Expert: Jay Denit - 10/7/2007

Question
QUESTION: Hi, I have a couple questions about our equity.  We have a first loan for 314K and a second (equity) for 141K.  A couple years ago homes like ours were selling in the mid 500K range I think we appraised at 529K..They have come down a little where we live and havent gone up like that had in the past.  My husband is concerned about moving now because he feels in addition to the slow market if we have to keep reducing we could come out with maybe 50K not including realtor fees and all that this is if we can get 500K.....500K always was our magic number we didnt want to go down but he thinks we may have to.  Do you think there is any way to be able to move if we only look at homes that are in the 450K range which I think would be what Im paying a month now? We jsut want more yard and room for the kids....I really wanted to move this spring but he is having second thoughts.  Does the second loan have to be paid off. is there any other way to do them seperate or do they go hand in hand at settlement? Its very scary right now.  THank you, Jen in Md

ANSWER: Hi Jen- I think I understand your question. In order to sell your home you have to sell for a price that is high enough to pay off both your 1st and 2nd loan as well as cover your Realtor fees and closing costs.  If your sales price is not high enough to cover all of those costs you do have the option to pay any additional fees out of pocket (not the most plesant option but it is an option).

Unfortunatley with our slowing market a lot of home owners owe more than their home is worth.  It sounds like it will be tight for you but a possibility to sell.  Remember Realtor fees are negotiable!

---------- FOLLOW-UP ----------

QUESTION: Hi, thanks, I was thinking another option is my husband has va elibility we used it to buy the home we are in....its up to 417K now so if we found a home within that price would that help us too? What percentage should we factor in for closing and realtor fees? Im thinking we need to sell for at least 450 which i think we could do as that is below our appraised value?

Answer
Hi Jen,
You want to make sure you can afford your new home VA loan or otherwise.  After you sell your current home, your best bet will be to sit down with a local loan officer and talk about your options.  VA loans aren't always the answer, sometimes conventional makes more sense.  The loan officer will be able to tell you what you can afford based off of your credit scores and debt ratio's.

As far as costs on your sale... I would allow around 5-6% for Realtor fees and around 5k for closing costs.  Every states closing costs are different and any good local Realtor would be able to guide you. In Colorado, I would say allow 5k, but they may a little too high or not quite enough for MD.

Have a great week.