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 Post subject: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 10:47 am 

Joined: Tue Sep 18, 2012 10:40 am
Posts: 5
-My wife and I are 26 and 27 (no kids yet).
-We gross about $80K/year total and have two paid-for vehicles.
-We currently have a house worth about $240K on which we owe about $198K (we were very fortunate to purchase the home in 2009 and our local market has come back a bit).
-Mortgage, Insurance, and taxes are about $1,350/month total.
-We have $1,000 in an Emergency fund.
-We currently have about $50K in student loans that we pay about $800/month on.

-Our budget is quite tight right now and we would love to be debt free as soon as we can and have more cashflow to help save up for future large financial expenses (vehicles, possibility of child, large house repairs, etc.)

-We are trying to decide whether or not we should sell our home and purchase a nice little condo, which we could do for about $600/month (mortgage, taxes, an insurance). This would provide us with some funds to pay down on the debt as well as a much larger surplus each month that we could throw at the debt.

What do you think? We believe it would relieve some of our stress to be debt free and help us achieve our long-term financial goals sooner. Just trying to get some outside input on the matter.


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 10:57 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1562
Location: Seattle, WA
steward4him wrote:
-We are trying to decide whether or not we should sell our home and purchase a nice little condo, which we could do for about $600/month (mortgage, taxes, an insurance). This would provide us with some funds to pay down on the debt as well as a much larger surplus each month that we could throw at the debt.


What about condo association dues?

How long would you be in the condo? Would you plan to buy another house?


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 10:59 am 

Joined: Sat Feb 12, 2011 5:47 pm
Posts: 87
Location: Ontario, Canada
Does your $600/month include condo fees? If yes, it sounds like you are looking at a monthly savings of $750. Are you keeping the payoff term the same? How long would you plan to live in the condo before you would want to move back into a bigger place (if or when kids come maybe)? You need to factor in closing/moving costs to downsize and then upsize again if that is the plan.

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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 11:01 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Have you refi-ed lately? I just got done with a no cost refi into a 30 yr fixed 3.625% (I'll actually poke out a couple of grand worth of equity). My payment PITI is ~$400 more than yours, but I don't know what your insurance and taxes are, so it is hard to judge if you have a good rate or not. and I carry a significantly larger mortgage balance than you. So, if you're not at rock bottom rates, refi. And then Refi again. and then again. As long as it doesn't cost you anything, keep playing the game. I've already been tempted to refi again (and probably will).

Undoubtedly, you'll have less stress debt free. And Undoubtedly you'll loose money selling a home a couple of times. Have you ever sold a home? There are transaction costs, plus you'll need a grand or two to get everything ready, a little painting, the inane things an inspection finds, getting a storage unit so your house doesn't look cluttered etc. You really need to ask yourselves, where do we want to be long term? If the answer is condo, go to the condo. If the answer is in a home like you have, then stay put.

I know it seems tight now (been there, done that), but as inflation continues, debt is your friend and your payment will seem more and more insignificant.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 11:05 am 

Joined: Tue Sep 18, 2012 10:40 am
Posts: 5
Yes, that would include condo fees. The condo would be large enough to live in with up to two children. I would say yes, we would definitely plan to eventually move into a house anywhere from 2-5 years down the road but would likely wait until we had a substantial downpayment saved and watch for a place that we would like to be in long term (out in the country possibly).


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 11:09 am 

Joined: Tue Sep 18, 2012 10:40 am
Posts: 5
Current interest rate is 4%
Annual taxes are $3,300
Monthly Insurance is about $55


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 11:30 am 

Joined: Wed May 30, 2012 11:56 am
Posts: 124
You don't seem attached to your home and the payment is high so sure, sell it off. But instead of buying, what about renting? You won't build a lot of equity in just a few years of owning, and if your condo market is anything like the one around here you might even lose value (houses have done well throughout the recession, but condos that aren't downtown are still in the tank and aren't going anywhere but down). Renting also gives you more flexibility - you can rent smaller to start with, then if you do decide to have kids you can go larger without the headaches of selling, and later save yourself closing costs when you're ready to move into your long term home.


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 12:25 pm 

Joined: Tue Sep 18, 2012 10:40 am
Posts: 5
These are good points, especially the closing costs associated with multiple sales. Would it be worth trying to sell my home on my own? I have a job that is flexible enough to allow me to spend some time doing it. Has anyone done this recently? I understand it was fairly easy when the housing market was hot with buyers, but now the knowledge of a local agent may be helpful I'm guessing.

We looked at selling our home and renting a condo for a while. However, we found that is actually quite cheaper to buy a condo rather than rent one. So we figured that we might as well go that route and build some equity, unless of course, the condo continues to decrease in value. I think we figured that if the condo is down in value when we are ready to move again, we can rent it out for a time.

This forum is awesome. Thanks for all your responses. It is very helpful.


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 1:47 pm 

Joined: Sat Jun 16, 2012 2:11 am
Posts: 193
Kids in a couple of years... Refinance mortgage if possible and hang in there. Start working that debt down. Cut costs all over.


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 3:37 pm 

Joined: Thu Dec 30, 2010 4:59 pm
Posts: 62
Location: San Diego, CA
steward4him wrote:
Yes, that would include condo fees. The condo would be large enough to live in with up to two children. I would say yes, we would definitely plan to eventually move into a house anywhere from 2-5 years down the road but would likely wait until we had a substantial downpayment saved and watch for a place that we would like to be in long term (out in the country possibly).


