We own our dream house in the Magnolia neighborhood of Seattle. Laid off a year ago, now need to relocate for new job for a few years. Keep or try t

Asked by Anne Taylor, Seattle, WA Tue Mar 30, 2010

.
We owe 408,000 at 6.37% about 3k a mo w/ escrow. We paid 557k in 2007. The city's new value has it at 440kish This house has been hard to sell in the past (100 years old, never renovated)

Now we are looking at relocating to texas for a minimum of 2 yrs. We want to come back here eventually to raise our family(Texas schools are SCARY) so do not want to sell unless we have to do so. But we can not afford to carry the house and pay for living in Texas. We are thinking of renting the place out to cover some costs.
BofA, our lender, is offering a refi at 5.37 for 30 years to borrow 409k but with a lot of closing costs. And I do not know what the house will actually appraise at. Are we being too sentimental- is renting a house out even a possibility in these times? It has an amazing location near Discovery Park and is decent sized, when we come back in a couple years we will not be able to find a comparable house easily. Advice???

Help the community by answering this question:

+ web reference
Web reference:

Answers

28
Rob Graham, Agent, Seattle, WA
Wed Mar 31, 2010
Definitely rent it and definitely refi. Shop around a little and see if you can't get lowert costs on a refi. 6.37% is way to high by todays standards.

I don't have a crystal ball but I would almost guarantee some appreciation in the next two years, especially in Magnolia.

Renting in Magnolia is a little easier on the East side of the hill, but they fetch less rent. The noise from the train tracks and proximity to 15th and other huge rental complexes like the Overlook see to that. Still, if you can refi and rent the space out, even at a small loss, I think it would work out for you as a far better financial decision long term.

Good Luck.
1 vote
Mack McCoy, Agent, Seattle, WA
Tue Mar 30, 2010
Anne, I'm a buyer in this market, but I may have different goals than you do.

Let's look at you: You paid 557, it's down 20-25%, so we're looking at 440 being "ballpark." You sell it, you pay eight or nine points in commission, closing costs, excise tax, etc - you just about walk away empty-handed. The 125 down payment, out the window. Gone. Poof.

You come back in two years, you don't know what the market will be like. None of us do, we can only guess. Your house might be worth 360, it might be worth 480, it might still be worth 440. So you get to buy it again.

Now, we don't know what interest rates might be like. If they're the same, you'll need to put another 40 down, add some PMI, just to get back to where you were when you left.

You can invest $500 in an appraisal, the refi will cut your payment $225 a month, even if you roll in two points of closing costs.

If you rent it, it may cost you 5-7 thou a year, with vacancy and negatives. But, you can come back without paying 40 down.

Only you can make the decision. Holding it looks better to me. If it goes down, it cost you 10-15 max to hold it. (Barring any huge emergency repairs). If it goes up, you look great, if it stays at the same value, you get your house back.

What do you think?
1 vote
Patti Hartley, Agent, Bellevue, WA
Tue Mar 30, 2010
HI Anne,

I would like to suggest another possibility. You might want to consider your home for a vacation rental. It sounds like your location would be a big plus to people coming to our fair city.The high season is June through to Sept but April and May are also possiblities. You would leave your furniture and take your personal treasures.

1.The advantages are you would almost certainly make enough to pay the mortgage as well as many of your expenses in Texas. Short term furnished rentals produce much more income that long term vacant properties.
.2. You could look for a longer term tenant after the season and you would have the option of a place to stay when you come back for vacation yourself.
3. You could hold on to the home until the market recovers and make back some of your losses.
4. You could refinance and work with a lower payment.

If you would like more information on how to accomplish this please call and I would be happy to share some of my experience with you.

Good luck,
Patti
1 vote
Leanne Finlay, Agent, Kirkland, WA
Tue Mar 30, 2010
Anne,

A dated home in Magnolia can be difficult to sell, and there doesn't seem to be much sense in putting more money into it before you move. I don't think I'd recommend the refi either, unless the payback of the closing costs to get that lower 5.37 interest rate is less than 36 months (then, sure - maybe so, that's not a bad 30 year rate).

