How to swing a move to a move up house?

[Anonymous]

We've been in our current house for ten years now, and it's feeling a little squeezed. We're lucky to have over $200k-$250k ish in equity in it at this point. But how do people in this market swing a move to a move up house?

The DC market is so hot that any financing contingency based on the sale of our current house is likely to not be competitive. We have two kids, so selling our place and moving to a rental while we search would be pretty tough. We have to stay in DC.

My ideal situation would be to keep our current place and buy a new one, and rent our old place out as an investment. But we'd likely be looking at $700-$800k for a new house to get any improvement in size and quality etc. over our current one, and we don't have $150k ish in cash for a down payment at this point. Both of us max out our retirement. We have a rainy day fund, but not that much extra money available.

Is there some option I'm not thinking of? Should we lower our retirement contributions for a while to save for a down payment on a new place? Is there a financing option I don't know about? Should we just stay put in our current house for a while?

Any thoughts are welcome.

[Anonymous]

Take a hard look at the house first. De-clutter, think about what you have and never use, what you'd fix up if you were going to sell it, really deep clean and clean out...see if a few weekends or even a couple days off devoted to the task of clearing and re-organizing won't make you happier in the house.

Spending some money on specialized furniture and organization systems is way cheaper than a new house.

[Anonymous]

Most lenders won't give you a second mortgage to do this unless you have established rental income history. So, make sure that you would even be able to obtain a 2nd mortgage if your plan is to rent out your current home.

Many sellers ask for a rent-back period so you can stay in your home for 1-2 months after closing while you look for a new place.

[Anonymous]

Not OP but we're in a similar situation. We have $1 million equity in our current house and a rental property worth $350,000. Are looking at a new house or a significant addition but don't think we'll qualify without cash in hand, right?

[Anonymous]

We sold house #1 by owner, wouldn't have considered buying a move-up until we had sales profit in hand. You're de-cluttering/moving anyway so moving into temporary rental apt is not that big a deal. We rented for 4 months. For our move-up house we were able to take our time, try to get a good deal. As it was we needed a 5-1 arm to get into the move-up area we wanted. For us it was the only scenario, money was tight.

[Anonymous]

Start making better financial choices. Don't understand the starter house mentality. What is your debt to income ratio?

[Anonymous]

Anonymous wrote:Start making better financial choices. Don't understand the starter house mentality. What is your debt to income ratio?

What from the original post made you think they need to make better financial choices? What's not to understand about the starter home mentality? Buy a house you can afford, gain equity over time, use new equity to fund bigger house. Seems fairly straight forward to me, and nothing wrong with it either. It's often a necessary evil in markets like D.C.

[Anonymous]

We sold our house with a 60 day rent back and a far out closing date. Essentially, we bought ourselves nearly 4 months during which to look for and contract on a new house. We ended up contracting on a house about 2 weeks after we contracted to sell our house and then staggered the two closing dates such that we could use the equity from the sold house as the 20% down on the new house. We then had a 60 day free rent back from the owners of our original house. We never had to move to a rental. Stressful but if crafted carefully, it can work.

[Anonymous]

Most people have a starter home of some sort. Often the appreciation on that starter home is what gives you the equity to move up to the forever home. I bought my first home at age 27, and it was nowhere near my dream home, but it worked for me and I thought it would appreciate pretty well. It did, and I sunk the profits into my second home, which is likely my forever home. Other people my age who kept renting instead of buying when I did are either still renting or had to get married to be able to afford anything.

Where the starter home gets dangerous is if you buy a house you've already outgrown or you absolutely have to sell it in a short time frame. I assumed i'd keep mine for 5 years and instead I kept it for 12 because there was just no compelling reason to leave a low mortgage.

[Anonymous]

Just stay in your house and spend your money on other things. We bought a starter home with the intention of buying a larger home after 7 years. Well we stayed in our starter home with the three kids because we decided we like having a small mortgage and cash for college. Time goes by fast.

[Anonymous]

OP here--

Thanks for all the feedback and strategies.

Our current house isn't really a starter home. It's a fine house, a 3 BR fixer originally which we've done a lot of work to. But there are a couple of things pushing us to move that reorganizing can't solve-- the most important of which is that's on a really busy street, which doesn't always feel safe with the kids, with no off street parking. We could maybe build that, but we'd still be on a busy street.

It's a semi-detached, and I'd love a single family at some point. It doesn't any flex space at all, for office or hobbies or workshop. It still needs some work. Plus some other things. It would be nice to just move on and start new somewhere that fits us better.

Another consideration is timing. I don't think this is our forever home, and DC home prices seem be going crazy-- I'm worried that if we wait too long, we'll be priced out of the market entirely (even though our house is appreciating too). We have to stay in the city for (public) school.

But we could stay-- it's not impossible to imagine that.

We have no debt other than our mortgage, but have had pretty hefty child care costs for the past few years. Those are easing now thankfully though, freeing us up to think about other things. Our income has also grown a lot since we bought this one.

It sounds like most people think that the option of buying a new house while keeping our current house and renting it out won't work. I like the rent back option, although I think it would stress me to worry about finding the right place!

Thanks for all the input.

[Anonymous]

OP we were in your spot and we moved into a short term rental after we closed on our old house and before we moved to the new house. Stressful, but financially less stressful than the thought of not closing.

[Anonymous]

We managed to do it. We took out an interest-only home equity loan of $250K on our current house and paid off the remaining mortgage of $100K. So we were mortgage free but had a home-equity loan. By doing an interest-only loan it brought down our monthly debt to income ratio to a very low level allowing us to buy a second house.

We then bought a second home using the $150K left from our home equity loan as a downpayment on the new home. We only did this knowing we could sell our first home very quickly after we moved in the hot NoVA market. And we also had plenty of emergency fund to carry us through a few months if necessary.

[Anonymous]

PP here. I should add that it was stressful waiting to see if the old house would appraise. And also waiting for the loan to be approved before we applied for a new mortgage. Also, this only works if the remaining mortgage on your home is relatively low.

[Anonymous]

OP here--

Thanks for the financing ideas.

What if we really wanted to try to hold on to our current house as an investment property? Is there a scenario that would work?

It's probably worth around $450-$500k. Property values in my neighborhood are jumping a lot, so it's hard to say. We owe around $200k. If we rented our house out today, we'd probably clear about $1000/month in rent over our mortgage payment, not counting expenses. Our HH is @ $230k.

We could aggressively pay down our mortgage on this place-- if we really focused on it, we might be able to pay it off in 5 to 7 years. If we didn't owe anything on it, would we still have trouble getting a loan for a new house? Is that a smart thing to do with our extra cash though? I'm assuming we'd still need a down payment for a new place as well.

I know I said I'm concerned about property price escalations in the District, but I also think if we had income from this place as a rental it wouldn't be as onerous. And it just feels like we should try to hold on to this place if we can.

Thanks for any input.