The savings would be significant, but a 2-5 year time-frame is a little light. Regardless, assuming you both are fully on board I say do it!

Here is why.

You essentially are adding 2 transactions. A buy and a sell. Since it doesn't sound that you're willing to stay in your current place long term (if you were then this would add another 2 transactions with much higher costs). Personally I buy into the idea that the buyer is always paying the closing costs because they are the only one putting up the money. At $600 a month all included we're probably looking at a 130k condo? At that price the closing costs would be at least 4k. Add at least 1k per transaction and this move is costing you, at bare minimum, 6k. On the other hand saving $750 a month you can easily recoup the transaction costs in a year.

Hopefully you're looking for a place closer to work. Try to find a place where one or both of you can walk or bike to work. If you can do that, maybe you can sell one of the cars!

Good luck.


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Tue Sep 18, 2012 4:43 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1562
Location: Seattle, WA
tdelamater wrote:
The savings would be significant, but a 2-5 year time-frame is a little light. Regardless, assuming you both are fully on board I say do it!


2 years is way too short of a time to buy. 5 years is really the bare minimum.

I agree that it's "only" one extra transaction if OP is planning on moving out of the current house anyways. Even so, it just doesn't seem worth it. If the numbers are working out for buying the condo for two years, then there has to be something wrong with your assumptions.

steward4him wrote:
These are good points, especially the closing costs associated with multiple sales. Would it be worth trying to sell my home on my own? I have a job that is flexible enough to allow me to spend some time doing it. Has anyone done this recently? I understand it was fairly easy when the housing market was hot with buyers, but now the knowledge of a local agent may be helpful I'm guessing.


That will save you the listing agent (seller's side) comission but if a buyer has an agent, you'll still have to pay them.


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Wed Sep 19, 2012 5:41 am 
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Joined: Thu May 17, 2012 10:05 am
Posts: 884
Some good advice on this thread. Here's a few thoughts steward4him:

A) I'm concerned that you make 80k a year and only have $1000 in your E-fund. Maybe the first thing to do would be bump it up to say 4-5k?

B) What ways can you shave expenses off your budget? See this thread. Perhaps it's time to get rid of the cable bill? Or the home phone line? When was the last time you got a quote on your home and/or car insurance? How often do you guys eat out? How much do you spend on entertainment?

C) I agree with Northern Light instead of buying a new home keep your current home and pay off your debt as quickly as possible. Perhaps a refinancing option would be good? Could you be happy for a few years at your current home while you get out of debt? What is the interest on the Student Loans? Do you have any balances on your credit cards? Do you have any car loans or any other debt?

D) You seem to be searching for direction. Have you counseled with close family members on their advice? Sometimes the people that know you best and know your situation best can have great insight.

Keep moving forward! ;)

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~ Eagle


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Wed Sep 19, 2012 6:43 am 

Joined: Fri Jul 27, 2012 8:28 am
Posts: 88
Instead of selling, is there any way you could share the expense?

If you have an extra room or two, could you find a roomate or two to help pay the mortgage? It's like downsizing, only you don't have to pay transaction fees AND you still have the house in a few years when you'll need the space.

By me, there is limited rental housing and a number of colleges, so a nice room for rent, particularly with it's own bathroom, can command 400-600 per month.

We don't have any extra rooms, but my in-laws were able to keep afloat by renting out their guest room and their office while my mil was laid off last year.


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Wed Sep 19, 2012 7:04 am 

Joined: Tue Sep 18, 2012 10:40 am
Posts: 5
Thank you all for such great input. This has been really helpful to my wife and I.

Here are some answers to the questions that have come up.

Yes, we are looking to downsize to a condo in the $130K range.
We don't have any credit card or auto debt, just the $50K in student loans (average interest rate of about 5-5.5%).
We don't have cable or a landline, and spend about $300/month on entertainment (includes saving for vacation and eating out).
Overall we actually live on about $70K of the $80K we make but the extra $10K seems to keep going away to large expenses (washer went out, furnace and water heaters went out), which is why our Emergency fund is so low right now.
Our house is 40 years old (should have mentioned this in the original post) and it seems to be at the point where things are consistently needing repair and I think we are trying to decide if we want to continue to put money toward those repairs or sell before they are needed and move to a lower maintenance place and then eventually upgrade to a newer house after our debt is gone. We also have never purchased a home together. I bought this house before I was married and we like the idea of getting a place that we pick out together.
As for the 2-5 year time frame for staying in the new condo, this is very flexible. It would of course depend on many factors (savings for a downpayment, if we suddenly found a place that we wanted to move up to, what the current market is like at that point, possibly rent the condo out and move up, etc.)
I think the biggest benefit we are seeing to the move is that is offers us much more flexibility if a major life event were to occur (job loss/change, child, medical, vehicle, I drive a 10-year old mazda with 150K miles on it, etc.) and we don't want to have to go into debt if something were to happen.

In case you can't tell, we are leaning toward selling our house. :) But keep the input coming. It is extremely helpful.

Thanks all


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 Post subject: Re: Should we sell/downsize our house to pay off our debt?
PostPosted: Wed Oct 10, 2012 8:43 am 

Joined: Sat Oct 06, 2012 4:08 am
Posts: 8
If it's a 40 year old house and still under mortgage, might as well sell it off to pay the mortgage. Since you don't have kids yet, it is okay to live in a condo as well. It is also safe since you're gonna be paying the dues. I understand that it is your way to cut some expenses so I support you on this. You can always have another house in years to come should you decide to live again in a more spacious location when you have kids.


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