If you decide to keep it, a good way to attract solid renters for a dated home is to buy brand new appliances, a new washer/dryer, a new range/oven and new refrigerator for the home -- often those cool new appliances are not available in other homes renters are looking at. New, not used is my recommendation, plus you get the value of warranties.

That amazing location near Discovery Park is a strong asset. Prices will eventually come back, and if you sell, you'll be paying quite a lot of money to sell, so perhaps keeping it, and considering the advantages of an investment tax depreciated asset might work out the same or better than selling. Make an appoinment with your CPA for a full understanding of that, an hour or two of their time is all that analysis would likely cost you.

Good luck!
1 vote
Kevin Bagley, , Seattle, WA
Tue Mar 30, 2010
In spite of extremely high insurance and taxes in Texas, your cost to purchase there are significantly lower than in Seattle, and that market has remained more stable than elsewhere in the country. They did not go through the highs and lows that we experience here (we have a daughter in Dallas). That being said, I would think if you can survive holding the home here through the trough, I believe you will reap the greatest benefit - its the old adage "buy low - sell high." With regards to refinancing, dropping 1% will probably take about 36 months to recoup the closing costs, but if your intent is to return and live in that home when you return, it may be beneficial to do the refi. Keep in mind the gap in employment may hurt your ability to do the refinance.
1 vote
Sally Bostwi…, , 98109
Tue Mar 30, 2010
My answer would be to keep it and rent it out. But, even the rental market is starting to get soft in this area.
The housing market is going to come back in Seattle, and it will always be stronger (longer term) than Texas.(I have relatives in Texas, wouldn't get my vote as a place to raise kids.)

Check rentometer.com and houserentals.com to get an idea what you could rent it for. Then work backwards on the numbers, starting with what your new mortgage payment would be. If it looks like you could get a renter to pay all the utilities, and you would only be paying taxes and insurance; and you could break even on it, I'd hold on to it.
1 vote
Karen Hunt, Agent, Seattle, WA
Tue Apr 6, 2010
Hi Anne,
Yes! Renting is definitely a possibility in these times! There are a lot of people needing to move out of their homes right now with job losses and the mortgage meltdown. You may even be able to get someone to sign a lease longer than a year. We just rented one across 15th from you on Queen Anne for 18 months and I live a few blocks from that one. We had a lot of interest from Craigslist and a couple scammers too, so be careful.

I like the idea of putting in new or nearly new appliances--one less thing you will have to worry about and attractive to your potential renters. Crunch the numbers as others have suggested but I'd say renting out is the way to go! Magnolia is a great area! Keep it!
Good Luck on your move!
0 votes
Mack McCoy, Agent, Seattle, WA
Thu Apr 1, 2010
You might give our friends at Sea To Sky Rentals a call . . . 206-632-4210, should you elect to go the "vacation rental" route.
Web Reference:  http://seatoskyrentals.com/
0 votes
Courtney Coo…, Agent, Seattle, WA
Thu Apr 1, 2010
Wow Texas from Seattle (BTW - some are scary - I was in one during third and fourth grade and all I rememeber are a few square dance routines...) - THAT will be a change. I would definitely rent it out if you are returning. Just have a couple of us do a free market analysis on the house and then you will at least have an idea what it is worth to see if the numbers pencil out at all.

Let me know if I can help - good luck on your move.
Web Reference:  http://www.cooperjacobs.com
0 votes
Emelia Sanch…, , Ontario, CA
Thu Apr 1, 2010
Patti, what a way to think outside the box. I love your suggestion.
0 votes
, ,
Thu Apr 1, 2010
awesome

