Home Options Questions

[Katrina Kunzler]

Hi, I'm a doctor, and I'm new to finance/house hacking. I am a single mom but have been working hard to become familiar with this new world, and my long-term goal is to buy more rental properties over the next 10 years. I live fairly frugally, and my student loans from med school are low as I qualified for lots of scholarships and have a great repayment plan. I work for a non-profit and will have loans forgiven in 10 years with very small monthly payments. 

I currently own two properties in Utah but just finished getting divorced. We are required to sell one of the properties (we rented it out and used it as a passive income), and I can either sell or refinance the current home I live in. I'm wondering about my best options, so I'm turning to this forum for some opinions. 

Once the rental home is sold, my half of the proceeds will be roughly $113,000 (this is after closing costs and taxes and is an estimation based on the current market value). My question is, what should I do with the second home that I currently live in? I am obligated to remove my ex from the mortgage by refinancing or selling the house by next July. (I called the bank, and even though I have a great job and can pay for the current mortgage very well, they require that I refinance to remove him). I'm pretty bummed about this as I currently have a 3% interest rate on the home. It is also a house hack, and I live upstairs with my kids and rent out the basement apartment. If I refinance, my rate would jump to around 6.5/7%, increasing my mortgage from 2,500/mo to 3,500/mo, give or take. I currently rent the basement for $1,000/mo, so my current obligation is $1,500/mo. If I refinance, I can wait for a few months to see if the rates go down, but that would mean that each mortgage payment I make would benefit my ex as he gets half the equity in the home at the time of selling or refinancing based on an appraisal. I would prefer if my money isn't used to his benefit as he still owes me a lot.  If I were to refinance he also wouldn't be obligated to help with future closing costs on the home. My options are:

-Refinance now and foot the extra bill and stay in this current home (I would be footing all future closing costs) and pour most of the money earned from the other sold home into the one I currently live in. 

-Sell the home now and only have to pay for 1/2 closing costs. I could then use my proceeds and buy a new house hack in the area.

-Buy a third home now (I would look for another house hack) (with money earned from the sold rental home) and rent out the entire home I currently live in and refinance now or next July (later would keep my mortgage lower with my 3% rate, but would mean that my ex would profit for a year off my payments and would never have to help with future closing costs). If I chose this option, I could refinance now and earn roughly 1,500/mo off the home being rented or 2,500/mo until I either sold or refinanced next year. I would end up paying about 500K more in the loan with this new interest rate, unfortunately. 

If I decided to keep the home I live in, I would pay my ex based on a current appraisal from the rental home proceeds. I estimated that my net proceeds after doing this would be roughly $66K. But if I account for sunk closing costs I would actually only net 16K. 

So my main questions are: Should I sell my current home now or in a year? Should I refinance it now or in a year? And if I keep the home, should I buy a new home to live in and rent out the entire home for a profit? 

Sorry this is all so complicated!

[Ty Coutts]

Hey Katrina,

Your dedication to learning about finance and real estate investing is commendable, especially as a single mother. Here are some pros and cons of each option. 

Selling Your Home Now: This could be practical as you’d split closing costs with your ex and avoid the obligation to refinance at a higher interest rate. You can use the proceeds from both property sales to invest in a new house hack, giving you a fresh start and new rental income. This aligns well with your frugal lifestyle and long-term investment goals.

Refinancing Now: While this means a higher interest rate and increased mortgage payments, it removes your ex from the mortgage immediately, simplifying your financial situation. You maintain stability for your family and continue benefiting from the basement rental income, offsetting some of the increased costs. This ensures any future equity gains benefit only you and allows you to control the property fully.

Buying a Third Home: Using proceeds from the rental home's sale to buy another house hack and renting out your current home entirely could generate substantial rental income. This balances maintaining your current property and expanding your investment portfolio, although it involves higher mortgage payments.

Given your goal to minimize your ex’s financial benefit, selling your current home and purchasing a new house hack might be the most straightforward and financially advantageous route. This lets you reinvest proceeds into a property that better fits your long-term goals without the pressure of higher mortgage payments.

Hope this helps. Feel free to reach out if you have any other questions, would like to discuss, or need someone to do your financing!

[Carl Davis]

@Katrina Kunzler this is a tough one! But I think Ty touched on it a bit and that is that you'll ultimately have to figure out what is important to you. If you want more stability with your kids and don't want to have to move maybe staying and refinancing is a good idea.

If you just want a fresh start, liquidating and restarting could be good as well. Ultimately you have to understand what you want moving forward, whether you want to optimize for your family or for ROI.

I think if it were me personally I would sell and restart immediately. I think if you're going to increase your payment to the 3500/mo regardless You're going to want more income from your basement apartment.

I currently make 1750 from mine but I live in eagle mountain. There could be better options where you can still keep your monthly a bit lower with a higher income producing separate unit.

Hope this helps!