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jasonlijun · Joined: 23 Jan 2008 Posts: 1 2.00 Dollars($)

I'm in a situation to buy a new house for the growing family, but the local housing market is very slow, and we've listed our house for 6 months last year without an offer. We got the feeling it might take a long time to sell it this year.

Current house: value $250,000, 10 year fixed loan with 7 year left @5.35, loan Balance $75,000, Monthly payment: 1660 includes all tax and etc. Approx. Equity $170,000
New house: $500,000, Down Pay 100,000, Loan $400,000, Monthly payment $2700 include tax.
Cash in the Saving account: $120,000. Earning 4.75 APY for now.
Monthly income will drop to $7800 before tax when we get the new house because the wife is leaving her full time job for at least six months

I was thinking to refinance current house with $120,000 cash out, 5/5 ARM @4.5 APR, $0 closing cost, $2000 misc. fees, lower my monthly payment to $1300. Sell or rent it for a couple of years while making the monthly payment.
It will put us at $4000 mortgage payment + $330 car payment with $6000 net monthly income , which is pretty tough and we plan to use the saving to cover all it until the old house is sold, or the wife can return to her previous job if we really need some extra money ($4000 pre tax)

My goal is get a new house, and sell the old house after moving out. I don't see it's practical to keep the house in a selling condition with 2 newborns, and there are things need to be repaired/replaced such as carpet.

I've did some research, but still not sure if my plan is the best way to do. Whether we should cash out $120,000 from the current house, is $120,000 tax free? should I lower it. Are we going to have problem to qulify for the new loan with such Income($6000)/Mortgage Payment($4000)/Cash($240,000) ratio? What's your thought on my plan to balance the cash/monthly payment/living expenses? Both the wife and I have credit score arround 700-730.

Another option for me is borrow 50k from the parents (they OKed it, no interest), and I can pay off the old house still have 120k to put down for the new house.

Any comments are appreciated.
Thanks!

larry · Joined: 27 Jun 2007 Posts: 3322 474.67 Dollars($)

Hi Jason,

Welcome to the forum.

I really appreciate that you are doing some research before taking such a huge decision in your life.

There are so many factors to be considered. Your credit score is good. As you have said you are now the only earning person in your family as your wife has left the job. So can you afford two mortgages and the household expenses at the same time? I think you may face problem to get approved the mortgage as your income has dropped down. Have consulted with any lenders?

I think when your wife also joined the job to support you, it will be best to go for the mortgage, as your income will also increase then. Because you never know what is going to happen. the new mortgage, the previous one, the car loan and the house hold expenses - all you have to bear on your shoulder and then if something happens to your family and if you default for two or three months, you will be hading towards the foreclosure. So, better wait until your wife is also ready to join her job.

Feel free to ask if you have any further questions.

Best of luck,
Larry

ckalvesmaki · Posted: Wed Jan 23, 2008 9:54 pm Post subject:

I'm in a situation to buy a new house for the growing family, but the local housing market is very slow, and we've listed our house for 6 months last year without an offer. We got the feeling it might take a long time to sell it this year.

Current house: value $250,000, 10 year fixed loan with 7 year left @5.35, loan Balance $75,000, Monthly payment: 1660 includes all tax and etc. Approx. Equity $170,000
New house: $500,000, Down Pay 100,000, Loan $400,000, Monthly payment $2700 include tax.
Cash in the Saving account: $120,000. Earning 4.75 APY for now.
Monthly income will drop to $7800 before tax when we get the new house because the wife is leaving her full time job for at least six months

I was thinking to refinance current house with $120,000 cash out, 5/5 ARM @4.5 APR, $0 closing cost, $2000 misc. fees, lower my monthly payment to $1300. Sell or rent it for a couple of years while making the monthly payment.
It will put us at $4000 mortgage payment + $330 car payment with $6000 net monthly income , which is pretty tough and we plan to use the saving to cover all it until the old house is sold, or the wife can return to her previous job if we really need some extra money ($4000 pre tax)

My goal is get a new house, and sell the old house after moving out. I don't see it's practical to keep the house in a selling condition with 2 newborns, and there are things need to be repaired/replaced such as carpet.

I've did some research, but still not sure if my plan is the best way to do. Whether we should cash out $120,000 from the current house, is $120,000 tax free? should I lower it. Are we going to have problem to qulify for the new loan with such Income($6000)/Mortgage Payment($4000)/Cash($240,000) ratio? What's your thought on my plan to balance the cash/monthly payment/living expenses? Both the wife and I have credit score arround 700-730.

Another option for me is borrow 50k from the parents (they OKed it, no interest), and I can pay off the old house still have 120k to put down for the new house.

Any comments are appreciated.
Thanks!

I think you are a perfect canidate for a bridge loan......It allows you to use the projected equity from the sale of the current house as the down payment for the new house......and only have one payment......

lisascherzer · Joined: 04 Jan 2008 Posts: 755 1.12 Dollars($)

Hi jasonlijun,

You are on the right track here. Either way it should work out for you. Many people are choosing to rent out a home instead of selling it right now. You can then sell it when the market turns around. However, you want to make sure that there is good demand for rentals in your area and that you can get good tenants. Bad tenants create nightmares that you won't want to deal with. So renting the home is a bit of a toss up since you may just have a few headaches but it could pay off later on the sale.

If you don't want to deal with tenants then I would suggest lowering the price of the home since you have equity or having the carpet and some cosmetics done. I know it's hectic when you have small children but it should pay off to do those repairs. Another option, if you do not have your house listed with a realtor, I would suggest looking into this. They have access to a large pool of buyers to get your home seen. I think it just comes down to if you want to bother with renting the home and what comes along with it. If you just want to move on and sell it, I would suggest a price reduction and/or improvements and I am sure it will sell. Every house has a that right price that will bring buyers.

bthahir · Joined: 05 Sep 2007 Posts: 36 13.34 Dollars($)

Hi,

You said your house is listed in the market for some six months, its is considered as a red flag when you go for refinance moreover it increases your burden, so I would suggest you can rent this house and make the mortgage payments out of the rent. For your new house, get the 50k from your parents, add your savings to it, buy the new house( do some research in choosing the lender). Now you will be paying only $3030 including your car payment.
My second idea is,
sell your house and payoff all the debts, so that your dti will be too good and you can buy your new home with good interest rate.

livinginnky · Posted: Fri Jan 25, 2008 2:48 pm Post subject:

I am with Lisa on this.

What is the house listed for?

If it is $250,000... have you tried a lower price?

Equity only truly exists if someone will pay you for it. If nobody will pay it is not really equity no matter what the appraisal says.

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