Should we sell or refinance?

[Brenna Walker]

Okay ladies and gentlemen. I have an interesting situation on my hands. 

We want to invest in real estate. We currently live in an FHA house in a gentrifying area. We bought our house for 110k four years ago. It's pretty well updated. It's now worth about 162k, give or take. We owe 101k. We have about 25k left in debt (down from 103k.)

Being an FHA we have PMI which is $120 a month. So our payment is $810 a month. We also have a 4.5% interest rate and a credit score of about 750.

We want to move next year, but have lots of family here who would be willing to manage the property for us for free. 

So we are considering refinancing the house for 128k into a conventional loan which would do three things: drop our interest rate, pay off our debt and get rid of PMI. We would free up about $700 a month and we are already saving 20% of our income. This would boost our savings to about 45% of our income per month.

Our house payments would drop by almost $100. Rents in our area for a house our size are about $1200 per month.

Our second option is to sell our house for the 162k it is worth, pay our costs, pay off our remaining debt and then move with a new FHA loan and some cash.

What do you guys think?