Reselling and Upgrading

[joshall]

So we have lived in our new home for almost 7 months now, and we are in the market to upgrade to a bigger home. We are expanding our family   We are hoping to get some advice here.

We will likely to get an extra 30k for the house we have bought and closed in July 2015.  We are very lucky.  We are eyeing this new house that is currently priced around 460k.  We are hoping to put 10% down (46k).  We will be selling our current house.

Our principal left on our current mortgage is $390k. 

Can anyone give us some insights on how much should we bring to the table?  We are hoping to use the same lender.

This is exciting and we are hoping to learn from fellow bloggers as well. Thanks in advance!

[Anonymous]

Can't say exactly how much you should bring to the table as you would know your family's financial situation much better than any of us. Put down what you can that doesn't hinge your entire life to the house or drain your retirement savings if you have any. To keep the loan as a conforming loan, you're going to need at least 43k down for that 460k home.

[tacpoly]

Don't forget that you will have to pay capital gains/income tax on the profits from the sale of your house if you haven't lived there for two years; I hope you're not counting on the full 30K as part of the down payment for your upgrade house.  If you can wait 1.5 years to upgrade, you'll save quite a bit of money.

You can, however, reduce the cost basis for your house if you've made improvements and kept good records. 

[joshall]

Thanks for the insights.  Is the capital gain or the tax paid right away, or paid in the following year?

[tacpoly]

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@joshall wrote:

Thanks for the insights.  Is the capital gain or the tax paid right away, or paid in the following year?

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I'm guessing it's paid with your income tax, but I don't know for sure -- I've always waited the 2 years before selling. 

I hope you didn't pay points with this mortgage.  May I ask why you didn't buy a bigger house in the first place?  

[Anonymous]

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@joshall wrote:

Thanks for the insights.  Is the capital gain or the tax paid right away, or paid in the following year?

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Your capital gains tax will be due next April if you were to sell your home this year. Short term capital gains tax would be taxed at the same rate as your ordinary income. For example, if you are in the tax bracket where your income is taxed at 25%, you will owe 25% of any gains (profits) that you make on the sell of your home. (If you're not aware of what tax bracket you are in, you can look up the different brackets online and find out where you fall in terms of your gross income.) On top of capital gains tax, as the seller, you will likely be required to pay real estate agent commissions for both buyer and seller, portions of the closing costs, etc. It could seriously add up. I would run your numbers and see if it is worth it. 

Congratulations on expanding your family and good luck!

[Anonymous]

It sounds as if you are in California. Make sure to check the loan limits for your county. Most are $417k, but some go as high as $625,500.

Also, check with a CPA regarding potential capital gains.

[joshall]

We actually didn't really like the house we bought ... it was also a bit small as we are expecting a new addition in the family. It is purely bad decision on our part. But timing seemed perfect last year, as we had enough money saved and we needed to move out of the house we were renting. This is a very expensive lesson learnt. We are aware that we need to pay probably 12% fee and closing cost for the current house if we are going forward with this plan. Ouch!

[StartingOver10]

12% seems a little high - usually it is closer to 9% for commissons and seller's closing costs.  Check with a couple of Realtors in your area for a market anaysis and a net sheet.