Looking for direction...

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Submitted by ChrisinDiego on December 31, 2008 - 11:37am

My wife and I are thinking about a refi with a little cash out at the lower rates so we can position ourselves to buy a second home mid-year. This would give us about 75K to add to our savings (and potential down payment) and lower our mortgage to well below rents in our area.

We will have about 225K for a down by June 09 but are hoping to relocate to Coronado or Bird Rock. Income is good and actually verifiable (300K/yr). Between home prices, rates, and the jumbo loan/conforming caps - my head is spinning.

Am I out of my mind? Is it totally unrealistic to expect to keep and rent my house and by another right now (esp in Coronado)? I need a fresh set of thoughts!

Submitted by sdduuuude on December 31, 2008 - 4:19pm.

The timing of this seems very bad to me. And the math is funny - cash-out refi's do not "add to savings"

Second, putting more money down to bring mortgage payments down to rent levels fools you into thinking you are getting good value for the house in rent vs. buy terms. Really, you are giving up dividend/interest on that cash when you put it into the house. What I'm really saying here is - don't buy based on the payment. Be smarter than that. Buy based on the price of the house.

Looks like 2 different decisions to me - A) Should you get new house and B) If you do, should you sell the old one or rent it out? Probably best to evaluate them backwards.

B) First, assume you have another place to live and determine if you should ditch the first house or rent it out. Evaluate this independently from whether or not you will buy a new place. How much cash can you take out of the home if you sell it vs. what will your monthly after-tax rent revenue be ? I think that is the key factor in deciding if you should sell it or keep it, though there is much more to it.

A) Now, once you make the best decision there, do you really want to buy a new place or should you rent ?

Can you afford it? Probably.
Are you out of your mind ? Close to it.

Job losses everywhere. Deflation is up on us. Frugality is "in" and you want another house? 1 or 2 years of of patience can be worth lots of money now-a-days.

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