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Old 02-21-2010, 04:06 PM
 
Location: Tampa, FL
8 posts, read 57,660 times
Reputation: 11
Wink Mortgage advice - buying new home before selling current

OK, here's the skinny:

Wife and I make about $105k a year. Currently live in a small home on .18 acre - built in 1969, 1300 sq. feet, concrete block construction (read: no insulation in walls) - this is in the Pasco county area of Florida, mostly older homes, cookie-cutter 60s-70s retirement homes. Surrounded by a "meh" neighborhood of roughly 50% rentals. Starting to notice a degradation in the demographics. We have some good neighbors, but get a lot of trouble and noise from renters right behind us (constant problem, doesn't change with new renters). There's no way to improve that situation, or our energy efficiency. Bought house at height of market for $135k, have put about $10k of improvements into it, but if I were to guess at a reasonable value for it now it would be around $90k or less. We currently owe $100k on it. Mortgage is in my name only.

Lately we've been giving some thought to moving. We've found some homes in the area that have over 1/2 acre, are very secluded (read: lots of other homes in area that are at least 1/2 acre, lots of trees, conservation areas, only one street in or out of subdivision, etc.) - Prices are around $140k-$200k.

Now, our current mortgage is $750 a month with taxes and insurance. We have NO debt - both cars are newer and paid for with no replacements on the horizon for at least 5 years. Other than the occasional gun, optic, or vacation we have no other big expenditures. Our monthly outlay for retirement investing, food, gas, mortgage, insurance, utilities, etc leaves us with about $2000-$2500 a month to play with.

Given all that, I'm wondering if now may be the time to look into buying a newer, nicer home with more land and in a better neighborhood. Currently have about $40,000 in savings. We had planned on just paying this current house off in 3 years, but now I'm thinking instead of paying extra towards principal and then paying off a huge chunk at the end of 3 years, maybe we should shop for and buy another home, move out, clean up and spruce up this one, and then put it on the market.

Question is - good time to do it? Even with a mortgage payment of $1300 or so, we'd easily be able to do this with our current income and outlays.

I guess I'm just worried about getting the mortgage - since the current mortgage is only in my name, could we get the newer one in my wife's name? Both of us have credit scores in the 800 range, and obviously have a very low debt-to-income range. Being able to put at least 20% down would also probably help. I hate the idea of having two mortgages, as well as the possibility of renting out the other home if we can't sell, but on the flip side I just have to wonder if the current pirces of homes and low interest rates are going to last much longer, as well as our ability to get the second mortgage for another home.
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Old 02-21-2010, 04:40 PM
Status: "Ask me about Denver" (set 6 days ago)
 
Location: South Metro Denver and looking at houses
8,512 posts, read 18,464,775 times
Reputation: 4243
A lot depends on what you are planning to do with the current residence, since you think sell and could rent.

Generally, I would counsel to sell first then buy.
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Old 02-21-2010, 05:31 PM
 
Location: Salem, OR
10,799 posts, read 17,758,087 times
Reputation: 6646
You know we did the two mortgage thing about 7 years ago when we purchased our current home. We had a 6 month old and 2 1/2 year old and I realized there was no way I could show the house without incredible stress. So...we bought our next house, moved, and then put the house on the market.

It was painful, but doable. I strongly encourage you, if you go that route, to price your home very aggressively to get it sold. I wasn't an agent back then and I remember when our agent suggested a list price, I thought it was too high. I even said "I like my house and I wouldn't pay that for it." We went with her recommendation and it hurt us dearly. The market was better 7 years ago too. So...be realistic if you want to do that.
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Old 02-21-2010, 06:13 PM
 
Location: Maine
2,192 posts, read 3,250,310 times
Reputation: 2277
Does you wife make a good income? Because if you are the "bread winner" of the two the mortgage will likely have to be in your name. I imagine that no doc loans are pretty hard to come by nowadays. What if one of you loses your job? You'd have two mortgages to pay instead of one.

We made the mistake of buying a house before our first one was sold. Even though we can afford two mortgages it is not the smartest move in my mind. I'd never again buy without selling the current home. Making that monthly payment for an empty house really hits home.
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Old 02-21-2010, 07:09 PM
 
Location: Tampa, FL
8 posts, read 57,660 times
Reputation: 11
Wife and I make 105K, with a probable 5% raise each this year. Also pull in about an extra $4k a year with other income. Each make about the same, so no one is really primary for bread-winning. Our current home loan is only in my name, so I assume we could do another one just in her name or in both. Credit scores are about 800 or so. No debt at all other than the current mortgage. Heck, I see people who make less than we do in houses that cost $300k with even more debt.

I really don't think we'd have an issue with an extra $1200 a month in outlay, since we've retired $1200 a month in payments when we paid off our cars and travel trailer. Plus we're putting that much a month in savings towards this home, so simply taking that money and using it for a second home mortgage would be a wash.

I guess it is always scary to have two mortgage payments - all of the "what ifs" hit you. But I don't like the idea of having to show a house for sale while we're still in it with 6 cats and 2 dogs. We've done this before, but on much smaller mortgages (one was $54k, one was $34k) so not a huge deal. Last time we moved and bought a house the other was all paid off. But now we're into the higher $$ houses (which for us is anything over $150k). I'm surprised when looking at online mortgage calculators - with our income, debt (just the mortgage), etc. we qualify for a $335,000 loan - pretty insane - I just can't see ever spending that much on a house per month.
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Old 02-21-2010, 07:37 PM
 
Location: Central FL
1,383 posts, read 1,923,171 times
Reputation: 1152
When a neighborhood starts to turn, it's time to get out. I saw that happen to my prior neighborhood in FL.

