Selling and moving up..?

[manatbay]

My family is growing out of our current house and we have recently been checking our options;
Home info:
We originally paid 179.9k and we now owe 174k on the house (been in 2 1/2 yrs).
3 Bedroom, 2 bath. 2 beds on main floor, 1 non-egress in the basement.
The house is a 1952 renovated rancher with attached single car garage and 100% finished basement. 2000 sqft total, with 80% oak hardwood.

The house we want to upgrade to is in the 225k-260k range now.

Option 1: Sell the house in the range of 170-175k (base on realtor's market evaluation)
If we put the house on the market for 175k and sell it with the addition of the 7.5% closing costs, we will owe (175k-174k-(175k*0.075) or $12,125.
After selling my family would rent a 3 bedroom house or apartment for 6-12months and wait for the right house to purchase.


Option 2: Rent our house.
This would require a refi (if possible) which would improve our interest rate from 6.375% to 5.00%, reducing our monthly combined house payment to $1280 from $1416.
Having done my own sampling of the neighborhood, i believe we can rent the house for $1000-$1050 very easily.

Option 3: Stay in the house.
This is my least favorite option due the the fact that even if the economy somehow improves quicker than expected there is only so much i can expect to gain for a starter house will limited qualities. Also if we wait while things get worse, we'll be in a deeper hole.

Some other factors i'm considering;
a. if the market continues to drop and recovery is as slow as suspected renting the house would need to be for at least 5 yrs before any equity is available, which then will be hit by capital gains for 15% anyways.... that makes me lean to selling the house.


Any comments/advice on my situation would be much appreciated, i'm sure i've missed quite a few perspectives.

[easyrent]

Go for first option ! and lets listen what others are saying

[maryd]

Well, your Realtor should know the area and if its only worth $175,000, then thats the best you can do. I would check with your accountant regarding renting the home. If you dont have a positive cash flow, the only reason option two would make sense is if you would benefit from the loss on your taxes. As far as capital gains after 5 years, you could do a 1031 exchange to avoid the tax

[satxproperty]

Check with your lender, but the rental income might not be considered offsetting income for your existing home.

Check with you accountant or tax professional. but for capital gains, aren't homeowners exempt from the first $250k if single or $500k if married? (Subject to percentage of time as their primary residence.) And I think the capitol gains tax is just in excess of what you paid for it.

[Toby Lane]

If you decide to rent it out, make sure you can qualify for both homes. Chances are, you will not be able to count the rental income toward your mortgage payment to help with your ratios.

[donnalong]

Many times you can count 75% of the income from the rent. This will be a question for your lender.

IF they will allow you to count this off-setting income AND you can get a good QUALIFIED renter then it may be a good strategy to use your home as a rental property and then buy the home you really want.

[lylej]

This is what I found. My income from Rent is calculated at 75% towards personal income.

[PreviewOC]

In terms of having rental income offset the mortgage, I believe the home must be a rental for 6 months. This is due to the home owners who have bought a new home and let their old home go to short sale or foreclosure.

Things are changing so often, I would recommend talking to a reputable lender

[Ryocheck]

If you can afford to sell that is what I would do. Renting can be a hassle and if the property doesn't cash flow I cannot see any sense in doing so. If you cannot afford to sell and buy a new place just stay where you are at.

[Rickie]

Work with someone you trust with your Realtor and discuss the things and see the changes in the market for some more days and whatever is suitable at that time you can go according to that and just this is my little idea and also discuss with your family members as what there thought about the selling or renting and just take decision and even from internet you can get some guidelines to decide. And even some of the houses homes for sale website will help you to find the houses to sell and even purchase if you decide what to do.