Selling house after 3 years question

DougK62

Diamond Member
Mar 28, 2001
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So I'm thinking of moving out of my house after 3 years. I'm at the point where I'm looking into this financially and seeing if I can do it. I have not had my house appraised yet, but from checking out recent sales in the area it's safe to say that the house has appreciated at a "normal" rate for here in the midwest. Do people usually come out ahead when selling a house? I'm worried because I only have 3 years of payments into it. My main confusion is in how my mortgage is taken care of when I sell the house. Say I sell for the appraised (more than I paid) price. Does this chunk of change pay off my mortgage? What about all of the interest that the lender will be missing out on? I must be missing a piece of the puzzle because people sell houses all the time and are just fine...

Someone give me some nuggets of wisdom.

 

vi edit

Elite Member
Super Moderator
Oct 28, 1999
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Where you take it up the dumper in house sales is in realtor fees (~6%) and then the closing costs on the next house.

You don't owe on interest you haven't paid.

 

mugs

Lifer
Apr 29, 2003
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You probably will not come out ahead for the reasons vi_edit mentioned. One of my profs in college showed us a spreadsheet that compared buying to renting, and came to the conclusion that you should only buy if you're going to be there at least 5 years.
 

LAUST

Diamond Member
Sep 13, 2000
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IIRC if you sell before 2 years is when you have to pay capitol gains taxes on the profits gained, with the ability to write off certain upgrades like bringing electrical up to code. Not 100% sure on that...

vi is right about the Realtor/closing and Intrest

The only time you really come out ahead is once you have owned it for a decent amount of the loan or made principal payments.
 
Jan 18, 2001
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Originally posted by: mugs
You probably will not come out ahead for the reasons vi_edit mentioned. One of my profs in college showed us a spreadsheet that compared buying to renting, and came to the conclusion that you should only buy if you're going to be there at least 5 years.
that depends on a lot of factors. last three years have been good to home owners.

I would say there is a good chance will will clear about 5-8% of the price that he originally paid. UNLESS he overpaid, or let the house has fell into disrepair. Figure 4% increase / year that equals about 13% over the three year period, minus the 6 % realtor fee. Plus he has probably paid 1 % in equity payments, more if he is paying extra. of course, that money will go into a NEW house, which is also subject to the same type of inflation. However, interest rates are probably better now than 3 years ago so he shoudl be able to get more house for the same money, should he choose to buy again.

If you don't buy another house you might be liabel for capital gains.
 

dman

Diamond Member
Nov 2, 1999
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Call your mortgage company and find what the payoff amount is.

Then compare that against the appraised value.

Then figure you will likely have to pay 6% to a realtor to sell it, maybe 1-4% if you do it 'by owner'.

Odds are with the way the market for houses is you'd come out ahead on this house, but, you'll pay more for your next house, so, you might want to shop a bit before selling--if profit is your motivation.



 

vi edit

Elite Member
Super Moderator
Oct 28, 1999
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There's just a lot of things to take into mind when selling/moving.

1) You paid closing costs (anywhere from $500-$5000) on the house you currently own.
2) You possibly paid for moving fees (ryder truck, pizza and beer for movers) to move you stuff into the home
3) You most likely paid PMI charges on the home that you'll never recoupe (anywhere from $20-$100+ a month)
4) You paid hundreds, if not thousands in new furnishings for the home (curtains, blinds, landscaping, carpet, paint, ect)


That's money you'll never get back really.

Then figure in the 6% that you hand over to the realtors assuming you can't sell on your own.

Now just take items 1-4 and add them up AGAIN when you move into a second home.

If 1-4 + the 6% realtor fee, plus the addition steps 1-4 on the new home are greater than your appreciation plus paid off principal then you are loosing money.
 

mugs

Lifer
Apr 29, 2003
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Originally posted by: HomeBrewerDude
Originally posted by: mugs
You probably will not come out ahead for the reasons vi_edit mentioned. One of my profs in college showed us a spreadsheet that compared buying to renting, and came to the conclusion that you should only buy if you're going to be there at least 5 years.
that depends on a lot of factors. last three years have been good to home owners.

I would say there is a good chance will will clear about 5-8% of the price that he originally paid. UNLESS he overpaid, or let the house has fell into disrepair. Figure 4% increase / year that equals about 13% over the three year period, minus the 6 % realtor fee. Plus he has probably paid 1 % in equity payments, more if he is paying extra. of course, that money will go into a NEW house, which is also subject to the same type of inflation. However, interest rates are probably better now than 3 years ago so he shoudl be able to get more house for the same money, should he choose to buy again.

If you don't buy another house you might be liabel for capital gains.
Yeah, the spreadsheet took into account a LOT of factors, including what you do with the money you save every month by renting. If he had saved the money and invested it, he would have made a heck of a lot more than the appreciation on his house. But that's neither here nor there, since he owns the house. :) So he may very well come out "ahead," but he's blowing a lot of money on fees.
 

faZZter

Golden Member
Feb 21, 2001
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Originally posted by: mugs
You probably will not come out ahead for the reasons vi_edit mentioned. One of my profs in college showed us a spreadsheet that compared buying to renting, and came to the conclusion that you should only buy if you're going to be there at least 5 years.
Just depends where you buy. For example we bought our house less than 2 years ago for 244K. It is now worth 390K. Obviously we could easily sell it and get a significant profit at the 2 year mark and not even get taxed. Our area is growing fast (central coast, CA) and of course results from other places may be totally different.

 

JEDI

Lifer
Sep 25, 2001
28,885
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dont sell..just rent it out. or if your not close by, hire a mgmt company
 

FeathersMcGraw

Diamond Member
Oct 17, 2001
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Originally posted by: DougK62
Say I sell for the appraised (more than I paid) price. Does this chunk of change pay off my mortgage? What about all of the interest that the lender will be missing out on? I must be missing a piece of the puzzle because people sell houses all the time and are just fine...
When you sell a house, you pay off the remaining principal on your mortgage. If your house sells for (net) more than you paid for it, you pocket the difference between the sales price (minus fees such as commissions, etc.) and the amount remaining on your mortgage. The remaining mortgage interest is not relevant because your mortgage is being paid off (effectively ending the loan) from the proceeds of the sale, unless your mortgage specifies prepayment penalties.

If you have remained in your house for at least 2 years as a primary residence, you may exclude up to $250K in appreciation from taxes. I believe the older restriction that you need to "trade up" (purchase a new residence of equal or greater value) to meet this tax exemption no longer applies.
 

gunblade

Golden Member
Nov 18, 2002
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Here in bay area(Cupertino), houses essentially double the price from 5 year ago. My relative's house cost about $340k 5 years ago. She just got it appraised and it now worth more than $670 k.
 

royaldank

Diamond Member
Apr 19, 2001
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As mentioned before, some mortgage companies have penalties for paying off a loan before a certain time. DiTech, for example, has a 5 year pre-pay penalty (I think it's normally 5 years). Sell it before then and you owe them another 5 grand or so. Might want to double check your mortgage for anything like that. Most reputable places don't tack on pre-pay penalties.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
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3 years plus the gains in the market that most houses have had over the past few years I would think you will at least break even, and quite possibly come out ahead.

If you do a private sell by yourself instead of a realtor, OTHER realtors (for the buyer) can still access your house. They'll charge you 3% instead of the 6% you'll get ass-screwed if you sell through a realtor. I'd give that a go first, if you're not in a hurry.
 

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