Question regarding selling home

[CalDisneyMomof2]

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

To me, paying $80,000 more in interest versus making $200,000 after expenses in selling a home doesn't seem worth it.

And to add, like I said, we don't have EXCELLENT credit but rather ok credit - interest rates have since gone up since we last inquired adding thousands more over the life of the loan.

 

[undertheradar]

To me, paying $80,000 more in interest versus making $200,000 after expenses in selling a home doesn't seem worth it.

And to add, like I said, we don't have EXCELLENT credit but rather ok credit - interest rates have since gone up since we last inquired adding thousands more over the life of the loan.

You would only be paying the extra interest if you didn't pay extra against principal. Otherwise, it is a moot point. As for pocketing $200k after expenses, that would be a rarity in today's real estate market.

 

[CalDisneyMomof2]

You would only be paying the extra interest if you didn't pay extra against principal. Otherwise, it is a moot point. As for pocketing $200k after expenses, that would be a rarity in today's real estate market.

A rarity I'm sure so I guess our situation is rare. We owe about $450,000 on our home. We can list our home for just under $700,000 right now as that is what the comps are going for (the current listings are going for more but those are just listings).

I completely agree with you on the paying to the principal part but I can't predict what will happen in the future.

 

[havaneselover]

I guess another thing to consider is where interest rates are going. We have gotten very spoiled (myself included) by artificially low rates. If rates head to 6 or 7%, then you may end up with just as high of a payment in a few years on a smaller house.

 

[CalDisneyMomof2]

I guess another thing to consider is where interest rates are going. We have gotten very spoiled (myself included) by artificially low rates. If rates head to 6 or 7%, then you may end up with just as high of a payment in a few years on a smaller house.

Yup. Biggest risk. And a very big one indeed. Thus why improving our credit to be top notch is important. We'll just have to see where the market is in 6 months.

 

[havaneselover]

Good luck with your decision. It's hard without a crystal ball. I went through something similar last year (had to decide whether or not to downsize after a divorce) and it drove me a little nuts being in a holding pattern.

 

[CalDisneyMomof2]

Good luck with your decision. It's hard without a crystal ball. I went through something similar last year (had to decide whether or not to downsize after a divorce) and it drove me a little nuts being in a holding pattern.

I appreciate that! Best of luck to you as well in your journey

 

[southlakejr]

We closed pretty close to the same time- December 2012. We also have an FHA loan. We're in a similar boat as you guys- we now have enough equity in our house to remove PMI, but the higher interest would wipe that out.

For those suggesting it, no, you cannot appraise your way out of PMI with an FHA loan.

However, did you guys prepay any PMI with your lender as part of your closing costs? We did, and our PMI is automatically removed at the end of five years, no need for an appraisal or any of that. That may be something to look into, if PMI is the biggest consideration for why you want to sell. (FHA loans no longer function this way, I believe as of Jan 1st this year)

I have no information on the capital gains aspect, unfortunately.

 

[crisi]

Not only will you pay capital gains if you sell before this year is out (15% to 20% depending on your income), because your investment income will be so high you'll pay a 3.8% medicare tax. So on a $200k gain, you'll pay between $36000 and $47600 in taxes. Thats a lot of PMI payments. And a lot of 1% increase to the mortgage.

There is also a large capital gains tax rate in California that you'll also pay - the numbers above would just be the federal burden. California's captial gains tax rate is another 13%!

 

[CalDisneyMomof2]

We closed pretty close to the same time- December 2012. We also have an FHA loan. We're in a similar boat as you guys- we now have enough equity in our house to remove PMI, but the higher interest would wipe that out.

For those suggesting it, no, you cannot appraise your way out of PMI with an FHA loan.

However, did you guys prepay any PMI with your lender as part of your closing costs? We did, and our PMI is automatically removed at the end of five years, no need for an appraisal or any of that. That may be something to look into, if PMI is the biggest consideration for why you want to sell. (FHA loans no longer function this way, I believe as of Jan 1st this year)

I have no information on the capital gains aspect, unfortunately.

Once our loan reaches 20% we have to write a letter to have it removed. So unless we make a considerable amount of additional payments it's going to take a few more years.

Not only will you pay capital gains if you sell before this year is out (15% to 20% depending on your income), because your investment income will be so high you'll pay a 3.8% medicare tax. So on a $200k gain, you'll pay between $36000 and $47600 in taxes. Thats a lot of PMI payments. And a lot of 1% increase to the mortgage.

There is also a large capital gains tax rate in California that you'll also pay - the numbers above would just be the federal burden. California's captial gains tax rate is another 13%!

