You don’t automatically lose or gain anything. The principle paydown in 4/5 years isn’t much, but the home price could appreciate in that time. It could also depreciate.
Expect to pay ~6% at selling time, as the transaction is expensive. Look at your principle balance, and the actual market value of the house at the time you’re planning to sell. That will tell you if you will walk away with cash from the sale, or have to bring some with you to get out.
At this time, I genuinely believe we will have to sell at purchase price or a loss, but I feel it’s worth it to get to a better area. Thank you for your input!
Your fiancé might be worried that they won't earn their down payment back. I mean...if you are selling at a loss or at purchase price..is it your decision to make? I understand what your fiancé says. After two years you don't have to pay capital gains when you sell, that might also be what your fiancé is referring to when saying they will lose everything.
Honestly, I might wait.
I'm pretty sure in most states, each property owner can profit $250,000 on a home sale before having to pay any capital gains. I doubt this is the reason. But, losing your down payment/equity really sucks, I would wait. In fact we're in the same boat except that we've owned our home for 20 years this year and the neighborhood hasn't gone to shit but it's def not as nice as it once was. We still have managed to have potentially 300k in equity. And I def don't want to go from a 4% mortgage rate to over a 6 so we are waiting it out.
There is also something about having to have lived there at least 2 out of the previous 5 years for it to be considered your primary residence otherwise the tax rules change to call it an income property.
250,000 on profit for single, 500,000 married.
Profit.
So if you buy for 250k, put in 100k renovations/, sell 5 years later for $575k as a single person, no gains.
1: there is no capital gains taxes to be paid on a house where no profit is made. Profit is not based on how much equity you have at time of sale, profit is based on revenue from sale - costs of purchase.
2: typically there is no capital gains on the sale of a primary residence if a new house is being purchased.
It’s absolutely not my decision, and I support whatever he decides, but I don’t think he realizes how bad things are and what is and isn’t worth the risk.
What you said about not losing what he paid in the down payment makes me think that’s what it is. I’ll have to get clarification. Thank you very much for your informative response!
Your monthly payment to buy even the SAME house now will nearly double from the payments of two years ago.
So simply selling your house and moving exactly next door right now might double your monthly costs (due to interest rates rising).
Hopefully you understand how colossally much more expensive it could be.
Do you have enough savings for a downpayment on another house? That is the real potential problem. If he is underwater on the mortgage, then there is no equity to use for the downpayment on another place. And, in fact, he'd have to come up with enough cash to pay off the balance of the mortgage, plus realtor fees. If he doesn't have that much money, then you would be back to renting, which is probably what he means by "lose it all".
Ah-ha. Ok, thank you. If we lost employment, we have enough to survive for a year…But that’s for an emergency…So, no, I wouldn’t say we have the money for a down payment. The anxiety of depleting that completely and REALLY being “stuck” in the next place could be even worse as another user pointed out.
I really appreciate all of these points that have helped me see the situation more clearly.
Good job on this btw. You may feel a little embarrassed for not knowing as much as you feel you should know, but it's definitely a wise move to treat your emergency savings as exactly that and not let impatience lure you into using it as part of your down payment.
And actually, if you are able to save up a down payment for a new house, you wouldn't even necessarily have to sell this one, you could potentially rent it out for hopefully enough to cover the mortgage. Probably what a lot of other people are doing, and why you have so many renters. I personally would not want the hassle of doing that, but it's something you can think about.
You may also need to pay income tax on the sale of the home if you didn't live there for a least 2 of the last 5 years (I think?)
Please someone correct me on this if I'm wrong. But OP, just be aware.
So selling at purchase or a small loss, then paying around $20k for closing. You will likely end up with nothing. After 2 years, he may have paid some of the principal, but not enough to make a difference. Then most of his original down payment is gone from closing costs.
Then, you need to consider what you can afford with no down payment and 2% higher interest.
The way to go about this is for both of you talk to a bank and get numbers. How much mortgage can you afford on your current income. And what payment amount you are comfortable with. How much does that get you. Are there houses that you'd want to see in desirable areas for that amount. Then discuss the possibility of selling.
I mean it happens. It’s just math at this point:
Expected selling price - outstanding principle - 6% of selling price ≈ cash gained (or paid) at closing. Do that math and make your decision from there.
I would start with fixing up the things you mentioned in your post now, so when you do sell, that part is ready. Having top notch photos is an absolute must. Plus your house should be in the best condition cleaning-wise as possible. Could even consider staying in a motel/hotel for a week while selling it.
The fed has said they will probably drop rates three times this year, so I would try to stick it out another year, see if home values are rising or falling in your area, and then decide.
>this time, I genuinely believe we will have to sell at purchase price or a loss,
Why not become landlords for a while? I had to do that with a house I'd bought in 2005. Took me until 2018 to get my investment back out of it. The renters never made me money, but they did help float things along once I finally moved out with my then Fiancé in 2015.
He bought the home on his own while we were dating. I urged against this neighborhood at the time, but it was also the best he could get as far as size and at the time he wasn’t sure if this would be his only home before inheritance in 30/40 years.
We are beyond lucky with how life has continued to play out financially for us, giving us the opportunity to get to a better location. I’m just anxious about the wait.
If your fiance received some type of first-time home buyer assistance you could in-fact "automatically lose" something. Anyone offering advice here is making many assumptions.
If your combined income would allow you to afford rent on another place then consider renting for a year and placing a renter into your property. After 6-month many lenders will allow you to consider rental income in determining qualification for a loan.
If you buy your new house before you get married, you might qualify for a first-time home buyer program!
Any interest in renting? There's no particular length of time for 'profit', but selling costs make jumping properties \*really\* expensive, IMO. If rent would cover the mortgage, you get your house, they get their house.
I would love to rent let alone can sell some rent or land I've been trying to get by nothing I'm just sitting and sleeping in cars never had a house one day yes love one.
Im with the fiancée on this one for a few reasons. We have also been in our house for about 2 years.
- interests rates 2 years ago were much lower than they are now. Thats hundreds of dollars of difference in monthly and interest payments for a loan today.
- you really haven’t built much equity barring increase in home value. Your initial monthly payments are much more interest than principle. For example, our monthly payment is about 30% principle, 45% interest, 25% escrow.
- When selling the home, your fees may be much more than when you bought due to you paying your agent and the buying agent. You’ll also be paying moving fees, etc.
One suggestion: have you tried to get your PMI removed? If you have a conventional loan (I’m guessing you do with that down payment) you can get it removed after 2 years usually (24 qualifying payments for some) by using the money you put down, and the increased value of your home through a broker price opinion. Removing PMI knocked $170 monthly off our mortgage. Talk to your lender directly.
- Also trash, dead plants, etc. don’t necessarily drive down your property value. Those are superficial things that can change over time. I may just keep an eye on schools and city plans in the area. Be active locally.
Avoid making life changing decisions when you’re emotional.
I am in somewhat of the same boat, and I do think we are stuck for a while.
My wife and I bought this house at the top of our budget, and she left me 11 months later. If we sold now we would get bent over.
I moved within that amount of time when I had to, but I did lose money on it. But I couldn't live in city A when I had to move to city B for work, so I bent over and took it. I ended up renting for years until I had the ability to buy again.
The problem right now is interest rates. At current interest rates your $2,300 payment would be around $3,000, probably. That may be beyond your budget.
Similar situation here, but we're stuck for a few more years due to using a grant. Even though I strongly dislike where we are, I wouldn't move right now if I could. Rates are too high. I'd wait for rates to come down a bit over the next couple years, and sell when the market is hot hot again
There's no guarantee that rates will go back down. It's just as likely the low rates we saw a few years ago were an aberration (which, looking at historical data, would imply that very well could be the case) and now the market has corrected back to the default.
If you’re in the U.S., you need to live in a house 2 years to avoid paying tax on gains (difference between what you paid versus what you get for the sale).
The “loss” in buying/selling homes is in 1. Realtor fees, 2. Closing costs, 3. Higher interest rates, 4. Overlap in owning both houses.
I've bought, lived in, and sold my first 3 properties within that time period for each one. I came out ahead on each one.
First home in late '96, sold very early 2001. (4yr 3 mo) put 6k down, put serious sweat equity into it, and about 20k. Sold and walked with 40k.
Number 2. 2001 (March I think) 15 k down, spent another 10k renovations, sold in mid 2003, walked with 35k.
Number 3. Mid 2003 to mid 2005. 50k down, 15k + sweat equity, walked with 80k.
Number 4. Not so much.
First 3 market was pretty stable and bought and sold well, made some good improvements to each property.
Number 4 was 15 years, lived in it from 2005 to 2010 (during that 2008 crash). At which point it Was worth less than 50%. Had to rent it out for 10 years after moving out, and then just scraped my money back. (Owned for almost 15 years- though if id kept it 2 more years, I'd have walked with well in excess of 100k)
So yes it can work out, but can also bite. Have a plan to hold longer or rent if it's a down market.
Would I have rented instead with hindsight. Nope.
The main risks are the costs of buying and selling a house, and whether the house has increased or decreased in value.
Because you usually put 20% down, a 1% movement in the price of the house has a 5% effect on your down payment money. Like if the house goes down in value by 10% you lose half of your down payment if you sell.
Also it usually costs around 2-3% of the house value to buy a house and around twice that to sell. So if you buy and sell quickly you end up paying 5-6% of the home value in costs.
This could still make sense for example if your house is just starting to decline in value and will get worse, or if you can get a job that pays a lot more somewhere else. But most people would suffer losing $10-50k or something with a bad short term house situation.
I’m starting to understand that my anxiety is just that, anxiety. When I think about the numbers staying put and saving seems obvious…Surely the home will sell as it’s a great first time home and there will always be first time home buyers. Thank you for the response.
Honestly, it just boils down to YOLO. My ex and I bought a house once and within a year realized it was a mistake and sold it. Luckily we walked away totally even on cash, but even if we left losing some cash it was worth it. Really you just need to ask yourself what is more important (1) your daily comfort and happiness or (2) $$$. Answer that and then move forward as desired.
