Refinance or sell to buy a new house? Please advise!

[Serena Sun]

hi All, 

I am not professional RE investors, so I hope that you can give me some advice for my situation.

We bought our primary home in 2002 for $300K, the mortgage plus taxes and insurance is $2600/mon. The house should be worth about $650K now, $47K mortgage balance remaining (should be paid off in two yrs), and we have $40K HELOC debt. We rented the house out in March this year for $2500, and the lease won't due till next summer. So we don't have any positive cash flow.

We are expecting a baby, so want to buy a bigger house (around $800K range).

We have two options:

1. Sell the old house, paid off mortgage and HELOC debt, after fees, we will get about $530K proceeds. Put all the proceeds in the new house as down payment, borrow about $300K for 15 yr fix.

2. Refinance the old house for about $300K for 15-20 yrs, and continue to rent out the house. Use $300K for down payment for new primary and borrow additional $500K for 15-20yrs. This will increase our monthly mortgage pmt to about $4300/month. Because our old house is almost paid off, so we can only use standard deduction on our tax return. New mortgage will give us some tax benefits.

My husband wants to sell the house so we don't have to pay capital gains for the old house, but we will have to wait till the leave is over. I don't know if refinance is a better option because it will be quicker and we will have a rental property on the side. 

Let me know what you think. I appreciate it very much for your analysis.

Thanks

Serena (Seattle)

[Ciprian L.]

You have a 650k house that rents for 2600/month. Can you find a cheaper house that rents for 2600? 

If yes, I would sell it to get the 500k tax free money and buy at least another rental property and a primary residence with 30 years loan. If you want to pay it earlier you can do it.