to re-enter the market?

 

[CalDisneyMomof2]

If homes are appreciating at that high of a rate, what could you afford when ready to re-enter the market?

Something smaller which is what we want. We have a 6 bedroom and would like a 4 or 5. Also, $450 a month is going to PMI. We won't have that anymore. The amount we would have for a down payment would decrease our mortgage payment from what it is now all while having no debt.

A risk we take is if the market continues as is. We would do well if the market stays steady.

 

[undertheradar]

Something smaller which is what we want. We have a 6 bedroom and would like a 4 or 5. Also, $450 a month is going to PMI. We won't have that anymore. The amount we would have for a down payment would decrease our mortgage payment from what it is now all while having no debt.

A risk we take is if the market continues as is. We would do well if the market stays steady.

Isn't the capital gains depending upon your age? So unless you are 55+, won't you have capital gains regardless?

 

[CalDisneyMomof2]

Isn't the capital gains depending upon your age? So unless you are 55+, won't you have capital gains regardless?

I've never heard that. Of all that I've read since being interested in selling that's never been anything I've seen.

 

[bumbershoot]

The only thing I have to contribute is...how I wih I could buy your place!

We live in a condo building with mainly retired and elderly people, and it has absolutely been the best place we have ever lived. The people are wonderful and quiet, my son has learned to interact with people of all ages (many children are almost scared of older people that aren't their own grandparents, and almost never know how to talk to them like people), he has gotten to realize that we all start off young and have varied experiences. I haven't had to be surrounded by other parents screaming at their children, or children dashing out between parked cars or being totally neglected. Those were things we were subjected to in our previous living situations.

DS has gotten friends from our other activities. Since we homeschool he doesn't have the built in friendships from school. But we go to the Y. I'm not sure he can even imagine what it will be like when we do move into a house with the possibility of kid neighbors.

To live in your place would mean a big yard and enough rooms for us to spread out, while keeping the wonderful dynamic of being with terrific people. Jealous!

 

[havaneselover]

Isn't the capital gains depending upon your age? So unless you are 55+, won't you have capital gains regardless?

No. If you hold 2 of the past 5 years you are good generally if the gains are under $500k (for a couple). We got out of it twice because the moves were work related so the allowance was pro-rated and the gain was under the pro-rated max.

Op, there is no way to get rid of the pmi now that you have a lot of equity?

 

[CalDisneyMomof2]

No. If you hold 2 of the past 5 years you are good generally if the gains are under $500k (for a couple). We got out of it twice because the moves were work related so the allowance was pro-rated and the gain was under the pro-rated max.

Op, there is no way to get rid of the pmi now that you have a lot of equity?

We didn't have enough equity when the interest rates were so low. In order to get rid of the PMI we would have to refinance and it would be a wash considering the increase in interest.

 

[havaneselover]

We didn't have enough equity when the interest rates were so low. In order to get rid of the PMI we would have to refinance and it would be a wash considering the increase in interest.

Got it. That stinks. I know you used to be have to get an appraisal to get rid of it but that's no longer the case with the new stricter rules I guess. What a pain.

 

[malibuconlee]

If you home has appreciated in value that much you may owe less than 80% of the current value of your home. Contact your lender and inquire about the requirements of getting rid of PMI. One site I read said most will make you wait at least 2 years, but it's better to get the information straight from your lender.

Even if you wait a few months to get to 2 years and have to pay for a new appraisal you will be money ahead from having to pay realtor fees and closing costs to sell you current home.

I may be wrong, but it sounds to me like you really just want to move tho.

 

[CalDisneyMomof2]

Got it. That stinks. I know you used to be have to get an appraisal to get rid of it but that's no longer the case with the new stricter rules I guess. What a pain.

You got that right!

 

[TDSAXX]

If your house has gone up in value significantly, you do not need to refinance to get rid of PMI coverage. Simply have your house reappraised (which should run you a few hundred dollars). If your outstanding mortgage balance is less than 80% of the new appraised value you can get the bank to cancel your PMI.

 

[CalDisneyMomof2]

If your house has gone up in value significantly, you do not need to refinance to get rid of PMI coverage. Simply have your house reappraised (which should run you a few hundred dollars). If your outstanding mortgage balance is less than 80% of the new appraised value you can get the bank to cancel your PMI.

Not according to our lender's rules. We inquired about it approximately 6 months ago. Our only option was to refinance from 3.25 to 4.25.

 

[undertheradar]

That 1% increase looks like a bargain compared to costs of selling and moving.