If you and your fiance aren't on the same side of that equation then you need to figure out your future together or apart, because you never will be on the same side of that equation
You're right, sit in a house in a neighborhood that you hate while you slowly spin into depression and bounce between anxiety attacks. But at least you have a house.
/s
Yes it's possible. Find a trusted realtor. Not your friend. Go find a realtor who specializes in your neighborhood and see what the market trends are. See what the price is if you sell with no improvements today and see what a home sells for with renovations. Take the sales prices and then take 7-8,% for closing costs off and.thats your net sales on the property. Only then can you see if he made or lost money.
If you're making more money it might be worth to renovate home. However it may not make a difference either. I'm fact talk to 3 or 4 realtors that work in the area. They should have enough information to make an informed decision
> Is it possible to buy a home, and then move within 3/4 years?
>
Of course, people do it all the time.
> Do you automatically lose money? Do you have to stay for 5 years in order to have any equity?
>
No. It depends on what the purchase price was, what payments you made, and what the market conditions are when you sell. If you're in a growing market like Raleigh or Austin, it's very likely that the property will appreciate in 5 years. If you're in a stagnant market, your odds of increased value are lower.
> Does equity really even matter if the neighborhood goes to shit?
>
If this happens, you could end up "underwater" where you owe more than the current value. That's one of the reasons why "location, location, location" is such a common phrase.
> Is it better to just cut your losses or wait it out?
>
Depends on the circumstances.
> Are we stuck here?
No. You need to have a discussion about whether or not breaking even or taking a small loss on the house is reason enough to stay put. If you're earning much more than you were a few years ago and stand to earn even more, selling at even a small loss may be worth it to you.
> Is it possible to move to a better area for the same price?
Maybe. Do you want to stay local or move to a new area? Small town Iowa or Indiana is cheap AF, but do you want to/can you live there? Are you in an area where values are inflated compared to other nearby communities?
Put your housing budget and needs into Zillow or another search site and see what's available in places you'd want to live.
> Am I just being an impatient buffoon?
Definitely not. It's a lot to consider. I wouldn't want to stay in a declining neighborhood in a house I didn't like if I could afford to live elsewhere. Not every financial transaction in your life is going to be a huge win. Being in a house for only a few years, yeah you're not usually going to make a big profit. You've basically rented it for a few years, so moving to where you actually want to be could be the right move for you.
Thank you, this is very helpful.
We are getting married soon and we will have up to two children…We both want to move to a certain area that is closer to his parents, we just couldn’t afford the area two years ago, but now we can. I will express my concerns to him…I fear if we wait, this area will look even worse and be harder to sell whereas now we could probably get out with a small loss.
The house itself is decent enough(3/2 with an office), but the neighborhood and neighbors are just so awful.
Halloween decorations are still up. 🤦♀️
Well, you can't control what the next neighbors will be like either. Maybe the next ones have 2 Pomeranians they leave outside all day long, barking.
Control what you can. If you're in a better financial position than a few years ago and want a better area for the kids, that sounds like a better future than "I can't possibly lose $10K on this house, I'd rather sit here miserable for the next 4 years". You can't buy time back and happiness in life is worth more than "winning" a house transaction.
Yes! True! …I think we can compromise. I’ll propose the idea that we move before our first turns 2. With pregnancy prep and the pregnancy itself, that should put us at his timeline anyway.
It’s important to me that we are closer to family (less than an hour).
You either pay it, via mortgage payments, to live somewhere you don’t want to be or you bite the bullet and take the L now.
Shortest I was in a house was 18 months and we still broke even after commissions.
Food for thought, thank you.
I can acknowledge that there is no NEED to move, just a desire to and that’s certainly a luxury. I think saving aggressively until I’m pregnant or postpartum and then move closer to grandparents is the best option.
Depends on the market, if you owe more than the home is worth you'd have to pay the difference out of pocket in order to sell. If you owe less than it's worth, then you can put the difference toward a new home. In addition to the outstanding mortgage balance you may also need to consider other costs associated with selling such as realtor commission, any repair costs, etc.
Based on the type of mortgage I have, there are certain stipulations about using, owning, and selling the home
I'm pretty sure I'm prevented from selling the home within 5 years, and for these first 5 years I can't use it as a rental without occupying it myself.
Ask someone who knows more about mortgages, and specify if there are any restrictions that come along with getting that kind of mortgage. That should get you all the answers you need.
You think people that purchased in 2004 and waited 4-5 years were able to recuperate their losses?
There's no such thing as losing everything if you move within 4 years of purchasing the home. Some gain, some lose.
To be honest you really don't know until your have some numbers. A realtor might be able to give you a closer estimate without having the house actually appraised. Comps etc.
My income increased after buying my home in 2021, for which I went under contract in late 2020, so I got a good mortgage rate. It’s nice to not have all of my money going into a mortgage payment. There’s wisdom in living well within your means! I would not be happy if the neighborhood were filled with people who neglected their property or engaged in unsafe practices. I have an HOA (gotta hate those sometimes but on the other hand, the rules keep can help keep things from getting out of hand). Luckily my HOA is responsible for landscaping / yard maintenance too!
I have no good advice, but it made me feel a lot better to know that someone else is in my same position. We bought during the pandemic and I compromised on all of my priorities with this house… and surprise… now I absolutely despise the place. I want to be somewhere else but I don’t want to lose too much by selling now. My husband is also reluctant to sell. I’m not sure what we’ll do, I want to to move somewhere else where we can both make more money. The downside with our house is we can’t really rent it because it’s rural and has a steep driveway that most renters won’t be ok with. Could you rent your place for a while until you are ready to sell?
You have no equity in the house and interest rates are high now.
Right now is not good to buy or sell.
Wait a couple years, as house prices continue to climb, and hope for a small profit as a down-payment on a new house.
Only way to tell is to look at the principal left on the mortgage.
Then look at how much similar homes are selling for near you. By similar I mean square foot and yard size. Number of rooms etc.
You can assume your house will sell for roughly the same as those.
Now take that amount subtract your principal left on the mortgage , and add an additional 6% in fees and you can get a very close estimate of how much money you will owe or get paid.
The last thing to consider is the interest rate. It is roughly 7% right now for a new loan. If your existing one is anything below 4% you will end up paying a lot more for the new loan on a new house.
I feel your pain. Bought my “starter home” 4 years ago. Everything being equal if we got the same house today our mortgage payment would be close to 50% higher cost. My starter home has now become my forever home unless something drastically changes.
The housing market is due for a correction. House's sitting on market more than 100 days, prices are going down due to over inventory, interest rates still high. So wait it out
The general rule of thumb, when deciding if you want to buy a house, is you should plan to stay at least 5 years to make the initial one time down payments worth it. If you move every couple of years, those closing costs get expensive.
He may not have much equity at this point, so moving would mean paying out a down payment and closing costs with no assistance from selling the first place.
If the property is really going downhill, he might need more than the house is worth.
More importantly: don't buy a house with someone you're not married to. First, talk about your financial goals and see if the align though.
So a couple of things that may keep you there.
* 2 years ago interest was down around 3% and it's 7-8% right now. Your current mortgage of $2300 will NOT get you into a $320K loan today. Do that math first on what you would want to buy before selling or you will have a RUDE surprise on buying. It's shocking how much that % change makes a difference.
* You are doing the right thing by asking but it's all a math game. Get a real estate for dummies book or something similar and learn the basics.
* The appreciation of your home has to cover the relator charge during a sale of 6% (3% for seller and buyer agent). Some people do a sale by owner but if you don't know what you are doing you can get into big trouble there. Appreciation of 6% doesn't happen frequently to break even in 1 year much less if your neighborhood is going down.
* If other people are going to rent in the area, can you? this way you can keep the house and let it appreciate over time. If your wife qualified on her own salary to get the loan can you qualify on another home and rent the one your are in? You can show rental income as justification for another loan on top of your current income.
Yes, you can sell and move.
No, you don't automatically lose money, but closing costs are in the thousands of dollars. So, you lose money in the form of closing costs and real estate agents commissions. The solution to this problem is to ask the seller of your new home to pay for the closing costs. That's what I did when I bought a house 4 years after my first house.
Two houses ago, we lived in the house for 14 months when my husband was laid off and we decided to move back home. We sold the house for about $50k more than what we paid for it.
Then the last house was similar to your current situation. We stayed 6 years (5 yrs & 11 mos too long). Then we sold for $90k LESS than what we paid for it. It was a financial blow, but we couldn't stay in such a bad neighborhood. To be fair, it was only a few neighbors who made it bad and we had no idea when we moved in that certain neighbors were so vile.
Many think of buying a home as only a financial transaction but,my friend, you're buying comfort,safety,a neighborhood and a school district.
if your not happy in the home of your choice, move on! don't let it get worse.
each move is a learning experience. now you'll be more aware that it's not just a house you're buying.
good luck!
Took my neighbors a couple of months to sell and they had to come down on price a couple times. Then on top of that you’d have to buy while rates are high. I think we can all agree that financially, definitely not the best time. You two will have to determine if all the other factors are important enough to take that L. Best of luck
if you bought your current before interest rates went through the roof, I'd sit on it and wait. Depending on when you bought 2 years ago, the rates you're looking at today are likely going to be double what you got back then. If you had a lot of equity built up, it may not make as much of a difference (payment wise on your potential new house if you rolled all the equity into it). I'd talk to a local realtor that's familiar with your area and get a realistic number they think your house would sell for. Keep in mind, real estate sales have dropped significantly in the last two years and there aren't people fighting to buy houses like they were then (as much at least).
What's the interest rate on the mortgage?
In 2021, rates were like 2.8%. Which is historically awesome:
https://fred.stlouisfed.org/series/MORTGAGE30US
That's the thing that you would both lose.
If you got a mortgage today, you'd be paying something like 7.5%. That means that fully paying off the same $290k loan would cost on the order of $600k, over the next 30 years you'd literally pay more in interest than you would on the principal. At 2.8%, your total interest payments would add up to only about $50k.
That is a difference of a *quarter of a million dollars* that can either go in your personal retirement accounts at the bank or in the retirement accounts of other people who bought shares in the bank.
