Sell House to Pay Debt

I'm seeking as much opinions as possible on this "idea" I had.

Both my wife and I have a significant amount of student loan debt (like most college grad's these days) and are absolutely sick of it hanging over our heads. We have consolidated my loans to one bank and relatively low APR and are making payments, and did the same to hers. Payments aren't bad, just i want them done and over with.

Long story short, we bought a couple of years ago in a growing neighborhood/subdivision, for $180K. I say growing neighborhood, because there are several streets that had empty lots on both sides, when we first bought. Jump-start to current day, a new builder rolled into town and has sold almost every single lot, as well as built multiple homes that have sold already. This is spiked the market in my neighborhood! Several already existing homes like mine are selling between $255K-$290K.

With this in mind, I thought of the idea to sell our house, take the difference that we would make (I currently owe $165K to mortgage) and use that pay everything off, no debt at all.

What would you do? Nothing has happened yet, we just saw another house in our subdivision sell for $270K this week that has only been on the market for 2 weeks. So I'm trying to figure out if this is a good idea or not. Has any of you done something like this?

 

If that's the market now look at the difference you'll make on selling. Sounds good to me.
Where would yall relocate?

 

Is this a primary residence?

Why not do a refi cash out while interest rates are low?

What's the rate of interest on student loans?

 

Where will you live after you sell the house? Can a desirable home in a desirable area (think school district if you have school age children) be had? If the market is inflating in your neighborhood, more than likely it is inflating in similar areas. You can always hope to sell it at a premium, and buy something at a discount. Just my $0.02. We have flipped a few houses over the years, last one we did, we sold out of South Florida at its peak (late 2005), and moved to Charlotte, much lower COL, so we ended up ahead.

 

What tax bracket are you in for the capital gains?

 

Keep the house, get rid of all other unnecessary payments. If you want to get out of debt, don't buy anything you don't need and put any extra money towards the loans. At first it will feel like it will take forever, but it does go pretty quickly if you are diligent in paying them down. We've been debt free for 4-5 years now and it is an incredibly good feeling. You might be able to get rid of Private mortgage insurance at this point since your home value is up (you may or may not have to have this in your area), that may potentially save you $100-150 a month (put it straight on the loan). Good luck

 

Never sell a house unless you need too, owning property is true wealth. If you want money out of it then turn it into a rental cash cow.

 

You'd be better off in the long run if you kept the house and found another way to pay off debt. Your mortgage on 165K can't be much more than rent. Sell a vehicle and work an extra job instead.

 

If you want to get out of debt sell your tacoma and that would eliminate a payment if you have one.

 

Mother-in-law is nearby for storage purposes, but most likely to a townhouse or condo to save up and buy or build again.

This is our primary residence. I looked into a refinance but my interest rate is 3.25% on the house and refinance would be higher. I didnt look at a refinance with cash out. Our student loan debt is between 6-7%.

That is another reason we are thinking of selling out of this neighborhood, the school's in this district are pretty bad, compared to surrounding areas that are close to my job. Eventually we talked about moving to a different area to put our daughter through better schools, we just weren't expecting to be so soon!

We are in the $75K-$152K tax bracket according to an article on Forbes.

 

??????????

 

I think having realty is a great way to wealth. If you want to get rid of debt refi the house, maybe even at a lower rate and then that should cover your debts and now you just have a house payment. If the market goes south though then you could lose more money but as long as your in it for the long haul it shouldn't really matter.

 

I appreciate all your advice and support! Unfortunately we need two vehicles, luckily the wife's car is a company lease so that makes things cheaper. She is a teacher that is doing part-time substitute teaching at the moment cause we have a 1 year old, so its hard to keep a schedule to have one vehicle. I did recently sell my harley to pay some debt, but not enough lol!

 

OK so you're at 3.25 now. High probably would be a 4.25.. Your at 6 on the student... So you'd save money there. Interest rate isnt everything BTW. Go with a 15yr refi.. Even with a higher interest rate bet you'd save $.

You'd have to pay taxes on the gains at a high tax bracket wasting funds instead of selling when your in a lower tax bracket later on in life.

You'd lose out on a tax deferred asset. You'd have to pay closing costs on a new house and you need to settle with the fact you won't get as low of a interest rate so consider that even if you refi cash out and pay more interest, at least your keeping your equity, instead of starting from scratch at a higher interest rate.

 

Good points, good points. I may investigate more refinance options. But with a 15year refi, the monthly payment would go up, or stay relatively the same? So I wouldn't be able to pay extra to student loan debt, right? I'm in a traditional 30yr loan right now.

 

consult a loan officer. there are many variables that would make it impossible for me or anyone on this board to tell you what direction it could go.

this is what i would do:

find out what a refi cash out interest rate would be approx, assuming you cash out enough to pay off any debt that is above the refi rate. (i round generously, so lets assume you pay off all debts greater than 4.5% interest with the cash out portion)

see what the monthly payment would be for a 15yr. if it's obtainable (consider you will be eliminating all your monthly payments that are being paid off... so imagine it as debt consolidation), if it is not feasible look at other year options.

if your in a FHA loan now, you'll save money with losing principal insurance, and if you went conventional and never asked them to remove P&I, you'll save money too...

 

I would find a better way to pay your student loans. Sounds like you and your wife make good money so I don't believe that income is the problem as much as expenses. I would find a track your expenses and find out where you can cut back to cover your student loans (cheaper cars, no cable, no dinners out, lots of red box nights, make coffee at home, stick to the outside walls at the grocery store produce, meat, diary).

If you do not have any other savings I don't suggest you don't use your equity in your home to pay down your student debt.

 

Thanks! I think i'll email my mortgage originator tonight and ask him about my options. I didn't know you can do a cash out refi.

 

It would be crazy to refinance, you know that will add a few thousand bucks to your debt-pile, right? They usually roll the fees into the refi and say there is nothing out of pocket so it appears to be free. To get out of debt you need to cut expenses and increase income. Anything else is just smoke and mirrors. Start listening to Dave Ramsey. I don't care for the jesus-talk but the financial advice is superlative.

 

I am not sure a cash out refi is what you are looking for. That may help you lower you monthly expenses but you are just moving the debt around. Instead of you writing a check to Uncle Sam you write it to your home lender. It would have to be a signifate rate drop for me even to consider refi.

I still believe you have to go back to your expenses and find a way to payoff you debt by lowering your expenses. Also look for ways to lower that student loan rate.