thanks for the update!
0 votes
, ,
Thu Apr 1, 2010
@Dave

I've done several HARP loans for non-owner properties. They're allowed. In fact, many lenders have pricing caps to improve HARP loan pricing that has large adjustments, such as non-owner refinances.
0 votes
Margo Christ…, Agent, Seattle, WA
Thu Apr 1, 2010
I agree with Daniel, Barbara, and Larry....
Taking all this into account with holding any asset, plan accordingly for having enough reserves for contingencies.
It is true that the homes in your area they are desirable.
Definetly find a great property managmenet company as this can help the stressful part of a rental.
Hope all works out for you and your family.
Shop around for some different rate quotes.
0 votes
, ,
Wed Mar 31, 2010
the fact that the proeprty is likely going to classified as a rental property by any lender ( due to job in Texas ) ..will liekly detract the HAMP/ mha5. How do I know if I am eligible for a refinance under HARP?

"You may be eligible if:
• You are the owner-occupant of a one- to four-unit home."
0 votes
, ,
Wed Mar 31, 2010
It sounds like Rob really knows that neighborhood. If Rob handles rentals, I would definitely give him a call.

Remember that you do not have to go to BofA for your refinance. I would definitely see if your home is owned by Fannie Mae or Freddie Mac. If it is and you don't have mortgage insurance, shop that loan around. Many lenders can do it.
0 votes
Ardell Della…, Agent, Kirkland, WA
Wed Mar 31, 2010
If you are clearly planning to return to Seattle, then rent it out IF you can afford the shortfall. Rent prices are low and getting lower. See what you could rent it for by putting it on Craig's list, then decide.
0 votes
, ,
Tue Mar 30, 2010
I love your breakdown Mack. Thumbs up!

I too think renting may be the answer if you truly love the home and really plan on coming back. It's really based on your commitment to return to this home in the future.
0 votes
, ,
Tue Mar 30, 2010
Anne,

I don't know the details of your current loan, but I think I have an idea.

First, I can see you put at least 20% downor so based on your current balance and original purchase price. I don't know exactly what your original loan balance is but rate and balance you currently have, I believe you did put 20% down. This really helps.

I would find out if your loan is currently owned by Fannie Mae or Freddie Mac. There is a refinance program called HARP (Home Affordable Refinance Program). Without going into too much detail, it's designed for homeowners who have a Fannie Mae or Freddie Mac loan who fit either of the two situations:

1.) Are at or above the value of their home
2.) Have some equity, would like to refinance but do not want to incorporate mortgage insurance now that they have less than 20% equity.

HARP solves both of these problems if your loan is owned by Fannie Mae or Freddie Mac. Bank of America is the largest Fannie Mae lender, so there's a very good chance your loan is owned by Fannie Mae.

As you can see, you do not have 20% equity anymore. A HARP refinance would not require you to add mortgage insurance as long as your current loan does not have it, which I don't believe you do from the figures you gave.

Next, HARP DOES allow non-owner refinances, so you can refinance under your current situation. If you disclosed this to Bank of America, this could be the reason their pricing is high (maybe).

I would treat this refinance like it is your house. Even though you may need to refinance as a non-owner property due to your move, you do plan on staying there eventually. You need your payment lowered to help service the debt with your rental income. HARP will not last forever nor will the low rates. HARP is set to expire in May of 2011 (just extended) but rates will likely be higher soon.

Many, many questions need to be answered, but if this is something you're interested in, read this blog post on HARP:

http://www.keaneloans.com/2009/12/18/homeowners-guide-to-harp/

Hopefully this gives you the options your looking for. HARP is a true consumer refinance, so you can shop the pricing around. You do not need to go back to Bank of America. Finding a lender who specializes in these loans will help educate you on what's available and whether this is right for you.

By the way, Magnolia is one of my favorite neighborhoods in Seattle. Great place.
0 votes
Karen Mcknig…, Agent, Kirkland, WA
Tue Mar 30, 2010
Dear Anne,

In general, I would say, if your are planning to come back to Seattle and Magnolia after a couple of years, keep the house and rent it out. There are some good property managers that could handle it for you for a couple of years. Since your are not used to being a landlord, you would be wise to use the expertise of a property management company to help you screen for good tenants and to set a lease amount that is good in this market.