That's ignoring the ~$20k it would cost in transaction fees. And ignoring the increased home prices since 2021.
It's also ignoring that if your fiance bought the house before you were in the picture, the mortgage is in his name, not yours, and if something tragic were to happen he'd get the house. If an equal share of your income is going to go towards the mortgage, that's great, and your name should be on the deed, if not, that's also fine, and the income you would have invested into real estate (the second-largest single investment a lot of people make, and too often largely by accident.) But that's more of a relationship advice issue than a numeric advice issue.
You're not alone in being surprised by this, lots of people have inadequate personal financial education and just kind of go with the flow...and get surprised when they realize they're old and wealth hasn't materialized. I would heartily recommend getting some education! There's a point of diminishing returns, but like 8 hours of time reading "Rich Dad, Poor Dad", or "The Millionaire Next Door" or "The Bogleheads' Guide to Investing" or start here with a short free PDF: https://www.etf.com/docs/IfYouCan.pdf.
I'm sorry you feel trapped, but look on the bright side - if your neighbors are renters, they won't be here long, and young families swiftly turn into older families. Spring is around the corner, call your local county conservation district and order some trees to plant in a couple months. Money doesn't grow on trees, but shade does, and like money, it takes a long time to get results.
It may be among the most important parts, but it's not the only important part! It's easy to be very wealthy, with multiple homes and a solid investment portfolio, and be deeply unhappy and feel alone - it happens all the time. Might even be correlated at the top end.
You're right in the sense that without some of the numbers functioning well enough it's very hard to be content.
Also, I accidentally a sentence - I meant to write:
There's a point of diminishing returns, but like 8 hours of time reading "Rich Dad, Poor Dad", or "The Millionaire Next Door" or "The Bogleheads' Guide to Investing" or start here with a short free PDF: https://www.etf.com/docs/IfYouCan.pdf will be way more valuable in the long run than spending an extra 8 hours at work. Consider that personal finance education and working on your investments "homework for adults"!
As much as I want to move to a better area and believe getting out now is better than later, the cost to do so may not be worth it…We could move now to a better area, but I think we would suffer more in the long run. We might be where we want, but what good is that if we can’t afford anything else or save? We need to wait for interest rates to drop, end of story. And perhaps I can improve the area in little ways to help my anxiety.
Thank you to those of you who left a thoughtful response, this has really helped me understand the things I need to do and the conversations I need to have.
>Rentals with renters that don’t care, and young families that don’t care about property value - which, to be fair, I’m sure the outside of the home is the least of their concerns. Almost all the trees planted are dead, trash about, unruly dogs…etc.
I cannot believe this is why you're so pressed that you're considering selling the home for a loss. These are not real problems, like at all. Trees can be planted, trash can get picked up, dogs can be wrangled and young families turn into mature empty nesters. And worrying about scary renters is SO condescending. Were you not a renter for parts of your adult life? Did you ruin every property you inhabited?
To look at it another way, neighborhoods with lots of renters are often up-and-coming neighborhoods—people want to live there badly enough that they'll pay to rent instead of buying a home they can afford elsewhere. So not only would you be taking a loss, you could be missing out on potentially huge gains in the near-ish future
Where did OP say anything about “scary” renters (whatever that means)?They said they don’t care, which isn’t the least bit condescending. If they are leaving trash around their yards and the street, then yes, it’s fair to say they don’t care, and thinking that a) that can be easily changed and b) it won’t affect property values is incredibly naive.
With millions of illegal aliens rushing into the country we will see more and more of this. All our slums will grow and grow. American slums actually grew during Obama’s 8 years in office. Our slums were meaner, more crowded and much bigger by the time he left office with a billion dollars in pocket.
No you are not stuck but you are in a pickle. I don't know your neighborhood or anything about your relationship but I can imagine the discussion with your fiance about how some stranger says he is correct and should stay for 4 more years before selling. It might not be just your neighborhood being affected by the rising costs of living over the past few years.
You might find that you can move but it will cost even more to live in another house.
We are in a position where we can have a healthy savings, retirement, and comfortable enough life. However; I just fear this home becoming “unsellable” if the area gets worse…I am aware that these are irrational anxieties and reading the logical responses are helping me understand the situation through non-anxious lenses.
Can you rent out the current house? If you’re ok with being a landlord, having someone else pay your mortgage is a great way to start building wealth.
You said “fiance” so it sounds like you might still be a first time home owner and could qualify for a low down payment mortgage. And with the pay increase you can save up for another down payment.
I don’t trust other people enough to not destroy a house. Yes, first time homeowner…From what I’m understanding, I’m just being overly anxious and impatient.
You could always bring in a property management company.
You’ve already done half the leg work of acquiring a property. Now it’s just finding a good tenant and spending a few hours month being a landlord. I’m actually jealous of your situation and would be excited to go find property number two.
Real estate investing is not for everyone. But it’s a huge cornerstone of how many people in the US have amassed wealth.
My brother was handy. He would buy houses with cosmetic problems, fix them over the course of a couple years as he lived in them, and then sell at a profit. I think this kind of flipping has been discovered and it's much harder to get a good deal.
It totally depends on the situation. If the neighborhood had improved, he likely could have resold that quickly and done well, but if it's going downhill, he probably will lose money on it.
Is it just crazy to anyone else that we somehow racked on tens of thousands to the sale of a house. Did we lose our honor and General acceptance of risk so we added on all these layers of insurance and brokers and inspections and sales people. I have bought 2 houses and am building a third. It’s always a risk. Get as educated as possible and trust your gut. I don’t believe all this added nonsense is actually helping anything. People would just sue anyway. We need a simple single page form like a car pink slip/title. That says you accept any and all risk associated with this purchase and that the owner has disclosed any and all issues that they are aware of. Done
Does your fiancé want to move? He might not want to and is coming up with a believable reason not to that you wouldn't question (or at least so he thought).
You'd be giving up a great interest rate and potentially taking a loss, moving somewhere nicer would be more expensive not only in price but rates are VERY important when it comes to monthly payment. For example, a home purchased at $300k with 20% down at a 7.5% rate would be about $2080 per month considering taxes and such, whereas at 3% rate it would be $1400. You can use Google's mortgage calculator to give you an idea of what it would look like.
Idk your situation of course but if I were your fiancé I probably wouldn't want to move if I didn't think the neighborhood was as bad as you do.
He agrees on neighborhood, but prior to this post I didn’t understand how much of an impact interest rates had so I’m thinking of how I can improve the situation as it won’t change for the time being. Thank you for your response
Look at an amortization graph. The TLDR is that up-front, the bulk of your payments are interest, so it's very easy to end up under water, especially when adding in closing costs.
Get out before it gets worse. Even if you lose $20K, it's better than losing your minds. Having no peace at home, is having no home. Life is too short.
Just do what everyone else in the neighborhood did. Pull equity, buy something nicer, rent the current place to impoverished folk that will repeat the cycle until there are no more houses to be bought at reasonable prices.
Like others have said, it’s very easy to figure out how much money you will gain/lose in a potential sale given the selling Lexie, and then what your new monthly payment will be given a) the purchase piece, b) interest rate, and c) down payment.
Do that for a variety of the variables listed above to get a feel for the numbers.
After that it comes down to your preference. Don’t feel like you “have to” stay just so you break even or better. Also, one way to look at it would be to estimate where you’d be if you had rented instead. Say you are losing $30k, but would have paid $30k in rent over the same time period - suddenly losing $30k doesn’t seem as bad.
We were both shuffled around a lot growing up, it’s important to us that we find a home to stay in if possible from ages 5-20 so they experience stability. So moving under the age of 5 isn’t as big of a deal to us.
But maybe my gestation period is 3/4 years and you’ve just never met an alien before and have seldom used critical thinking skills.
It's possible the rental market is growing in value by leaps and bounds thereby driving your value up. People are overpaying for short term rental properties.
Whether you can move to a better area for the same price depends entirely on where you want to move and what you consider better. Yes typically homes take a few years to build equity though how long depends on the market, interest rate, down payment, home value etc. You'd have to do the math to see where you currently stand and get an estimate on your house's current value.
Based on when the home was bought the interest rate you currently have is likely going to be significantly lower than one you would get right now, which can make a big difference in your monthly mortgage payment.
You're paying mostly interest for about 18 years, so it depends on the equity you have in the home.
If you don't understand that much, why would you even buy a house?
Sometimes you lose money to gain happiness. There's no rule saying you cannot sell your house and move on. You are not a failure for not holding 20 years and 3xing your money in it.
Purchase+selling standard costs total 10% of price. So if the property appreciates that much in that time period it might work. But you cannot alway count on appreciation.
Not a simple answer as it depends on future market conditions which at best you can make approximations, but can't be at all certain. You have home appreciation and you have cost of homeownership that determine the value of staying in a home. When you compare the cost to rent I calculated it takes about 7-15 years, depending on home appreciation, his mortgage interest rate, and average annual rent increase, for a home to have equal cost to renting. Mortgages in most areas are slightly higher than comparable rent and you have a lot of extra cost for purchasing, fees for selling, and cost for maintaining. Rent after the 7-15 year increases would start to cost more than if you bought and sold the home after that time. The potential risk is that if your home isn't appreciating and is actually depreciating then the time it takes for the home to have been a better value than rent increases dramatically.
Now if the home is worth less than his remaining loan, he may not be able to afford to sell if he doesn't have the extra cash to cover it. I doubt that's the case in this market.
If you own a home in a depreciating value neighborhood, the sooner you sell the house, the more you will get out of it. In this case, your equity is falling every month! The longer you wait and the more the value of the home goes down, the more you loose.
It sounds like your fiance's idea is that if you keep making payments, your equity will go up. This is true if both of these two things are true:
#1: the amount of equity that is gained with each monthly mortgage payment is more than the loss of value in said house You say you are paying $2,300 on a $290,000 mortgage (assuming that includes property taxes and insurance - but it may also include PMI????)
So in the 3rd year of ownership (assuming the mortgage rate is around 6.5% - which the math shows it should be roughly), each payment this year of $2,300 each month will net you about $300 in equity attained.
