Hi everyone, I don't have a technical question in mind, I am simply seeking a little input on what others think is the best to do in my situation.
My wife and I purchased a home in 2008 for $237,500, via FHA financing at 4.75% fixed for 30 years. The home's value at the time was around $240,000, and housing prices in my neighborhood are very strong and consistent... with 5 homes sold in the past 2 months between $235,000-$240,000. When we bought the house, we were moving up from a 500 sq. ft. , 1 BR condo, and the primary reason we were moving was a child on the way. Our house now has 4 BRs, 2BA, and a nice fully finished basement, putting us around 2350 sq. ft. finished.
When we bought the home, we bought on the top of our price range, with the thought that it would be a home we could live in for a long time, and interest rates might rise (at the time that was a big fear) tremendously in the future. Now, we feel house poor as a result of the decision. The monthly payment is $1,625, which is not bad considering our gross income is around $100,000. We are not building CC debt or anything, just not able to save the amount of money we would like to, and the housing costs aren't helping that at all.
We always have the option to sell the home and move into a smaller home to cut costs down. We currently owe $227 on the home that would prob sell for $237 (no sellers commission as my mother is a realtor), so after paying closing costs/fees, we would maybe net a couple thousand on the sale. Is it better to just stick it out in the house for a while and see how things go, or make the move to a smaller home and save $400-500 a month?
Starting Score: 627 EQ, 621 TU - 11/15/08
@veracious wrote:IMO, you should stay where you are. Moving to a new property resets the homeowners exemption in the county that I live in,
at the very least.
Also, will you move to a new school district with perhaps higer taxes? Will you municipal utility fees stay the same?
How about insurance costs,(homeowners & auto). As knowledgeable as you have seemed when answering some of my
posts, I'm sure you have considered all of these concerns. What does your Realtor/relative think.
You also know your energy costs for your current home, your neighbors, your emergency response personnel, etc,etc.
Just my 2cents
I think I have considered all the areas you mentioned veracious. School district is the same, taxes are the same,utilities would go down do to smaller home unless very inefficient, insurance would go down as well as the value of the home would decrease. My mother (my realtor) is indifferent on the issue.
I am inclined to stay as I would lose all equity in the house by moving after paying a buyer's agent 3% and the random closing costs to the seller, but I thought it would be smart to at least get a couple others opinions on the subject.
On the plus side, interest rates are much lower currently than my loan (a full percent), but after checking with our mortgage broker, refi'ing wouldn't help us at all as the monthly MIP has increased almost double from what it is my current loan, which would make the payment affectively the same until MIP drops (which is too far in the future to worry about).
Turning over houses is a massive expense (and a fiscally silly idea that quickly honestly) even with your getting a deal on the realtor fees. Two points:
First, you are saving money just by paying your mortgage - a house is a *tremendous* financial asset.
Second, you're grossing 100k a year, which I'll just call 60k / year post-tax for easy math = 5k/month, which is 3x your housing payment. Where is the rest of the income going?
I don't know your financial situation, but I'd take a good long look at the rest of your life before flipping the house honestly... that goes double if you actually like your house, your neighborhood, and the school district you're in. If you're trading up in any of those three categories with kids, that may be worthwhile, but outside of that, yuck.
If either one of your families is financially secure, why not see about taking a loan from them at whatever the current APR this month's IRS schedule mandates, pay down the house to get you under the MIP line (80% LTV) and refinance to score the extra percentage point reduction? Depending on the term of the loan that could be cheaper than the mortgage APR.
Don't know, I just think there's options out there besides the nuclear one of selling your house, you just don't strike me as being in that bad of a position, and it's clear you have a reasonable perspective on your situation, why not re-evaluate the rest of your life besides just the house?
I'm no expert, but my gut reaction is you're not gonna save a bunch refinancing to another FHA, if you can't refi conventional (and even then, you'd have to crunch #s). The rules on MIP changed since you bought (Oh heck, they've changed AGAIN since we purchased last Feb.) and your interest rate isn't high and MIP is only 5 yrs if u have the equity. Sooooo, not sure you're going to see any change there. But you'd have to run the numbers to be sure.
You could downsize. But it seems like you're maybe making a long-term decision based on a short-term problem? Things are a bit tight now, but in a few yrs (I'm so jealous-you're SO close!) that MIP will drop off (if youve paid down enuff). Hopefully your income will increase. And for us and our FHA loan, the fact that it's assumable is huge for us. I think down the road, when we're empty-nesters, it's going to be a big selling factor for such a big house. Also, your tax deductions will decrease and there are those costs to moving. And are you going conventional w a new loan? If you go FHA again, you're starting over w MIP (which is higher monthly now) so how big of a difference are you really getting in payment/savings? You have to figure all that in.
But really, you have to crunch those numbers and see.
We're in the same exact position. The house is a little too big, but not enough. The payments a little high, but not too much. But long term, we think we'll see greater appreciation w the bigger house, and truly our loan and rate are sweet. So we got creative. We got a hundred from the budget. We also asked for a tax abatement based on dropped values and won. Part of our basement was considered finished but we didn't use it. We ripped out the carpeting and had that reevalved as well. Cut out $100 a mo there. We upped our home ins deduc a smidge, etc.
It turned out it wasn't as hard to find places to tweak as we thought. We also looked at a few smaller houses, and surprise. They felt cramped. Suddenly smaller felt, well, tiny. You'd be surprised how quickly we'd accomdated to having too much space. 
Good luck, however you go. But we do feel your pain.