Houses are leasing well. The Seattle area has people moving into here and many of those people have been unable to sell in their previous city, so they are renting.

If you rent the home out, minimize the negative cash flow for two years, you will come back to a home that may have started appreciating again. If you do a one year lease, you may be able to raise the rent after one year.

It is not likely you will gain anything by refinancing. Your mortgage rate is quite good. With the loan fees and the way loan amortization works, lenders make most of their money up front on the loan.

Warm Regards,
Karen
Web Reference:  http://www.karenmcknight.com
0 votes
Jirius Isaac, Agent, Kenmore, WA
Tue Mar 30, 2010
Anne,

You have a lot of good advice already given, so I will just try to add to it as best as I can. Of course you should try to keep it if you can, but I guess you have to figure that out. As to a re-fi, B of A is pretty high and you should be able to do better as long as you can do it owner occupied before you leave. Besides being a real estate agent, I am a loan originator with Metropolitan Mortgage Group and I can shop your loan around and do better if you want to contact me. And yes, there are a lot fo closing costs that can be paid for potentially in 3 ways: 1) at closing. 2) tacked on to the loan amount. 3) In the interest rate. I would be happy to consult with you about a re-fi, or about your rental details should you decide to go that route. And, again, I could repeat most of the advice already given.

There is also the issue of the schools when you return to the area and depending on the age of your children, you may or may not want to stay in Seattle. Feel free to contact me any time at 206-841-9976
Web Reference:  http://Metromgi.com
0 votes
Daniel Bretz…, Agent, Seattle, WA
Tue Mar 30, 2010
It is always hard to leave the house and neighborhood that you love. Making financial decisions based upon emotional criteria will not result in a sound financial decision. Making emotional decisions based upon finances will fill your life with the spirits of Christmas future and past.

I recommend you look at two ways:
1st way is purely financial, based upon a two year return to Seattle.
Calculate the lowest monthly payment that you can obtain from a bank, get an estimate on potential rental rates and management costs, and determine how much you net monthly loss from the property will be.
Then calculate the two year potential loss. Estimate that house prices will start to appreciate at 3% a year from the current appraisal. If your potential appreciate is greater than your potential loss, then it may make some financial sense to keep it.
In your case it may be that you would have to disclose that it is a potential short sale, as you may not have enough money after sale to pay commissions, taxes and mortgages. If you have other assets, banks will often expect you to cover the loss. In this case it may be better to keep the house even if there is a loss.
You will need to disclose to your financial advisor, much more information to determine the best financial answer.
2nd way, is to evaluate your emotions. If you really love the house, neighborhood, etc then you should try to see if can keep it even it is a minor financial loss. If the house will cause undue stress on your life, then you should take lots of pictures, save the memories, and sell it at whatever the cost it may bring.
If you do intend to sell or rent, please feel free to contact me to discuss in more detail.
0 votes
Scott Seppi, , Bellevue, WA
Tue Mar 30, 2010
Hi Anne,

I'll echo that Dave brings up a great point about refinancing with the intention of renting. That will likely raise the rate you are offered.

It wouldn't be a bad idea to spend an hour with a real estate attorney to look into setting it up as a rental, and taking steps to shield yourself in the event that you are unable to rent at your required amount. It's always good to have a backup plan these days :)
Web Reference:  http://safeandsecurehome.com
0 votes
Dan Tabit, Agent, Issaquah, WA
Tue Mar 30, 2010
Anne, Your situation is difficult to cover fully here.
Dave is right about the rate and whether BoA assumes owner occupied (the best rates) or investor property. Fees can be paid in cash, equity, or rate. By raising the rate the lender will offset costs. It may be worth shopping around if you decide to pursue this avenue BoA is not always the most competitive source.
There are so many variables to consider I would suggest you sit down with someone who can get to know and understand your plans, goals and desires who has a good working knowledge of your neighborhood, the current market and of lending.
Your decision will largely depend on how attached you are to the house and your level of risk aversion. If you are willing to gamble, go for it all. If you require a high degree of security in your finances, sell the house and take the safe road. I hope you come to a decision for you and your family can be happy with. Best of luck.
0 votes
John Stewart, Agent, Seattle, WA
Tue Mar 30, 2010
Anne,
You should be able to figure out how much time it will take to make the loan fees pay for themselves. It is probably on the order of 3-5 years. Not sure that it is worth it...but ask a couple of other lenders.
Most of the larger RE companies have property management divisions. It usually costs 5-10% of the monthly income, depending on what you have them do. 10% means that they qualify the renters, supervise any maintenance, deposit your checks and generate reports for your taxes. 5% means they find a renter for you.
On the site that I'm giving you here is a link to our own rentals group and relocation services. A local Realtor can help you a lot.
Web Reference:  http://www.nwhome.us
0 votes
, ,
Tue Mar 30, 2010
regarding the BOA loan offer you touched on