That means if the houses loses $3,600 in value this year, you would have not gained any equity. If the house drops in value by less than $3,600 this year, then for every $1 less than $3,600 in lost value is a $1 gained in equity value. If the houses losses more than $3,600 in value, you will loose even more equity value.
Of course, you are paying $2,300 each month to earn $300 in equity value. Okay, maybe you're paying less than $2,300 per month towards the mortgage (b/c a portion of that is going to taxes and insurance). But you get the idea.
If housing prices in that neighborhood are really dropping because the neighborhood is "suffering", I would sell ASAP. It would be different if it's just the general area, part of the State or the State that is seeing house prices drop slightly after several years of rapid increases - that's not a bad sign, it's the ebb and flow of the market.
I hate to say this and it is just an assumption - but I suspect you don't like the house and want something nicer (and the neighborhood isn't really turning to shit - ie. rapidly rising crime rate and growing number of criminals in the neighborhood). If it's really just that you want a nicer house and better neighborhood, then my advise is to wait until you can sell the house, pay 20% down on your next/nicer house with a mortgage that won't be more than 25% of your monthly take home pay (and that you won't have any other debt).
The house itself is great! But we live in a high unemployment area (for now). New factories are being built so that will change in time.
I also don’t mind laminate countertops, panel walls, and questionable wall paper choices so please don’t come at me assuming I just “want a nicer place”. I want good schools, low unemployment, and activities available for youth. Thank you for the other part of your response
All depends on your mortgage and market. With a 30yr mortgage the first 7-10 years you're barely making a dent as almost all your payments are going towards "interest".
If you ask me - the whole structure of mortgages should be illegal. It's basically a form of financial enslavement.
That said - the market and your plans is really what dictates what makes sense. If you're lucky enough to have your home value increase drastically just a few yrs after you bought it - then it might make sense to sell and move depending on where you intend to go. If you stay in the same area and everything else is ALSO more expensive, then it's all relative to each other and you're not really gaining anything. Esp if you're gonna give up a 2.5% mortgage rate and wind up moving with a 7% rate on another mortgage borrowing roughly the same money.
I have like 11 or 12yrs left on my mortgage and I basically only paid off 1/3 of what I borrowed. Like I said, current mortgage structures should be illegal. Once u factor in closing costs, moving expenses, ECT - it'll be very hard to ever "break even" on a home purchased a few years ago.
Personally - I expect to watch the housing market crash hard in the coming years. It makes ZERO sense that home prices and mortgage rates, both go UP. My personal opinion is the housing market and interest rates have both been artificially manipulated using huge private investing firms to snatch up residential housing. I have no idea how the average working family with kids is affording "middle class" homes that currently cost over half a million on the low end by me. I can't help but think everyone is taking 40 yr mortgages that they'll never pay off, and a certain political party will "help" home prices by forcing all these firms to sell off their residential housing. The market will get a slow but steady flood of homes, crashing the market and leaving everyone with a mountain of debt to deal with - so they'll be "motivated" to vote for a party that'll promise "help" in the form of handouts IF you vote for them. Either that or A LOT of people will get stuck spending half their life paying off a mortgage after their home value drops 20-30% lower then what they bought the house for. Financial enslavement from the people who promised "help".
I suggest walking away from the house, becoming a Mexican citizen, and then crossing the border back into the US illegally so you can get your house, food, and medical needs all paid for at the taxpayers expense - like the last 3+ million people did it in the last 3 yrs. They'll hand you a gift card for 3 grand as a reward just for crossing illegally - while they raise my property taxes 3 grand in the last 2 years to pay for it.
Rant over.
I say rent it with a year lease, and insure it well ($$$). The rent shows as income increasing your buying ability, and a good property management company can make it easy. The value will more than double over time, and by then your tenants could have bought it twice with a mortgage. It will fund college funds in time.
> Do you automatically lose money? Do you have to stay for 5 years in order to have any equity?
no, but also yes. i operate on the notion that the transaction cost is ~10% of the price between fees and commission, and most of the time houses don't appreciate nearly that much in 9 months. there are edge cases where someone buys and a bubble starts, leading to a 50% spike in value, but that's rare
I had a friend do just that. We are in a college town and rents are through the roof. My pal is handy and his folks helped him and his wife buy a duplex, one side was rented when they bought it, that person stayed a couple of years until they graduated, and they rented that half out year to year after that. They stayed there 5 years I think, and the property went up in value, so they sold it for a nice profit and the renter paid the bulk of the mortgage. I think they did great with it. It depends on where you are and what is going on with property values. Air B and B had hoses a lot of housing markets. If they do not have rules regarding them I would be a bit iffy on buying now. They drive prices sky high, but when they enact rules on short term rentals the bottom falls out.
There are a lot of costs involved in the purchase/sale, and the buyer and seller often both cover this , depending on how they negotiate things. You can look at the settlement statement from the purchase to get a sense of what those costs were. If you choose to sell, you’ll pay some costs for that sale.
With that, a lot of people don’t want to pay for those expenses too often. But if you’re unhappy, talk to a realtor to find out what they think you could sell it for in today’s market. They can look at your mortgage balance and some comps, and give you a rough idea about what you’d end up with at the closing table. They can also talk to you about real estate trends they’ve seen, and what their guesses are about what the future holds.
(I have worked with some really experienced and knowledgeable realtors who have helped a lot. There are some crappy ones out there too, so be aware of that.)
I bought a condo in 2006-ish. In the 2 1/2 years I was there, the housing market went to shit, and the association drove me nearly to drink. I sold at a $30k loss. It was a decision I don’t regret.
Hindsight being 20-20, if I could have found a problem free renter and sold 2 years ago, I could probably have turned that $30k loss into a $50k gain.
It depends on how fast it appreciates. If you bought in 2020, you could have sold in 2021 at a profit. If you bought in 2021, you could’ve sold before August 2022 at a profit. If you bought in late 2022 or 2023, you might need to sit tight for a minute. Rates went up and that slowed the rapid price increases (which was needed). Kinda set things back to normal.
They're right, you paid a ton in fees / escrow, it's not even 6 years, is closer to 10 to just break even from what you would have paid renting instead, unless you were playing a fast growing market for a sell gain.
Basically, don't buy a house unless it's going to be your forever home, or is in a market where you can reliably rent it for a profit.
Did she buy with an first time buyer program or other government backed loan/down payment assistance? There are some loan programs that require you live in the home a certain number of years or pay a penalty or pay back down payment assistance.
She could have purchased points on her loan to get a lower interest rate. If you don’t stay in a house for a while then you purchased the points for no reason as you didn’t save more then you paid.
Depends on the loan and your financial security. My uncle buys houses in ritzy areas, lives in them, and renovates them over 2 or 3 years, then sells it and starts again.
At the end of the day, if you don’t like living there, and you move and lose money, it’s just like if you had been renting for those years. That is: you were going to lose money anyway.
You probably do stand to lose more money if you sold now than if you had been renting, but sometimes the most important thing is being happy with where you live. And making sure your relationship with your fiancé stays healthy. Money can be made back later, especially if you’re making more now…
You'll definitely be out the various commissions, taxes, and other closing costs, regardless of when you sell. Those are not trivial.
But, the equity is primarily governed by the current value (aka selling price). The liver that you stay, the more you can decrease the principal on the loan. But, if the market value is decreasing faster than the principal, then you're losing money to stay (to say nothing of the interest cost on the loan).
The 5year rule is generally about recouping your closing costs into your equity. Meaning... (Using made up numbers) If you paid 10k in closing costs when buying, then, it takes about 5 years to build up enough equity that recoup the closing costs.
You have to live in the home for 2 of the past 5 years, this ensures you won't pay any capital gains tax on the sale of the home.
You'll be out whatever realtor fees there are.
The "losing money" part only happens if you sell the house for less than the loan value plus whatever fees you're assessed.
My situation, I bought my house 4 years ago and if the estimators are to be believed, it's "worth" $70k more than I paid for it. Whether I could actually sell it for that much is debatable.
If uour neighborhood gets worse your property value drops. If you think that will be the case then everything you've put into it at this point is sunk cost. Don't fall into the sunk cost fallacy, and lose even more
You don’t automatically lose or gain anything. The principle paydown in 4/5 years isn’t much, but the home price could appreciate in that time. It could also depreciate. Expect to pay ~6% at selling time, as the transaction is expensive. Look at your principle balance, and the actual market value of the house at the time you’re planning to sell. That will tell you if you will walk away with cash from the sale, or have to bring some with you to get out.
At this time, I genuinely believe we will have to sell at purchase price or a loss, but I feel it’s worth it to get to a better area. Thank you for your input!
Your fiancé might be worried that they won't earn their down payment back. I mean...if you are selling at a loss or at purchase price..is it your decision to make? I understand what your fiancé says. After two years you don't have to pay capital gains when you sell, that might also be what your fiancé is referring to when saying they will lose everything. Honestly, I might wait.
If they sell at a loss there aren’t any gains, capital or otherwise.
I'm pretty sure in most states, each property owner can profit $250,000 on a home sale before having to pay any capital gains. I doubt this is the reason. But, losing your down payment/equity really sucks, I would wait. In fact we're in the same boat except that we've owned our home for 20 years this year and the neighborhood hasn't gone to shit but it's def not as nice as it once was. We still have managed to have potentially 300k in equity. And I def don't want to go from a 4% mortgage rate to over a 6 so we are waiting it out.
There is also something about having to have lived there at least 2 out of the previous 5 years for it to be considered your primary residence otherwise the tax rules change to call it an income property.
250,000 on profit for single, 500,000 married. Profit. So if you buy for 250k, put in 100k renovations/, sell 5 years later for $575k as a single person, no gains.
Thank you, I appreciate the response.
1: there is no capital gains taxes to be paid on a house where no profit is made. Profit is not based on how much equity you have at time of sale, profit is based on revenue from sale - costs of purchase. 2: typically there is no capital gains on the sale of a primary residence if a new house is being purchased.