This is what I'm finding out. So it looks like we will be waiting until December to reevaluate the situation

 

[starry_solo]

Perhaps you should speak with a real estate agent in your area to see if you would actually be able to sell the house for what you think.

A lot of larger homes go for less per square foot than the smaller homes precisely because of the reason why you want to move into a smaller home (that is, people want a smaller home with less maintenance, etc. and are willing to pay a premium for that.)

I know when my friend bought a house a few years ago (also in the down market in Southern California), the 3000 square foot houses were selling for $400-450,000 while the 2000 square foot houses just a mile or two away were selling for $350,000-400,000. Many people are also willing to pay more for a smaller house because there are no MELLO-ROOS/special assessments in various neighborhoods.

 

[CalDisneyMomof2]

Perhaps you should speak with a real estate agent in your area to see if you would actually be able to sell the house for what you think.

A lot of larger homes go for less per square foot than the smaller homes precisely because of the reason why you want to move into a smaller home (that is, people want a smaller home with less maintenance, etc. and are willing to pay a premium for that.)

I know when my friend bought a house a few years ago (also in the down market in Southern California), the 3000 square foot houses were selling for $400-450,000 while the 2000 square foot houses just a mile or two away were selling for $350,000-400,000. Many people are also willing to pay more for a smaller house because there are no MELLO-ROOS/special assessments in various neighborhoods.

I can definitely see that as a problem. But, I won't know for a couple months. We can't sell until December so we'll reevaluate then

 

[barkley]

from strictly a financial standpoint-get together with a good California cpa and get some information on all the $$$$ aspects-not just the capital gains.

we owned and sold twice in California-both times with rental periods between the next home purchase (first time waiting for the new home to finish construction, second time to locate the new home out of state). there are financial issues beyond selling costs and potential capital gains.

when you own a home you're likely taking a mortgage tax deduction on your taxes which also lets you itemize and take other deductions and credits so while the savings between owning and renting may appear to be several hundred dollars a month (rent payment vs. mortgage/hoa costs) that savings may be totally eliminated (or you end up in the red) by virtue of losing those write-offs.

the other thing to consider is down the line when you decide to purchase again-you got a phenomenal deal on your current home which in California likely saves you thousands per year on property taxes (gotta love prop. 13). if you end up buying a house that costs more, while a larger down payment will eliminate pmi you'll have increased property taxes, and depending on how new a neighborhood-bonds and levies that can last for decades (the home we sold had them for 20 years).

a cpa can look at your individual financial situation and crunch the numbers to let you know the true cost of selling short term (capital gains) and over the period of time you plan to rent (and the taxable period it covers).

 

[CalDisneyMomof2]

from strictly a financial standpoint-get together with a good California cpa and get some information on all the $$$$ aspects-not just the capital gains.

we owned and sold twice in California-both times with rental periods between the next home purchase (first time waiting for the new home to finish construction, second time to locate the new home out of state). there are financial issues beyond selling costs and potential capital gains.

when you own a home you're likely taking a mortgage tax deduction on your taxes which also lets you itemize and take other deductions and credits so while the savings between owning and renting may appear to be several hundred dollars a month (rent payment vs. mortgage/hoa costs) that savings may be totally eliminated (or you end up in the red) by virtue of losing those write-offs.

the other thing to consider is down the line when you decide to purchase again-you got a phenomenal deal on your current home which in California likely saves you thousands per year on property taxes (gotta love prop. 13). if you end up buying a house that costs more, while a larger down payment will eliminate pmi you'll have increased property taxes, and depending on how new a neighborhood-bonds and levies that can last for decades (the home we sold had them for 20 years).

a cpa can look at your individual financial situation and crunch the numbers to let you know the true cost of selling short term (capital gains) and over the period of time you plan to rent (and the taxable period it covers).

Thank you for your insight Another thing I'd have to factor is the interest paid on debt that we currently have with cars, student loans and credit cards we opened up to buy things for the house/repairs. I'd love to not have that responsibility.

I understand that if we rent we won't have the tax write off and the taxes will go up with a more expensive house. We'll be able to factor that in if and when we do sell/buy again. The neighborhoods we're looking into aren't that new so I'm not sure there would be extra taxes involved but it'd be something we'd look into.

If this all doesn't work out I wouldn't be upset. Like I said, I don't hate our home or neighborhood I'd just prefer a little smaller home in a more kid friendly neighborhood.

 

[tvguy]

I found the $450 PMI shocking, so using the PMI calculators on the web I figured a ball park figure for what your mortgage is. With that amount of money on your mortgage, you do need to seek professional advice on tax and other financial considerations.