I know two people who bought their "dream" home before their other home sold. Both have since lost those "extra" homes to foreclosure.

It does sound like your situation is a lot better. I think you would have trouble selling with 6 cats and 2 dogs. If you are working during the day, you won't be able to get the pets out of the house. A lot of people are allergic to cats and wouldn't even be able to walk through your house.

So I guess it comes down to which is less painful for you: (1) trying to rent the house out for ??? number of years until the market comes back OR (2) selling for an agressive price and taking the loss so you can move on. How much are you willing to lose? Personally, I would not want to be bothered with trying to rent out my home. I've seen some bad tenants from when my parents rented out my grandfather's house, and they even used an agency!

Why don't you check with a lender and see if you could even get a mortgage on a second home now. That would help your decision.
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Old 02-21-2010, 08:00 PM
 
Location: Tampa, FL
8 posts, read 57,660 times
Reputation: 11
Good ideas - we've done the rental thing once, with a "friend" as a tennant - not a lot of problems, but it was starting to get bad when we finally sold. Trying to sell while you have a renter is tough as well.

I'm OK with a loss - we're at a point in our lives (finally) where we finally are making good (to us) money, have no debt, have steady jobs that don't look to be going anywhere (she's .gov and I'm in health care) and have no kids or future large purchases on the horizon for a LONG time. It almost feels like we're at a point where we can get the house we should have gotten 5 years ago, but when we moved down here at the time it was VERY hard to get a house - they literally were selling in the first day or two of going on the market - craziness. Now there are a LOT more homes on the market, prices are falling left and right.

A loss hurts, but a 40% loss on 135k isn't as bad as a 40% loss on $300k - so the chance to get a home that was selling for $300k for only $180k or even lower is pretty sweet.


Quote:
Originally Posted by MovedfromFL View Post
When a neighborhood starts to turn, it's time to get out. I saw that happen to my prior neighborhood in FL.

I know two people who bought their "dream" home before their other home sold. Both have since lost those "extra" homes to foreclosure.

It does sound like your situation is a lot better. I think you would have trouble selling with 6 cats and 2 dogs. If you are working during the day, you won't be able to get the pets out of the house. A lot of people are allergic to cats and wouldn't even be able to walk through your house.

So I guess it comes down to which is less painful for you: (1) trying to rent the house out for ??? number of years until the market comes back OR (2) selling for an agressive price and taking the loss so you can move on. How much are you willing to lose? Personally, I would not want to be bothered with trying to rent out my home. I've seen some bad tenants from when my parents rented out my grandfather's house, and they even used an agency!

Why don't you check with a lender and see if you could even get a mortgage on a second home now. That would help your decision.
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Old 02-21-2010, 08:39 PM
 
Location: Oxxford Hunt, Cary NC
3,419 posts, read 6,101,658 times
Reputation: 2972
I've bought a new house before selling my current house three times now. I have three large dogs and just didn't want to deal with trying to pack them all in the car for showings (especially since one gets carsick!). It was only painful one out of the three times - I was too slow getting the old house on the market, took too long to move all my stuff, etc. But usually it's just a few months of two payments. I always get the old house in tip top shape before listing (new carpet definitely, lots of new paint). Price it aggressively, and get it sold. It might also help to research sales in your neighborhood - how many houses for sale, how many have sold recently, average days on market, etc. That way you'll get a good idea on how long it might take to sell.

Good luck!
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Old 02-21-2010, 09:04 PM
 
Location: Colorado Springs, CO
1,571 posts, read 3,365,987 times
Reputation: 1304
I really hate to see someone take on another mortgage before selling the "old" house but you seem to be able to afford it. It's a good time to buy - no question about that. If you go forward here's some things to think about.

1. There is no reason that you can't have 2 mortgages in your own name - as long as you qualify. With a FICO score in the 800s, you will be albe to write your own ticket!
2. Even if you can easily afford both payments, be sure to keep some cash on hand - at least $10K for issues, problems, etc. With 2 houses you will need to keep some cash on hand in reserve.
3. Do understand the "old" house may take a long time to sell - or may not sell. From the OP it sounds like you understand that.
4. Before doing this = have a sit down meeting with your CPA -- please do this!!!! You need to consider the tax impact of turning the "old" house into a rental vs. selling it - the impact of capital gains taxes, etc. Talking to your CPA is the best way to map out your best course of action. It's always best to know what taxes you will be facing before the property is sold or rented.

Best wishes.
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Old 02-22-2010, 08:15 AM
 
Location: Las Vegas
526 posts, read 679,174 times
Reputation: 281
in the good old days of buying/selling real estate,it was pretty easy in that you could put an offer on a new house with a contigency stipulation of first selling your current house , mainly because one needed to use the stored up equity to rollover as a down payment on the new house. but not anymore , even if you are lucky enough to still have equity in your current house, banks will most likely not allow it (assuming that most listed houses are either foreclosures or short sales ).

so now you either sell your current house first and temporarily live (rent) somewhere else while you find another dream house(which can take loads of time especially with short sale type of delays) or you go ahead and figure out how you can buy another house before selling current place and hope that when you finally get it on the market , it sells quickly.
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