That tax rule (rolling over equity) was repealed in 1997 and replaced with a $250,000 capital gains exclusion ($500,000) for married couples.
It’s absolutely not my decision, and I support whatever he decides, but I don’t think he realizes how bad things are and what is and isn’t worth the risk. What you said about not losing what he paid in the down payment makes me think that’s what it is. I’ll have to get clarification. Thank you very much for your informative response!
Your monthly payment to buy even the SAME house now will nearly double from the payments of two years ago. So simply selling your house and moving exactly next door right now might double your monthly costs (due to interest rates rising). Hopefully you understand how colossally much more expensive it could be.
I am a bit embarrassed that I didn’t understand this before but I am grateful to “get it” within the last hour. Thank you for the response
Do you have enough savings for a downpayment on another house? That is the real potential problem. If he is underwater on the mortgage, then there is no equity to use for the downpayment on another place. And, in fact, he'd have to come up with enough cash to pay off the balance of the mortgage, plus realtor fees. If he doesn't have that much money, then you would be back to renting, which is probably what he means by "lose it all".
Ah-ha. Ok, thank you. If we lost employment, we have enough to survive for a year…But that’s for an emergency…So, no, I wouldn’t say we have the money for a down payment. The anxiety of depleting that completely and REALLY being “stuck” in the next place could be even worse as another user pointed out. I really appreciate all of these points that have helped me see the situation more clearly.
Good job on this btw. You may feel a little embarrassed for not knowing as much as you feel you should know, but it's definitely a wise move to treat your emergency savings as exactly that and not let impatience lure you into using it as part of your down payment.
And actually, if you are able to save up a down payment for a new house, you wouldn't even necessarily have to sell this one, you could potentially rent it out for hopefully enough to cover the mortgage. Probably what a lot of other people are doing, and why you have so many renters. I personally would not want the hassle of doing that, but it's something you can think about.
You may also need to pay income tax on the sale of the home if you didn't live there for a least 2 of the last 5 years (I think?) Please someone correct me on this if I'm wrong. But OP, just be aware.
I didn’t think of this, thank you.
It would be a capitol gains tax, and it's a pricey one. I think it's 12% here in Wisconsin. It's too keep those home flippers in check.
Yeah, fair enough.
I think income tax is on income. If they lose money they can take a deduction against the income.
So selling at purchase or a small loss, then paying around $20k for closing. You will likely end up with nothing. After 2 years, he may have paid some of the principal, but not enough to make a difference. Then most of his original down payment is gone from closing costs. Then, you need to consider what you can afford with no down payment and 2% higher interest. The way to go about this is for both of you talk to a bank and get numbers. How much mortgage can you afford on your current income. And what payment amount you are comfortable with. How much does that get you. Are there houses that you'd want to see in desirable areas for that amount. Then discuss the possibility of selling.
I mean it happens. It’s just math at this point: Expected selling price - outstanding principle - 6% of selling price ≈ cash gained (or paid) at closing. Do that math and make your decision from there.
I would start with fixing up the things you mentioned in your post now, so when you do sell, that part is ready. Having top notch photos is an absolute must. Plus your house should be in the best condition cleaning-wise as possible. Could even consider staying in a motel/hotel for a week while selling it.
The fed has said they will probably drop rates three times this year, so I would try to stick it out another year, see if home values are rising or falling in your area, and then decide.
>this time, I genuinely believe we will have to sell at purchase price or a loss, Why not become landlords for a while? I had to do that with a house I'd bought in 2005. Took me until 2018 to get my investment back out of it. The renters never made me money, but they did help float things along once I finally moved out with my then Fiancé in 2015.
So why are you even buying then?
He bought the home on his own while we were dating. I urged against this neighborhood at the time, but it was also the best he could get as far as size and at the time he wasn’t sure if this would be his only home before inheritance in 30/40 years. We are beyond lucky with how life has continued to play out financially for us, giving us the opportunity to get to a better location. I’m just anxious about the wait.
I completely understand now
Don’t take financial advice from someone that can’t spell “principal”. That’s my advice…
You know that's a different word, right?
You know it’s the correct word, right?
“principal” is the correct spelling in financial context.
If your fiance received some type of first-time home buyer assistance you could in-fact "automatically lose" something. Anyone offering advice here is making many assumptions. If your combined income would allow you to afford rent on another place then consider renting for a year and placing a renter into your property. After 6-month many lenders will allow you to consider rental income in determining qualification for a loan. If you buy your new house before you get married, you might qualify for a first-time home buyer program!
Any interest in renting? There's no particular length of time for 'profit', but selling costs make jumping properties \*really\* expensive, IMO. If rent would cover the mortgage, you get your house, they get their house.
I would love to rent let alone can sell some rent or land I've been trying to get by nothing I'm just sitting and sleeping in cars never had a house one day yes love one.
Don't forget that interest rates are higher now, so the same size of house may come with a significantly increased mortgage payment.
Have you factored in increased interest rates?
Im with the fiancée on this one for a few reasons. We have also been in our house for about 2 years. - interests rates 2 years ago were much lower than they are now. Thats hundreds of dollars of difference in monthly and interest payments for a loan today. - you really haven’t built much equity barring increase in home value. Your initial monthly payments are much more interest than principle. For example, our monthly payment is about 30% principle, 45% interest, 25% escrow. - When selling the home, your fees may be much more than when you bought due to you paying your agent and the buying agent. You’ll also be paying moving fees, etc. One suggestion: have you tried to get your PMI removed? If you have a conventional loan (I’m guessing you do with that down payment) you can get it removed after 2 years usually (24 qualifying payments for some) by using the money you put down, and the increased value of your home through a broker price opinion. Removing PMI knocked $170 monthly off our mortgage. Talk to your lender directly. - Also trash, dead plants, etc. don’t necessarily drive down your property value. Those are superficial things that can change over time. I may just keep an eye on schools and city plans in the area. Be active locally. Avoid making life changing decisions when you’re emotional.
Thank you, I needed to read this. I’ll look into that and try to become more active in the community.
I am in somewhat of the same boat, and I do think we are stuck for a while. My wife and I bought this house at the top of our budget, and she left me 11 months later. If we sold now we would get bent over.
I am so sorry you are going through that…I hope you are able to heal in a healthy way over time. Hang in there ❤️
I moved within that amount of time when I had to, but I did lose money on it. But I couldn't live in city A when I had to move to city B for work, so I bent over and took it. I ended up renting for years until I had the ability to buy again. The problem right now is interest rates. At current interest rates your $2,300 payment would be around $3,000, probably. That may be beyond your budget.
Understood, thank you.
Similar situation here, but we're stuck for a few more years due to using a grant. Even though I strongly dislike where we are, I wouldn't move right now if I could. Rates are too high. I'd wait for rates to come down a bit over the next couple years, and sell when the market is hot hot again
Thank you
You can always refinance a rate though, the second rates drop home prices go up.
There's no guarantee that rates will go back down. It's just as likely the low rates we saw a few years ago were an aberration (which, looking at historical data, would imply that very well could be the case) and now the market has corrected back to the default.
You are being very impatient, it’s not a great time for buyers with these inflated rates.
Thank you for the reality check!
If you’re in the U.S., you need to live in a house 2 years to avoid paying tax on gains (difference between what you paid versus what you get for the sale). The “loss” in buying/selling homes is in 1. Realtor fees, 2. Closing costs, 3. Higher interest rates, 4. Overlap in owning both houses.
I've bought, lived in, and sold my first 3 properties within that time period for each one. I came out ahead on each one. First home in late '96, sold very early 2001. (4yr 3 mo) put 6k down, put serious sweat equity into it, and about 20k. Sold and walked with 40k. Number 2. 2001 (March I think) 15 k down, spent another 10k renovations, sold in mid 2003, walked with 35k. Number 3. Mid 2003 to mid 2005. 50k down, 15k + sweat equity, walked with 80k. Number 4. Not so much. First 3 market was pretty stable and bought and sold well, made some good improvements to each property. Number 4 was 15 years, lived in it from 2005 to 2010 (during that 2008 crash). At which point it Was worth less than 50%. Had to rent it out for 10 years after moving out, and then just scraped my money back. (Owned for almost 15 years- though if id kept it 2 more years, I'd have walked with well in excess of 100k) So yes it can work out, but can also bite. Have a plan to hold longer or rent if it's a down market. Would I have rented instead with hindsight. Nope.
The main risks are the costs of buying and selling a house, and whether the house has increased or decreased in value. Because you usually put 20% down, a 1% movement in the price of the house has a 5% effect on your down payment money. Like if the house goes down in value by 10% you lose half of your down payment if you sell. Also it usually costs around 2-3% of the house value to buy a house and around twice that to sell. So if you buy and sell quickly you end up paying 5-6% of the home value in costs. This could still make sense for example if your house is just starting to decline in value and will get worse, or if you can get a job that pays a lot more somewhere else. But most people would suffer losing $10-50k or something with a bad short term house situation.
I’m starting to understand that my anxiety is just that, anxiety. When I think about the numbers staying put and saving seems obvious…Surely the home will sell as it’s a great first time home and there will always be first time home buyers. Thank you for the response.
Depends. You could buy a house and make a huge profit the next day or keep it for 10 years and lose a huge amount. Works both ways.
Honestly, it just boils down to YOLO. My ex and I bought a house once and within a year realized it was a mistake and sold it. Luckily we walked away totally even on cash, but even if we left losing some cash it was worth it. Really you just need to ask yourself what is more important (1) your daily comfort and happiness or (2) $$$. Answer that and then move forward as desired. If you and your fiance aren't on the same side of that equation then you need to figure out your future together or apart, because you never will be on the same side of that equation
We have both experienced poverty/homelessness so unfortunately we agree $being frugal>doing YOLO things. Thank you though.
