Pay off current home mortgage or use equity for new home?

Question

Hello, I need some advice from "smart" money people on what to do in my situation... It's a good option that I have I just want to do the right thing.. I am currently 34 yr old live in Fort Myers FL and bought a house in '10 for $72k lol... The house is now worth $160. My current mortgage is $612/mo including taxes/insurance.. I can have it paid off in full in about 8.5 years. It will need a new roof and new ac in 3-5 years.

My second option is to sell my home and use the equity I make down payment. The home I'm looking at is $260k. It is brand new construction, twice the size of my current home. The mortgage on this place would go up to $1250 and it would b a 30yr mortgage.

So my question is, what is the financially correct thing to do in this situation? Should I just stay in my current place with the low mortgage or cash in on the equity and buy a brand new place? I cannot rent out my home as I don't make enough $ to qualify for 2 loans, I am a teacher. Please give me your advice and opinions on what the smart decision would be in this case. Thank you!

Robert

Elena Sweeney · Answer

Do you like your current property? Sounds like you are looking for more sq footage. It is a very smart decision to cash on the equity you have in your current home by selling it and putting the money in your next home, except buying another house with equity in it, like a foreclosure that might not even need much work. New construction is a great option if you will live in this house forever, but if you are planing a smart investment, look for a house with potential equity in it. I am knowledgeable in Fort Myers real estate market, let me know if you have any questions.

Corby Goade · Answer

There are so many varibles to this scenario that you haven't provided, but ultimately it's up to you. Without knowing all of the details of your situation, here is what my first thought was: Get a HELOC on your property, use it as a down payment on the house you want and rent out your current house. Personally, I don't have much interest in taking on a bigger mortgage on my own personal home, that's just leverage you could have used to put money in your pocket elsewhere.

Peter Davis · Answer

Hi Robert,I'm with Greg; since it's your personal residence, it's really up to you whether the home and neighborhood are working for you now, and will do so down the road. With the equity you have, you could get a home equity line of credit (HELOC) to pay for the new roof and AC. Please don't use it to buy a boat.Also, if you can afford a higher mortgage payment, you could always pay more than your monthly payment on your current home to accelerate the payoff.

Doug Royce · Answer

It sounds to me, and I could be wrong, that this new house would be a lifestyle change instead of an investment. A house twice the size not only means a mortgage twice as big, but more in utility bills, more in insurance, more in property tax, more in maintenance costs, etc. If you're comfortable in your current home, stay there. You said you won't qualify for two mortgages based on your salary but can afford a mortgage twice as much? Why not use that equity and cash to purchase an investment property equal to your current home? You would have two mortgages at approximately $612+$612= $1224 instead of one at $1250. I bet a home with a $612 mortgage would cash flow pretty well in Ft. Myers.

Jassem A. · Answer

There will probably be no equity in the new construction and it may lose value over time. If I were to spend that amount then I would rather buy an updated older home about 4 times the size of your current home or another couple rentals and a home twice the size. I bought a home a couple years ago for 26k and it appraised for 160k earlier this year after only maybe 10k in repairs so anything is possible.

Thomas S. · Answer

No one can provide advice beyond what they would do personally based on their own life. Their personal opinions are not relevant to your situation. You are trying to decide between one personal home and another. It really makes no difference as it is not an investment. A personal home is a life style choice not an investment therefore you are the only one that knows what you want to do.

E J Howard · Answer

Hello Robert Czekalinski and welcome to BP. This IS where smart investors hang out. I'd like to respond by saying that I see you are new here; less than 24 hours. This is a good time to get started investing on the right foot. I too had to take a step back and design a strategy before just jumping in. You have good potential so you don't want blow it by letting emotions get in the way. Take time to listen to the @brandon turner training session. It's about 4 hours and will help you think things through. While many folks here will respond with good ideas, ultimately YOU need to educate yourself on how and when to pull the trigger. And join the weekly webinars and consider becoming a PRO member. You will see the value in the investment. I did a week ago and it helped me. Finally, figure out what you want to do first. Then talk it over again and again. That's what we're here for. The mix of advice from everyone will help. No rush, right?

Robert Czekalinski · Answer

anyone have any opinions??