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Is this crazy?
I hope you all can offer some opinions on my situation as its easy always beleive the "grass is greener". We are owe about $15,000 more on our home than what comps in our area are selling for. We have accepted our fate and are paying about $1500 a month in additional payments to get the principal down to a point where we can (hopefully) sell the house. Every spare penny of income is going towards this: tax return, no eating out, pay the bills only.
We want to move because the location of our current house makes for a long commute for both myself and my husband. Plus, its 850 sqft and we have a one year old.
Is this a crazy plan, or would we be better off staying put? BTW we would buy the next house with a VA loan, so we dont need to have a down payment.
This sounds like a stupid question, but how does pre-qualification work if you already have a mortgage? Is final approval contingent upon full repayment of the other loan? How do they decide how much you can be pre-approved for? Thank for your help.
Re: Is this crazy?
I don't think your plan is crazy. It seems like you have a clear vision of where you want to be and sometimes you win by losing. You are willing to make the sacrifices necessary to get out. 850 sqft seems very tight for three and you will get back time off of your commute which is valuable. Did you consider making your current home a rental?
You would still have to qualify for a mortgage. If your income is not enough to carry two mortgages, final approval may be contingent upon the sale of your home. If you decide to rent your current home, you may need to have a tenant in place before receiving final approval. The loan officer would count your current mortgage and taxes and home insurance as part of your debt and use a debt to income ratio to determine how much you can be preappoved for. Generally,you shouldn't spend more than 40% of your income for housing. You always want to make sure you have some money in your savings and are saving enough for retirement.
Did you buy your current home with a VA loan, and are both your names on the loan?
If so, you have to sell your home first. After that, you can apply for VA loan eligibility, then pre-approval.
http://www.valoans.com/va_article.cfm?id=152
I don't think its crazy to try to pay down the mortgage so you can get out. It's either that, or coming up with a lump sum to bring to closing.
Click it if you can't say it!
You do realize that you are selling at a loss regardless of what your mortgage balance is right? From a tax perspective, your sales prices minus (your purchase price + any improvements) is your tax gain/loss and the gain on the sale of a residence is not taxable up to $500k so long as you meet a few requirements. It has nothing to do with your mortgage balance. So when you say you are selling at a loss, it doesn't make any differences on your taxes as you don't get any tax benefit from it.
OP- we were preapproved based on the condition that we have to sell our old house before our financing was cleared to close on the new house. I would say it's pretty much a wash as long as your $1500/month goes straight to principal. As long as you are sure you want to try and sell sometime soon then it's fine to pay down principal. I'd only hesitate because if there is an actual emergency then you've sunk all this money into paying down your mortgage and it's not sitting in a bank account easy to access.
Thanks for the reassurance everyone. I hope it works out for us. Yes, the current home is on VA and both of our names are on it. This is why we cant rent the house, you can only have one VA loan at a time.
So, it seems like a few of you said that your final loan approval is going to be ok as long as you sell the current one first. I guess the only hiccup here is looking for a short-term rental. Our current IDR is like 25%, and with the mortgage we hope to have it would be more like 36% so hopefully this is not a problem. Does anyone know if the process is any easier if you go with someone you have had a mortgage with before?