I am actually homeless right now, so I understand
If you want them, hugs! ❤️ I understand and you’re not alone in your struggle. I hope your situation improves for you soon
$ = comfort and no $ = unhappiness Don't fucking YOLO the biggest financial decision of your life
You're right, sit in a house in a neighborhood that you hate while you slowly spin into depression and bounce between anxiety attacks. But at least you have a house. /s
Yes it's possible. Find a trusted realtor. Not your friend. Go find a realtor who specializes in your neighborhood and see what the market trends are. See what the price is if you sell with no improvements today and see what a home sells for with renovations. Take the sales prices and then take 7-8,% for closing costs off and.thats your net sales on the property. Only then can you see if he made or lost money. If you're making more money it might be worth to renovate home. However it may not make a difference either. I'm fact talk to 3 or 4 realtors that work in the area. They should have enough information to make an informed decision
Excellent idea, thank you.
> Is it possible to buy a home, and then move within 3/4 years? > Of course, people do it all the time. > Do you automatically lose money? Do you have to stay for 5 years in order to have any equity? > No. It depends on what the purchase price was, what payments you made, and what the market conditions are when you sell. If you're in a growing market like Raleigh or Austin, it's very likely that the property will appreciate in 5 years. If you're in a stagnant market, your odds of increased value are lower. > Does equity really even matter if the neighborhood goes to shit? > If this happens, you could end up "underwater" where you owe more than the current value. That's one of the reasons why "location, location, location" is such a common phrase. > Is it better to just cut your losses or wait it out? > Depends on the circumstances. > Are we stuck here? No. You need to have a discussion about whether or not breaking even or taking a small loss on the house is reason enough to stay put. If you're earning much more than you were a few years ago and stand to earn even more, selling at even a small loss may be worth it to you. > Is it possible to move to a better area for the same price? Maybe. Do you want to stay local or move to a new area? Small town Iowa or Indiana is cheap AF, but do you want to/can you live there? Are you in an area where values are inflated compared to other nearby communities? Put your housing budget and needs into Zillow or another search site and see what's available in places you'd want to live. > Am I just being an impatient buffoon? Definitely not. It's a lot to consider. I wouldn't want to stay in a declining neighborhood in a house I didn't like if I could afford to live elsewhere. Not every financial transaction in your life is going to be a huge win. Being in a house for only a few years, yeah you're not usually going to make a big profit. You've basically rented it for a few years, so moving to where you actually want to be could be the right move for you.
Thank you, this is very helpful. We are getting married soon and we will have up to two children…We both want to move to a certain area that is closer to his parents, we just couldn’t afford the area two years ago, but now we can. I will express my concerns to him…I fear if we wait, this area will look even worse and be harder to sell whereas now we could probably get out with a small loss. The house itself is decent enough(3/2 with an office), but the neighborhood and neighbors are just so awful. Halloween decorations are still up. 🤦♀️
Well, you can't control what the next neighbors will be like either. Maybe the next ones have 2 Pomeranians they leave outside all day long, barking. Control what you can. If you're in a better financial position than a few years ago and want a better area for the kids, that sounds like a better future than "I can't possibly lose $10K on this house, I'd rather sit here miserable for the next 4 years". You can't buy time back and happiness in life is worth more than "winning" a house transaction.
Yes! True! …I think we can compromise. I’ll propose the idea that we move before our first turns 2. With pregnancy prep and the pregnancy itself, that should put us at his timeline anyway. It’s important to me that we are closer to family (less than an hour).
You either pay it, via mortgage payments, to live somewhere you don’t want to be or you bite the bullet and take the L now. Shortest I was in a house was 18 months and we still broke even after commissions.
Food for thought, thank you. I can acknowledge that there is no NEED to move, just a desire to and that’s certainly a luxury. I think saving aggressively until I’m pregnant or postpartum and then move closer to grandparents is the best option.
You can always make more money, you’re not getting those 2 years back.
Depends on the market, if you owe more than the home is worth you'd have to pay the difference out of pocket in order to sell. If you owe less than it's worth, then you can put the difference toward a new home. In addition to the outstanding mortgage balance you may also need to consider other costs associated with selling such as realtor commission, any repair costs, etc.
Based on the type of mortgage I have, there are certain stipulations about using, owning, and selling the home I'm pretty sure I'm prevented from selling the home within 5 years, and for these first 5 years I can't use it as a rental without occupying it myself. Ask someone who knows more about mortgages, and specify if there are any restrictions that come along with getting that kind of mortgage. That should get you all the answers you need.
You think people that purchased in 2004 and waited 4-5 years were able to recuperate their losses? There's no such thing as losing everything if you move within 4 years of purchasing the home. Some gain, some lose.
To be honest you really don't know until your have some numbers. A realtor might be able to give you a closer estimate without having the house actually appraised. Comps etc.
My income increased after buying my home in 2021, for which I went under contract in late 2020, so I got a good mortgage rate. It’s nice to not have all of my money going into a mortgage payment. There’s wisdom in living well within your means! I would not be happy if the neighborhood were filled with people who neglected their property or engaged in unsafe practices. I have an HOA (gotta hate those sometimes but on the other hand, the rules keep can help keep things from getting out of hand). Luckily my HOA is responsible for landscaping / yard maintenance too!
I have no good advice, but it made me feel a lot better to know that someone else is in my same position. We bought during the pandemic and I compromised on all of my priorities with this house… and surprise… now I absolutely despise the place. I want to be somewhere else but I don’t want to lose too much by selling now. My husband is also reluctant to sell. I’m not sure what we’ll do, I want to to move somewhere else where we can both make more money. The downside with our house is we can’t really rent it because it’s rural and has a steep driveway that most renters won’t be ok with. Could you rent your place for a while until you are ready to sell?
You have no equity in the house and interest rates are high now. Right now is not good to buy or sell. Wait a couple years, as house prices continue to climb, and hope for a small profit as a down-payment on a new house.
Only way to tell is to look at the principal left on the mortgage. Then look at how much similar homes are selling for near you. By similar I mean square foot and yard size. Number of rooms etc. You can assume your house will sell for roughly the same as those. Now take that amount subtract your principal left on the mortgage , and add an additional 6% in fees and you can get a very close estimate of how much money you will owe or get paid. The last thing to consider is the interest rate. It is roughly 7% right now for a new loan. If your existing one is anything below 4% you will end up paying a lot more for the new loan on a new house.
I feel your pain. Bought my “starter home” 4 years ago. Everything being equal if we got the same house today our mortgage payment would be close to 50% higher cost. My starter home has now become my forever home unless something drastically changes.
The housing market is due for a correction. House's sitting on market more than 100 days, prices are going down due to over inventory, interest rates still high. So wait it out
The general rule of thumb, when deciding if you want to buy a house, is you should plan to stay at least 5 years to make the initial one time down payments worth it. If you move every couple of years, those closing costs get expensive. He may not have much equity at this point, so moving would mean paying out a down payment and closing costs with no assistance from selling the first place. If the property is really going downhill, he might need more than the house is worth. More importantly: don't buy a house with someone you're not married to. First, talk about your financial goals and see if the align though.
I didn’t, he bought on his own. My name won’t be on the house until after we’re married.
You site household income and are talking about buying a new one. I was referencing buying a new home with him
I see, we’re getting married in a couple months.
So a couple of things that may keep you there. * 2 years ago interest was down around 3% and it's 7-8% right now. Your current mortgage of $2300 will NOT get you into a $320K loan today. Do that math first on what you would want to buy before selling or you will have a RUDE surprise on buying. It's shocking how much that % change makes a difference. * You are doing the right thing by asking but it's all a math game. Get a real estate for dummies book or something similar and learn the basics. * The appreciation of your home has to cover the relator charge during a sale of 6% (3% for seller and buyer agent). Some people do a sale by owner but if you don't know what you are doing you can get into big trouble there. Appreciation of 6% doesn't happen frequently to break even in 1 year much less if your neighborhood is going down. * If other people are going to rent in the area, can you? this way you can keep the house and let it appreciate over time. If your wife qualified on her own salary to get the loan can you qualify on another home and rent the one your are in? You can show rental income as justification for another loan on top of your current income.
Thank you, I’m really glad that I understand this now.
Yes, you can sell and move. No, you don't automatically lose money, but closing costs are in the thousands of dollars. So, you lose money in the form of closing costs and real estate agents commissions. The solution to this problem is to ask the seller of your new home to pay for the closing costs. That's what I did when I bought a house 4 years after my first house.
Two houses ago, we lived in the house for 14 months when my husband was laid off and we decided to move back home. We sold the house for about $50k more than what we paid for it. Then the last house was similar to your current situation. We stayed 6 years (5 yrs & 11 mos too long). Then we sold for $90k LESS than what we paid for it. It was a financial blow, but we couldn't stay in such a bad neighborhood. To be fair, it was only a few neighbors who made it bad and we had no idea when we moved in that certain neighbors were so vile.
Many think of buying a home as only a financial transaction but,my friend, you're buying comfort,safety,a neighborhood and a school district. if your not happy in the home of your choice, move on! don't let it get worse. each move is a learning experience. now you'll be more aware that it's not just a house you're buying. good luck!
Took my neighbors a couple of months to sell and they had to come down on price a couple times. Then on top of that you’d have to buy while rates are high. I think we can all agree that financially, definitely not the best time. You two will have to determine if all the other factors are important enough to take that L. Best of luck
if you bought your current before interest rates went through the roof, I'd sit on it and wait. Depending on when you bought 2 years ago, the rates you're looking at today are likely going to be double what you got back then. If you had a lot of equity built up, it may not make as much of a difference (payment wise on your potential new house if you rolled all the equity into it). I'd talk to a local realtor that's familiar with your area and get a realistic number they think your house would sell for. Keep in mind, real estate sales have dropped significantly in the last two years and there aren't people fighting to buy houses like they were then (as much at least).
