Here is my situation, I bought the house we currently live in back in Aug. 2009. Three months out of college thinking it would be all I would need, I was single then and am now married with my second child due in Jan. It is a 3 bed 2 bath that I've put some sweat equity into. I gutted the master bath and installed a tile shower and brought it up to date. I put engineered hardwood floors in the entire house other than new tile in the kitchen laundry room that I did as well. We have refinished all of the cabinets and painted the entire house on the inside. We have talked about replacing the laminate counter in the kitchen with granite as well before we move. I paid $93k with 3.5% down at 5.5% and owe $77k now the payments are $761 a month with $518 mortgage and the remainder for taxes/insurance. The neighborhood we are in we are at the very top of the market with 1584 sq ft. and .37 acre lot. The houses that have sold recently in the area are from $70K-$87k but are typically in the 1150 to around 1400 sq ft. with .2-.3 ache lot. No house with over 1450 sq ft or over .31 acre lots have been sold and there are only a couple with the size house in the area and none with the lot size. Zillow has the house at $104k but I know how inaccurate they are. I think I could get around $1,000 in rent and maybe slightly more. We will have the money together within the year to get a larger house with a 4th bedroom. (Wife's only request) We could easily make the payments on both while living in the old house and renovating the new house, as the existing mortgage is only 10% of our take home pay.
So my question is do we rent the old house out, or sell? We could have the PMI dropped sometime next summer once we reach 78% of appraised value (already verified this with the owner of the mortgage), but is $41 a month. We could probably even refinance to a lower rate, but until recently all our extra money was put to pay off my wife's student loans. ($45k in just over a year thanks to my wife getting a great job compared to her old one!) I don't think it would be wise to try to add on to our existing house as there wouldn't be any easy way to increase its size, and would be an awkward layout.
As a side note we also have a $23k loan at 6.1% for her parents house that we don't collect rent on currently, long story, but I've come to terms with the fact that this may be a semi permanent expense until it is paid off. I know I'm just rambling and may not be making this as clear as it could be. Any advise is welcome.