What to do with unexpected equity? Home value went up

[k-vette]

I purchased my home in December of 2012.  (acquired a mortgage, rather)  I paid a fair price of $158k at the time.  It's 4 miles from work and I can ride my bike in.  That was one of the main reasons to move.  I heard that my neighbor had their house for sale for some crazy number, well over $300k.  It has not sold yet.  However, just around the corner about 1 mile away, in an almost identical neighborhood, a house with the same sized lot, that's 20 years older sold for $320k about two weeks ago.  Several others sold for over $300k as well.  Zillow estimates my place at $235k.  So I have a hard time understanding these numbers...  did some people just pay ridiculous amounts?  I found pictures, our house is just as nice as the ones that sold.

Our home fits our needs, 3 bed, 2 bath, and we have 2 kids.  We've been fixing it up more as we've lived there, so I'd honestly hate to leave now!  But if there's a way to get some value out of this, it's not our dream home either.  (I'd like some more outdoor yard space.)

I still owe $148k on the loan.  Is there anything beneficial I can do?  Eliminate mortgage insurance, etc?  I used a USDA home loan to purchase.

[MDM]

You could ask some (2? 4?) real estate agents if they would give you a no-fee, no-obligation estimate of your home's selling price. 

If you do decide to sell, then you'll have to decide whether to go FSBO or work with a (maybe one of the 2-4) real estate agent on the sale.  But one step at a time....

P.S.  Eliminating PMI is often a very good thing to do in any case.

[forummm]

1) Be happy about your good fortune
2) Eliminate PMI if you can
3) Keep saving the $

There's no need to pull money out of your mortgage at this time if your loan is good. Moving is kind of a big hassle (and expense). But if you could find a much cheaper place that meets your needs, it could be something to consider.

[FrugalZony]

Even if your house appreciated that much, DO NOT underestimate the transaction cost of selling a house.
These would most likely wipe out all, or at least a large portion of your profit.

You'll have to consider 6% in realtor fees, which are just GONE. Plus any concessions on closing cost the buyers will ask you plus your own closing cost.

Whatever the net to you will not be worth selling it.

Unless you have a way to save on realtor fees, downsize to eliminate PMI and possibly lower taxes or have some other benefit out of this, as a shorter commute, I'd stay put and try to refinance if that helps eliminate PMI. But do not pull out equity.

[CashFlowDiaries]

Mortgage lenders dont eliminate PMI until the value is 78% of the purchase price.  Unless, you provide proof  (an actual appraisal) that your home is now worth more to cover 80% of that purchase price.  Double check with your lender though as Im not 100% sure. 

If you do in fact have all that equity, your options are either to sell, then use that money to buy a cheaper place where you would actually benefit from the sale. End up with a cheaper mortgage!  Dont sell it and buy something bigger with a bigger mortgage payment.  That defeats the purpose.

What I would do since I love investing in real estate, is take a home equity or HELOC on your new equity and use that money to invest.  If you can use that money to invest in a vehicle that provides a greater return then what the interest rate is on your new loan/heloc, then you are making cash flow!!

Or you could do nothing and be glad that your net worth has significantly increase because of your house.  Thats always good too!

[arebelspy]

1) Be happy about your good fortune
2) Eliminate PMI if you can
3) Keep saving the $

+1.

And I'd add #4: Don't fall prey to the Wealth Effect.

[Bearded Man]

Personally I wouldn't sell it. If you expect rents and prices to keep rising in your area, if you have the money to invest, I'd buy another. My net worth has been increasing as a result thanks to mostly buying after the crash and searching hard for deals, but what's more important to me is the cash flow.

One property I bought almost 5 years ago is giving me $700 a month in net income (yes after all expenses). I bought the property for 64K. It is worth a lot more than that now, but I don't sell it, because I would need 210K at 4% to provide equivalent returns. It's also paid off, so I could always move back into it and live off my other rentals.

I could sell it and make more money in an index fund in up years, but this is a nice way to diversify from the ups and downs, not to mention the risks of the stock market. Right now I'm basically shifting everything to real estate due to interest rates, but once I'm maxed out there, the index fund "fund" will be built up again.

[clarkfan1979]

If you aren't significantly downsizing or moving closer to work there is nothing to gain.