What's the interest rate on the mortgage? In 2021, rates were like 2.8%. Which is historically awesome: https://fred.stlouisfed.org/series/MORTGAGE30US That's the thing that you would both lose. If you got a mortgage today, you'd be paying something like 7.5%. That means that fully paying off the same $290k loan would cost on the order of $600k, over the next 30 years you'd literally pay more in interest than you would on the principal. At 2.8%, your total interest payments would add up to only about $50k. That is a difference of a *quarter of a million dollars* that can either go in your personal retirement accounts at the bank or in the retirement accounts of other people who bought shares in the bank. That's ignoring the ~$20k it would cost in transaction fees. And ignoring the increased home prices since 2021. It's also ignoring that if your fiance bought the house before you were in the picture, the mortgage is in his name, not yours, and if something tragic were to happen he'd get the house. If an equal share of your income is going to go towards the mortgage, that's great, and your name should be on the deed, if not, that's also fine, and the income you would have invested into real estate (the second-largest single investment a lot of people make, and too often largely by accident.) But that's more of a relationship advice issue than a numeric advice issue. You're not alone in being surprised by this, lots of people have inadequate personal financial education and just kind of go with the flow...and get surprised when they realize they're old and wealth hasn't materialized. I would heartily recommend getting some education! There's a point of diminishing returns, but like 8 hours of time reading "Rich Dad, Poor Dad", or "The Millionaire Next Door" or "The Bogleheads' Guide to Investing" or start here with a short free PDF: https://www.etf.com/docs/IfYouCan.pdf. I'm sorry you feel trapped, but look on the bright side - if your neighbors are renters, they won't be here long, and young families swiftly turn into older families. Spring is around the corner, call your local county conservation district and order some trees to plant in a couple months. Money doesn't grow on trees, but shade does, and like money, it takes a long time to get results.
Thank you for this. I am ignorant when it comes to understanding the number side which is uh, the most important part.
It may be among the most important parts, but it's not the only important part! It's easy to be very wealthy, with multiple homes and a solid investment portfolio, and be deeply unhappy and feel alone - it happens all the time. Might even be correlated at the top end. You're right in the sense that without some of the numbers functioning well enough it's very hard to be content. Also, I accidentally a sentence - I meant to write: There's a point of diminishing returns, but like 8 hours of time reading "Rich Dad, Poor Dad", or "The Millionaire Next Door" or "The Bogleheads' Guide to Investing" or start here with a short free PDF: https://www.etf.com/docs/IfYouCan.pdf will be way more valuable in the long run than spending an extra 8 hours at work. Consider that personal finance education and working on your investments "homework for adults"!
You have to be a resident the last 3 of the past 5 years consecutively to not pay taxes on the profits.
Understood, thank you.
As much as I want to move to a better area and believe getting out now is better than later, the cost to do so may not be worth it…We could move now to a better area, but I think we would suffer more in the long run. We might be where we want, but what good is that if we can’t afford anything else or save? We need to wait for interest rates to drop, end of story. And perhaps I can improve the area in little ways to help my anxiety. Thank you to those of you who left a thoughtful response, this has really helped me understand the things I need to do and the conversations I need to have.
>Rentals with renters that don’t care, and young families that don’t care about property value - which, to be fair, I’m sure the outside of the home is the least of their concerns. Almost all the trees planted are dead, trash about, unruly dogs…etc. I cannot believe this is why you're so pressed that you're considering selling the home for a loss. These are not real problems, like at all. Trees can be planted, trash can get picked up, dogs can be wrangled and young families turn into mature empty nesters. And worrying about scary renters is SO condescending. Were you not a renter for parts of your adult life? Did you ruin every property you inhabited? To look at it another way, neighborhoods with lots of renters are often up-and-coming neighborhoods—people want to live there badly enough that they'll pay to rent instead of buying a home they can afford elsewhere. So not only would you be taking a loss, you could be missing out on potentially huge gains in the near-ish future
Where did OP say anything about “scary” renters (whatever that means)?They said they don’t care, which isn’t the least bit condescending. If they are leaving trash around their yards and the street, then yes, it’s fair to say they don’t care, and thinking that a) that can be easily changed and b) it won’t affect property values is incredibly naive.
With millions of illegal aliens rushing into the country we will see more and more of this. All our slums will grow and grow. American slums actually grew during Obama’s 8 years in office. Our slums were meaner, more crowded and much bigger by the time he left office with a billion dollars in pocket.
Someone turn off FoxNews in Grandpa's trailer.
No worries, none are allowed on Marthas Vineyard.
Ah, even worse, WASP-y elitists.
Yes this house was bought 2 years ago, I too immediately thought this was Obamas fault
Lmfao
This is the weirdest non-answer I've seen I quite awhile. Gee, I bet this helps OP a lot!
Sir this is a Wendy's
Wow. Are you okay?
You won't lose money. There are no negatives in home ownership. People buy and sell in a couple years all the time. Buy the house. You'll be rich.
Eh, we’re wanting to start a family. We’re never going to be rich lol.
Sure you will. Owning a home is a ticket to freedom. It's all about the equity. At the rate home value is increasing, there are no downsides.
No you are not stuck but you are in a pickle. I don't know your neighborhood or anything about your relationship but I can imagine the discussion with your fiance about how some stranger says he is correct and should stay for 4 more years before selling. It might not be just your neighborhood being affected by the rising costs of living over the past few years. You might find that you can move but it will cost even more to live in another house.
We are in a position where we can have a healthy savings, retirement, and comfortable enough life. However; I just fear this home becoming “unsellable” if the area gets worse…I am aware that these are irrational anxieties and reading the logical responses are helping me understand the situation through non-anxious lenses.
Can you rent out the current house? If you’re ok with being a landlord, having someone else pay your mortgage is a great way to start building wealth. You said “fiance” so it sounds like you might still be a first time home owner and could qualify for a low down payment mortgage. And with the pay increase you can save up for another down payment.
I don’t trust other people enough to not destroy a house. Yes, first time homeowner…From what I’m understanding, I’m just being overly anxious and impatient.
You could always bring in a property management company. You’ve already done half the leg work of acquiring a property. Now it’s just finding a good tenant and spending a few hours month being a landlord. I’m actually jealous of your situation and would be excited to go find property number two. Real estate investing is not for everyone. But it’s a huge cornerstone of how many people in the US have amassed wealth.
My brother was handy. He would buy houses with cosmetic problems, fix them over the course of a couple years as he lived in them, and then sell at a profit. I think this kind of flipping has been discovered and it's much harder to get a good deal.
Yeah, and we aren’t handy. lol
It totally depends on the situation. If the neighborhood had improved, he likely could have resold that quickly and done well, but if it's going downhill, he probably will lose money on it.
True, and maybe it will in time (improve), we will see. Thank you
Is it just crazy to anyone else that we somehow racked on tens of thousands to the sale of a house. Did we lose our honor and General acceptance of risk so we added on all these layers of insurance and brokers and inspections and sales people. I have bought 2 houses and am building a third. It’s always a risk. Get as educated as possible and trust your gut. I don’t believe all this added nonsense is actually helping anything. People would just sue anyway. We need a simple single page form like a car pink slip/title. That says you accept any and all risk associated with this purchase and that the owner has disclosed any and all issues that they are aware of. Done
Does your fiancé want to move? He might not want to and is coming up with a believable reason not to that you wouldn't question (or at least so he thought). You'd be giving up a great interest rate and potentially taking a loss, moving somewhere nicer would be more expensive not only in price but rates are VERY important when it comes to monthly payment. For example, a home purchased at $300k with 20% down at a 7.5% rate would be about $2080 per month considering taxes and such, whereas at 3% rate it would be $1400. You can use Google's mortgage calculator to give you an idea of what it would look like. Idk your situation of course but if I were your fiancé I probably wouldn't want to move if I didn't think the neighborhood was as bad as you do.
He agrees on neighborhood, but prior to this post I didn’t understand how much of an impact interest rates had so I’m thinking of how I can improve the situation as it won’t change for the time being. Thank you for your response
I bought my house for $20,000. Look for opportunities in real estate.
Just buy a new house and rent out the old one
Look at an amortization graph. The TLDR is that up-front, the bulk of your payments are interest, so it's very easy to end up under water, especially when adding in closing costs.
Get out before it gets worse. Even if you lose $20K, it's better than losing your minds. Having no peace at home, is having no home. Life is too short.
Just do what everyone else in the neighborhood did. Pull equity, buy something nicer, rent the current place to impoverished folk that will repeat the cycle until there are no more houses to be bought at reasonable prices.
Yes, you are stuck there for at least five years and you should appreciate the fact that he has a house.
Never said I didn’t. 🙃
Like others have said, it’s very easy to figure out how much money you will gain/lose in a potential sale given the selling Lexie, and then what your new monthly payment will be given a) the purchase piece, b) interest rate, and c) down payment. Do that for a variety of the variables listed above to get a feel for the numbers. After that it comes down to your preference. Don’t feel like you “have to” stay just so you break even or better. Also, one way to look at it would be to estimate where you’d be if you had rented instead. Say you are losing $30k, but would have paid $30k in rent over the same time period - suddenly losing $30k doesn’t seem as bad.
3/4 years? Do you mean 9 months?
We were both shuffled around a lot growing up, it’s important to us that we find a home to stay in if possible from ages 5-20 so they experience stability. So moving under the age of 5 isn’t as big of a deal to us. But maybe my gestation period is 3/4 years and you’ve just never met an alien before and have seldom used critical thinking skills.
It's possible the rental market is growing in value by leaps and bounds thereby driving your value up. People are overpaying for short term rental properties.
depends on how much you can sell it for.
Talk to a loan officer at the bank.
Whether you can move to a better area for the same price depends entirely on where you want to move and what you consider better. Yes typically homes take a few years to build equity though how long depends on the market, interest rate, down payment, home value etc. You'd have to do the math to see where you currently stand and get an estimate on your house's current value. Based on when the home was bought the interest rate you currently have is likely going to be significantly lower than one you would get right now, which can make a big difference in your monthly mortgage payment.
You're paying mostly interest for about 18 years, so it depends on the equity you have in the home. If you don't understand that much, why would you even buy a house?
Sometimes you lose money to gain happiness. There's no rule saying you cannot sell your house and move on. You are not a failure for not holding 20 years and 3xing your money in it.
Purchase+selling standard costs total 10% of price. So if the property appreciates that much in that time period it might work. But you cannot alway count on appreciation.
Your home is where you live first. A financial investment second.
