Here is a question I have pondered. We put 20% down on our house when we purchased in 2006 and since then the market has tanked. We have paid down some of the mortgage in the 6 years we have lived here to the point that I think we could sell it with nothing lost or gained. My current house may never regain what we paid for it. But I could buy a nicer house with a lower mortgage than I have now--say a house that was about $50,000 less than the current house but much nicer and in a better part of town. We would have to come up with another down payment. Financially, the numbers probably don't work out, but then I am getting a nicer house. I've just been toying with this idea. What do you think?
I just want to be clear that I would be selling my house just not having gained or lost anything. No foreclosure. It just might be a good time to relocate to be closer to work and school. Sorry I said "walk away" before. I didn't mean it so literally.
I've gotten lots of good feedback here. We are saving anyway for the next downpayment (whenever that is) because we have definitely lost all the equity (20% down + 6 years of payments) in our current house. We refinanced for a lower interest rate and 20 year mortgage so that helps. It's hard to look at my house and what I paid and see bigger, more beautiful and more centrally located houses for so much less. The location is probably our biggest issue for the future though, not the size. We could have a lower mortgage. My current house will likely never recover its value in the next 20 years. Maybe I could build some equity somewhere else? But I would have to spend the 20% now, which we basically have on hand now, but I don't know if this is the best use of that money.
I was curious to see how others are thinking about this. My old mindset was to stay in my current house until it regained its value. That may never happen. Now I'm thinking that after biting the bullet on a downpayment, I could build equity in another house that would have a better resale potential down the road because of location.
It is obvious a lot of people do not fully read posts. I think if you can walk away clean with no lost or gain and able to get a down payment on a nicer house then go for it. If I was in a position to do that right now, I would do the same.
If you could walk away and not take any real loss from this house, and end up in a better house that is less expensive in a better area, then it sounds like a good idea to me.
So many people are in your situation. I lost a lot on my home as well. We finally paid down our mortgage to the point where we will break even. Now we have been very frugile and are saving for 20% down payment on a new home. Our new home is going to cost more. In your case your new home is going to cost less so if you can sell your current home then go ahead and buy your new home without having to put the 20% down. Talk with a mortgage company about different loan options. Instead of paying PMI you can get a second loan at a higher interest rate (maybe @6%) that would cover the 20% down. So maybe only have to put 5-10% down. Just make sure your current house is sold before buying a new home. You don't want to be stuck with 2 mortgages!!
Don't forget you have to SELL your current house first lol. We went through this just recently - bought our home in 2006, then the market tanked - took us a year to sell it and we lost a lot of money :(
So hey - it can't hurt to put it on the market and see what you can get! Then move on to bigger and better. Good Luck!
We were living in a tiny home, and needed more space. We lucked out and sold ours for about what we paid for it, but we bought before prices got really high to begin with.
Because we saved and had some equity in our small home, we had 20% down for the new one and managed to buy a home that was twice the size of our tiny one (we are in about 2700 feet now vs. about 1010 sq ft) and we live blocks from the elementary and middle schools in a great neighborhood. My husband can still bus to work so we only have one car. We feel like we won the lottery!
Do your research. Talk to a few realtors and see what they say! Hire a stager (best thing we EVER did) and follow their advice to prep your home for sale. They know what they are doing. It will help you get the most for you home. Our realtor paid for the stager for us, and I really think it helped maximize what we got for our home.
Good luck!
I look at it this way. You will need to sell your current home first and hope to break even on what you owe. Then to get financed for another home you WILL need very good credit and a minimum of 5% down to get another mortgage. The banks are offering lower interest rates, but they are handling mortgages like they did many years ago. They will not finance any mortgage 100%.
Can you do a little facelift to your home? I would wait a few more years. I live in Florida too and the market is very slowly coming back up. I notice fewer foreclosures in my development and the asking prices are up from last year. The market will never be what it was (over inflated), but it will balance out.
We did this a year and a half ago and so have many of our new neighbors. We're all happy with what we did and haven't looked back. GL!
I would get the nicer house if you can. Especially since it's in a nicer neighborhood. You will have less to pay down too. I would caution you though on making a habit of buying houses every few years though, you are just spending your ultimate wealth on bank fees, real estate fees, interest and closing costs.
