Reader Case Study - Should we sell our house to save money on housing costs?

[Luthien]

My Question: Should we keep our house or sell it?

Background Information:
We currently own a 1800 sq. ft. house valued at $236,000 on zillow.com. 

We purchased it 5 years ago for $236,000. We refinanced it in May 2013 to a 30 year fixed mortgage, and now have a 3.25% interest rate with a principal balance of $221,000. We pay no PMI as we bought it through a 0% down USDA loan program. 

New Monthly Mortgage Payment: $1458  ($339 principle, $691 interest, $428 escrow for taxes and insurance)

My husband is self-employed as an independent contractor, so we have some years that are better and some years that are worse regarding income. Our annual household income averages about $51,000 per year (considering the 7 years he has been in business).    I am a stay-at-home mom.  We are both 29 and have 3 young children.  Aside from this mortgage, we have no other debts.  We have excellent credit report history.

Other assets:
Roth IRA Account: $5000, SEP IRA Account: $30,000
Cash in the bank: ~$11,000
Open invoices for my husband's business: ~$22,000 (expect to receive in the next 2 months)

If we sell our house, we have a few options:

1.   Rent an apartment.  There are many apartments in our area going for $700-800/month.  This would be a downsize in space and stuff, but we would be saving $700-800/month in housing costs, which we could use to increase our ‘stache.

2.   Buy another cheaper house.  There are a few on the market in the $75000-$125,000 price range.  New monthly payment: $450-700

3.   Buy a duplex and live in one half while we rent out the other.  There is currently a property like this for sale in our town for $125,000.  The two units rent out for $550/month.  Monthly payment would be ~$675 with taxes and insurance, so our net monthly housing costs (assuming we have a tenant) would be $125.

My thoughts are that right now our housing costs are a huge percentage of our monthly expenses, and by choosing any of the above three options we could cut this expense down significantly.  However, we would sacrifice a lot of living space – we have a huge wooded backyard now, and a nice house with lots of living space.  Moving to a smaller space would involve getting rid of lots of our stuff too.  Also, while I’m totally on board with moving, I’m not sure my husband would be that excited about it unless the financial benefits are substantial.   Right now, it appears if we sell our house we would come out negative after paying realtor fees and everything, so that isn't very appealing, but it might be better for us in the long run.  So how does my math look to all of you?  Should we sell our house?

[SunshineGirl]

How are the schools where you live vs. where you'd move to?

This is such a personal decision, and it seems you're thinking mostly financially, while your husband is thinking mostly emotionally. You aren't in debt other than this, so this isn't an emergency, which is great.

What are property taxes in your area?

How easily could you get a job if you had to help out financially?

Have you ever had trouble making your mortgage payment?

[Luthien]

Thanks for the reply.

Schools aren't really an issue, as only one of our children is school age, and we are homeschooling for at least K-2nd grade.   

I think you hit the nail on the head with the financial vs emotional issue.

Property taxes were $3668 last year. 

I could get a job if we needed extra income, but the costs of childcare and commuting and other work expenses made it so that I was netting less than $5/hr, which is when we decided it would be better for me to stay home with the kids.  We value me being home full time to raise them more than the paltry sum I was earning.  I am working on treehouse to learn some new skills that might allow me to earn more, and possibly even do it from home.

We've never had trouble making our payments.

I think part of the problem is my husband feels overwhelmed with the idea of moving.  Since spring is usually a better time to sell, I am thinking I can work for the next few winter months on decluttering our stuff so that it seems less of a job to move.  This will be helpful even if we decide to stay here I think, and maybe after a few months things will seem clearer.

[huadpe]

Are there any terms on the USDA loan that might make it difficult for you to sell so soon after the refi?  I know some programs have a 2 year lockout on that sort of thing where you have to pay penalties.