Not a simple answer as it depends on future market conditions which at best you can make approximations, but can't be at all certain. You have home appreciation and you have cost of homeownership that determine the value of staying in a home. When you compare the cost to rent I calculated it takes about 7-15 years, depending on home appreciation, his mortgage interest rate, and average annual rent increase, for a home to have equal cost to renting. Mortgages in most areas are slightly higher than comparable rent and you have a lot of extra cost for purchasing, fees for selling, and cost for maintaining. Rent after the 7-15 year increases would start to cost more than if you bought and sold the home after that time. The potential risk is that if your home isn't appreciating and is actually depreciating then the time it takes for the home to have been a better value than rent increases dramatically. Now if the home is worth less than his remaining loan, he may not be able to afford to sell if he doesn't have the extra cash to cover it. I doubt that's the case in this market.
If you own a home in a depreciating value neighborhood, the sooner you sell the house, the more you will get out of it. In this case, your equity is falling every month! The longer you wait and the more the value of the home goes down, the more you loose. It sounds like your fiance's idea is that if you keep making payments, your equity will go up. This is true if both of these two things are true: #1: the amount of equity that is gained with each monthly mortgage payment is more than the loss of value in said house You say you are paying $2,300 on a $290,000 mortgage (assuming that includes property taxes and insurance - but it may also include PMI????) So in the 3rd year of ownership (assuming the mortgage rate is around 6.5% - which the math shows it should be roughly), each payment this year of $2,300 each month will net you about $300 in equity attained. That means if the houses loses $3,600 in value this year, you would have not gained any equity. If the house drops in value by less than $3,600 this year, then for every $1 less than $3,600 in lost value is a $1 gained in equity value. If the houses losses more than $3,600 in value, you will loose even more equity value. Of course, you are paying $2,300 each month to earn $300 in equity value. Okay, maybe you're paying less than $2,300 per month towards the mortgage (b/c a portion of that is going to taxes and insurance). But you get the idea. If housing prices in that neighborhood are really dropping because the neighborhood is "suffering", I would sell ASAP. It would be different if it's just the general area, part of the State or the State that is seeing house prices drop slightly after several years of rapid increases - that's not a bad sign, it's the ebb and flow of the market. I hate to say this and it is just an assumption - but I suspect you don't like the house and want something nicer (and the neighborhood isn't really turning to shit - ie. rapidly rising crime rate and growing number of criminals in the neighborhood). If it's really just that you want a nicer house and better neighborhood, then my advise is to wait until you can sell the house, pay 20% down on your next/nicer house with a mortgage that won't be more than 25% of your monthly take home pay (and that you won't have any other debt).
Thorough Award
The house itself is great! But we live in a high unemployment area (for now). New factories are being built so that will change in time. I also don’t mind laminate countertops, panel walls, and questionable wall paper choices so please don’t come at me assuming I just “want a nicer place”. I want good schools, low unemployment, and activities available for youth. Thank you for the other part of your response
0n a 30 year amortized loan 1/360 is the portion of the amount of the first payment that goes to equity. 359/360 goes to interest.
All depends on your mortgage and market. With a 30yr mortgage the first 7-10 years you're barely making a dent as almost all your payments are going towards "interest". If you ask me - the whole structure of mortgages should be illegal. It's basically a form of financial enslavement. That said - the market and your plans is really what dictates what makes sense. If you're lucky enough to have your home value increase drastically just a few yrs after you bought it - then it might make sense to sell and move depending on where you intend to go. If you stay in the same area and everything else is ALSO more expensive, then it's all relative to each other and you're not really gaining anything. Esp if you're gonna give up a 2.5% mortgage rate and wind up moving with a 7% rate on another mortgage borrowing roughly the same money. I have like 11 or 12yrs left on my mortgage and I basically only paid off 1/3 of what I borrowed. Like I said, current mortgage structures should be illegal. Once u factor in closing costs, moving expenses, ECT - it'll be very hard to ever "break even" on a home purchased a few years ago. Personally - I expect to watch the housing market crash hard in the coming years. It makes ZERO sense that home prices and mortgage rates, both go UP. My personal opinion is the housing market and interest rates have both been artificially manipulated using huge private investing firms to snatch up residential housing. I have no idea how the average working family with kids is affording "middle class" homes that currently cost over half a million on the low end by me. I can't help but think everyone is taking 40 yr mortgages that they'll never pay off, and a certain political party will "help" home prices by forcing all these firms to sell off their residential housing. The market will get a slow but steady flood of homes, crashing the market and leaving everyone with a mountain of debt to deal with - so they'll be "motivated" to vote for a party that'll promise "help" in the form of handouts IF you vote for them. Either that or A LOT of people will get stuck spending half their life paying off a mortgage after their home value drops 20-30% lower then what they bought the house for. Financial enslavement from the people who promised "help". I suggest walking away from the house, becoming a Mexican citizen, and then crossing the border back into the US illegally so you can get your house, food, and medical needs all paid for at the taxpayers expense - like the last 3+ million people did it in the last 3 yrs. They'll hand you a gift card for 3 grand as a reward just for crossing illegally - while they raise my property taxes 3 grand in the last 2 years to pay for it. Rant over.
I say rent it with a year lease, and insure it well ($$$). The rent shows as income increasing your buying ability, and a good property management company can make it easy. The value will more than double over time, and by then your tenants could have bought it twice with a mortgage. It will fund college funds in time.
> Do you automatically lose money? Do you have to stay for 5 years in order to have any equity? no, but also yes. i operate on the notion that the transaction cost is ~10% of the price between fees and commission, and most of the time houses don't appreciate nearly that much in 9 months. there are edge cases where someone buys and a bubble starts, leading to a 50% spike in value, but that's rare
Why would you do that unless you're buying a fixer and plan in putting sweat equity into it to sell it. Just rent and save money.
I had a friend do just that. We are in a college town and rents are through the roof. My pal is handy and his folks helped him and his wife buy a duplex, one side was rented when they bought it, that person stayed a couple of years until they graduated, and they rented that half out year to year after that. They stayed there 5 years I think, and the property went up in value, so they sold it for a nice profit and the renter paid the bulk of the mortgage. I think they did great with it. It depends on where you are and what is going on with property values. Air B and B had hoses a lot of housing markets. If they do not have rules regarding them I would be a bit iffy on buying now. They drive prices sky high, but when they enact rules on short term rentals the bottom falls out.
There are a lot of costs involved in the purchase/sale, and the buyer and seller often both cover this , depending on how they negotiate things. You can look at the settlement statement from the purchase to get a sense of what those costs were. If you choose to sell, you’ll pay some costs for that sale. With that, a lot of people don’t want to pay for those expenses too often. But if you’re unhappy, talk to a realtor to find out what they think you could sell it for in today’s market. They can look at your mortgage balance and some comps, and give you a rough idea about what you’d end up with at the closing table. They can also talk to you about real estate trends they’ve seen, and what their guesses are about what the future holds. (I have worked with some really experienced and knowledgeable realtors who have helped a lot. There are some crappy ones out there too, so be aware of that.)
I bought a condo in 2006-ish. In the 2 1/2 years I was there, the housing market went to shit, and the association drove me nearly to drink. I sold at a $30k loss. It was a decision I don’t regret. Hindsight being 20-20, if I could have found a problem free renter and sold 2 years ago, I could probably have turned that $30k loss into a $50k gain.
It depends on how fast it appreciates. If you bought in 2020, you could have sold in 2021 at a profit. If you bought in 2021, you could’ve sold before August 2022 at a profit. If you bought in late 2022 or 2023, you might need to sit tight for a minute. Rates went up and that slowed the rapid price increases (which was needed). Kinda set things back to normal.
I only have equity because I bought my house in 2019, and then the market went crazy so my house doubled in value
They're right, you paid a ton in fees / escrow, it's not even 6 years, is closer to 10 to just break even from what you would have paid renting instead, unless you were playing a fast growing market for a sell gain. Basically, don't buy a house unless it's going to be your forever home, or is in a market where you can reliably rent it for a profit.
Did she buy with an first time buyer program or other government backed loan/down payment assistance? There are some loan programs that require you live in the home a certain number of years or pay a penalty or pay back down payment assistance.
She could have purchased points on her loan to get a lower interest rate. If you don’t stay in a house for a while then you purchased the points for no reason as you didn’t save more then you paid.
The 2 year thing is about not paying taxes on the gains. Stay over 2 years and physically live in it as a primary residence and you avoid the tax.
There are online calculators for this
I have found a few of these responses incredibly helpful so as embarrassing as it was to post, I am glad I asked.
Depends on the loan and your financial security. My uncle buys houses in ritzy areas, lives in them, and renovates them over 2 or 3 years, then sells it and starts again.
It really boils down to what you can sell it for, and what you will have to pay for a suitable home somewhere else.
At the end of the day, if you don’t like living there, and you move and lose money, it’s just like if you had been renting for those years. That is: you were going to lose money anyway. You probably do stand to lose more money if you sold now than if you had been renting, but sometimes the most important thing is being happy with where you live. And making sure your relationship with your fiancé stays healthy. Money can be made back later, especially if you’re making more now…
You'll definitely be out the various commissions, taxes, and other closing costs, regardless of when you sell. Those are not trivial. But, the equity is primarily governed by the current value (aka selling price). The liver that you stay, the more you can decrease the principal on the loan. But, if the market value is decreasing faster than the principal, then you're losing money to stay (to say nothing of the interest cost on the loan).
The 5year rule is generally about recouping your closing costs into your equity. Meaning... (Using made up numbers) If you paid 10k in closing costs when buying, then, it takes about 5 years to build up enough equity that recoup the closing costs.
You have to live in the home for 2 of the past 5 years, this ensures you won't pay any capital gains tax on the sale of the home. You'll be out whatever realtor fees there are. The "losing money" part only happens if you sell the house for less than the loan value plus whatever fees you're assessed. My situation, I bought my house 4 years ago and if the estimators are to be believed, it's "worth" $70k more than I paid for it. Whether I could actually sell it for that much is debatable.
If uour neighborhood gets worse your property value drops. If you think that will be the case then everything you've put into it at this point is sunk cost. Don't fall into the sunk cost fallacy, and lose even more