1) ask them if you can possibly increase the rate a bit to lower the costs by a lot
2) ask them if theie proposal / offer is based on the property being refinanced as an " owner occupied " premise ...if it is ( which it is likely to be )..their proposal is likely worthless as you are moving to TXS and your work and job are there and not is WA ( thus their proposal is a moot point )...if they can do a refi thats not too costly with the knowledge that the property will be a rented ....then its worth considering if it truely improves the picture

thanks
0 votes
Barbara Mcma…, , Seattle, WA
Tue Mar 30, 2010
But of course! I would try renting the home prior to making any decisions. Long distance real estate is tough. I would recommend you hire a good property manager. I can recommend one if you like. Please be sure to screen carefully!!! Put it on Craig's list and see what you get. I would also check out craig's list to see what rents are for your area.
0 votes
Larry Humes, Agent, Bellingham, WA
Tue Mar 30, 2010
There are many variables in you situation, each of which could change the keep or sell answer.
1. Are you "current" on your present mortgage? If not, that could make the situation "decide for itself".
2. How much will the job (presuming that you have it lined up) in Texas pay and how does that compare with the total outlay of dollars.
3. Can you make up the difference between rental income and the current mortgage, and still have enough to rent in Texas (I recommend that you not attempt to buy - your current mortgage will keep you from qualifying for a new mortgage in Texas, and the "normal" purchase-payback cycle is about 4 years, not the 2 years that you are planning to be away).

Since the house is not "fixed up" it seems that, if there is enough cashflow after answering the above questions, renting it out would be a good idea. Again, it will depend entirely on your cashflow. Keep in mind that the insurance on the house will be higher if it is a rental and that tenants are unlikely to treat the house as well as you would. Also keep in mind that if you sell the house right now, it will be as a short sale - which will impact your credit enough to probably keep you from buying another house when you get back to the Pacific NW. Add the closing cost of selling this house and buying another one in 2 years, and the decisive answer would be "keep this house if you can, rent it if you have to, but if you have to sell to make all the plans work, anticipate the process of coming back and buying another house to be very problematic".

I hope this clarifies the situation for you somewhat. Please feel free to contact me, if you need additional information, or if you do decide to sell and need a good agent in your area, as I will be able to refer you to several.
Web Reference:  http://www.LarryHumes.com
0 votes
Leah Pham, Agent, Seattle, WA
Tue Mar 30, 2010
I completely understand your situation. I recently assisted another family in the same exact situation as you! They owned their dream house in Ballard (completely renovated with tender care by them) but needed to relocate. They expect to return to Seattle in 2 years time, and they just couldn't let the house go - they didn't want to sell if they could come back to Seattle. So they DID end up renting it out for $3000/month on a 18 month lease. I think there ARE renters out there that can help you keep your home. I would suggest you contact your Realtor to get a Comparative Market Analysis (CMA) done to see if you can get a ballpark feel for what the house would appraise for, then shop your refi around with a mortgage broker to see if they can get you a better rate on a refi than what BofA offered you. Good luck!
0 votes
Search Advice
Search
Ask our community a question

Email me when…

Learn more