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I bought my townhome in Northern Virginia in 2004 for 295K with no money down. I have two mortgages. The first mortgage is a 5/1 ARM at 80% of the purchase price, 236K. The second one was 8% fixed interest for 30 years for 59K. My home is currently worth ~185K and I owe 270K on my mortgage. Since purchasing it I have started a family and I would like to move into something bigger and in a better school district. I am fortunate enough to be able to afford my mortgage and have never missed a payment. I have 60K saved up for a down payment on my next home. The options I am considering are:
1. Stay put and wait to get some equity. This means I would probably send my kids to private school.
2. Try to rent out my home. Unfortunately, I don’t think I could get enough rent to fully cover my mortgage. Rentals in my neighborhood are going for $1600 and my mortgage is $1800. I could probably cover the extra $200 a month but that seems like a bad idea.
3. Use the 60K I have in savings to pay off my second loan and rent. Paying off the second loan would reduce my mortgage payments to ~$1400 dollars so the rent could fully cover my mortgage. My mortgage is an ARM so there is always the chance my mortgage goes up.
4. Try to get the bank to accept a short sale. Doubt this will happen because of my good financial standing. I am also worried that the hit to my credit would prevent me from getting a new mortgage
5. See if any government assistance programs can help. I don’t see any programs designed to help people sell their homes and the programs they do have seem to be designed for people that are facing a hardship.
I prefer option 2. You can claim rental loss on your tax return. Northern VA real estate has reached the bottom. Buy another house that is forclosure or short sale.
If you double up, you will recover your loss quickly.
cws, I think your options are 1 and 2(3) (2 and 3 are the same thing). There is a lot to learn to being an owner/landlord. You may want to look into it before you jump in.
As far as the home being too small, no way is it too small. I have no idea how big it is or how large your family is but I know you can make it work.
As for the school system, this is one of the more confusing issues. School ratings can be skewed depending on how districts do their rankings. As an example, two neighboring communities out here each had the same school aptitude tests given to the students. One district encouraged the under-achievers to not take the test and the other district forced everyone to take it. This was many years ago and maybe things have standardized.
Another point on schools is I believe any good parent, which you are, can have their children get a good education no matter what school they attend by working directly with their child. Neglectful parents, that just toss their kids in a school and say 'good luck' are more dependent on a good school system.
Obviously, I made a lot of assumptions. Just wanted to give you something to think about. Maybe you don't have to move.
"3. Use the 60K I have in savings to pay off my second loan and rent. Paying off the second loan would reduce my mortgage payments to ~$1400 dollars so the rent could fully cover my mortgage. My mortgage is an ARM so there is always the chance my mortgage goes up."
So, what would you do for a down payment if you use your savings to pay down this mortgage? Get another 100% loan and be upside down automatically when you start? Talk about repeating mistakes and not learning from the past.
How about you use the 60K to buy the new house, and then let this one go into foreclosure? I think I've heard of people doing that. Not that I think that is good advice, just saying it is an option to think about.
...Then I would refi the first to a low fixed rate. ...
But with $270K balance, there will still be about $210K owed (assuming all $60K put towards loans) with the home worth $185K. Doubt refi will be doable.
How about you use the 60K to buy the new house, and then let this one go into foreclosure? I think I've heard of people doing that. Not that I think that is good advice, just saying it is an option to think about.
I imagine it would be extremely difficult to get a mortgage on a second house. You would have to show enough income to pay for two mortgages.
I just have to add that putting 0% down is not a smart idea (for you and for lender), that 60k you've saved is about 20% of original loan.
Even 10% down payment would have make payments more tolerable.
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