Good luck!
Kelli:
Personally? If I could get a better house in a better neighborhood - I'd start saving now. I would make sure I could get the most for my house when I list it - updating things without spending a ton of money, etc.
If I can't list it - I will do what I can to make it the best rental unit I can so that one day I'll be able to sell it for profit.
Not sure how it is possible. I know people that think it is possible because they look at the asking price for the potential home and what they think their house is worth based on assessments. The problem is that doesn't work out, the other party is asking what they are because that is actually what the home is worth to others, I am sure their assessment is much higher.
Does this make sense? Sometimes I word things that only I can understand. :(
What I mean is my home is assessed at 230,000, it was just appraised for 240,000 but I could only get 215,000 for this house based on actual sales. If I am looking at my house as worth 240,000 and there is a mc mansion down the road going for 240,000 I may think, incorrectly, that I could buy a bigger home for the same price. Not happening.
Now if you are talking about lower interest rate, lower payment with higher balance I can see where you are coming from. Just remember there are closing costs on both ends.
If you can't easily come up with another downpayment, it doesn't seem very feasible. If you did have the downpayment, it's not necessarily a bad idea. I think you mean walk away by selling, not defaulting. Assuming that's the case, a friend sold his underwater house, sucked up the loss and paid off the mortgage with savings and then had enough savings for another downpayment on a much nicer house. Their thought process was this is the house they'll live in for a long time, all houses are down in price so they're getting the new one cheap and a 5% decline in price on a big house is a larger savings. So not necessarily a horrible idea yet you have to have that downpayment... The current house is a sunk cost. So you can make your decision on a go forward basis but again, you need to be able to afford the new house.
I didn't answer earlier because I too thought you meant "walk away" and not take care of your obligations. If you are selling it and are fine with a wash to live somewhere nicer and more convenient than go for it.
We all want nicer homes, cars, and things. However, we should understand that we need to pay for them in order to have them. Let's be honest here, if you "walk away from a house" you walk away from your obligation. This is neither moral nor ethical.
The bigger problem here is that we are setting a poor example for our children and creating a less than honorable legacy. Some day our kids will understand the choices that we make and they will see the hypocrisy. We tell them one thing, but do another. We shouldn't expect them to be honest, take responsibility for their actions, and fulfill obligations if we don't.
Happiness is wanting what you already have.
Why not? The only thing stopping you is the "We would have to come up with another down payment" part--so start saving, I guess!
I would say if you have a real interest in doing this then contact a Realtor with the goal of selling the current home. They will tell you exactly how much money you will be expected to put out to make the home sell-able. My sister had just painted every wall in her home and put up new border in the bathrooms. The Realtor told her the colors made the home nearly unsellable and the border had to come down. She got all mad and wanted to change to another one but the one that came out then said the same thing.
A friend had to completely re-carpet her whole home. Upstairs and down. They spent over $5000 but if they had left it as it was the Realtor estimated any buyers would request $10,000 for a new carpet allowance, so with her putting in new carpet she kept her value up.
Having a better house is so much fun. I wish we had a better home. I would say if you can afford it to go for it.
Crunch the numbers. Will you pay more taxes, insurance, Homeowners fees? Will your utilities (including lawn, pool maintenance) go up or down?
Nicer house, nicer neighborhood...will your children attend a new school?
Closer or farther from the workplace? Make a list, the pros and cons, and where will you find the new down payment? How fast will your current home sell? My suggestion: have a happy holiday season and get yourselves organized for the New Year...
with blessings, S.
Also, now if you get into a mortgage, you can get a lower interest rate than they were offering 6 years ago. That's something to think about too. You could save lots of money in interest payments alone!
There will never be as good a time to buy with getting great "house to dollars" ratio. I say go for it.
A lot also depends on your credit score and an appraisals opinion of what your current house is worth. I refinanced my house, and it came in $40,000 less than I thought it would. Luckily, we aren't trying to sell it. Also, if you sell it, and look to buy something else, banks are looking for at least a 700+ credit score. We had to show so much documentation on our refinance and we had a 820 credit score. I would hate for you to get "stuck" after selling your house. If everything is lined up, and your current house can sell, go for it.
