Selling Home: Finance question

[Speedling]

For those of you that have moved before, and those of you that may be able to give advice about finances....

I have always been proud to say I am good about my finances and quite frankly, I need to be. I don't make a ton of money, and need to budget for most things fairly tight. That being said, we have never NOT had money for going out for dinner, or taking the boat out for a cruise or not go on a weekend vacation etc.

We are selling our house. Catch is, we have an equity loan, which was used to purchase our boat. Remaining balance is about $9k. We hope to sell our house soon, but in the meantime, we are wondering about what to do with the "extra" cash.
1. Pay towards the equity loan
2. Save the cash for unexpected costs

Info: We have a couple months saved away because I work construction and usually have a couple months off in the winter. I also have a part time job now that will allow me to work as many or as little hours as I want, but it only pays $15 an hour, so while it helps in those off months, it's not a ton. 1099 at the end of the year from that as well.

So what would you do? Stock pile the money for now, or pay off the debt? Not paying off the equity loan means it comes out of equity, which isn't SO bad, because even if someone low balls us on price for the house, we should come out well ahead (I built myself and saved a good bit 8 years ago). We are also contingent on a house that is about 15-20k less than our asking so we should be fine once the dust is settled, but we want to make the right decision.

Thanks!
Speedling

 

[itsdgm]

Disclaimer: I'm not a real estate expert here. So take this with a grain of salt..

But isnt your equity loan tied into your property? In other words, isnt your home used as equity in order to secure the loan? If so, I don't think you'd clear title during the sale if there's a loan outstanding on the property. Wouldn't it have to be paid in order for the title to be released to the new owner?

Again, I'm not an expert here. Good luck with the sale by the way!!

 

[Speedling]

Disclaimer: I'm not a real estate expert here. So take this with a grain of salt..

But isnt your equity loan tied into your property? In other words, isnt your home used as equity in order to secure the loan? If so, I don't think you'd clear title during the sale if there's a loan outstanding on the property. Wouldn't it have to be paid in order for the title to be released to the new owner?

Again, I'm not an expert here. Good luck with the sale by the way!!

Yes, the equity loan would be cleared from the sale of the property.
This would net less towards the new home, thus increasing the mortgage, which we don't really want to do. I don't know how much it would increase it, but basically it would stretch it over 30 years.

So perhaps a better way to phrase it would be:
Let the equity loan roll into the new mortgage in order to keep more cash on hand, or reduce the monthly payment by paying off as much of the equity loan NOW?

 

[Big Shasta]

Here's how I see it.

If you take savings and pay off the home equity loan and the house doesn't sell then you may have a tough time in the off season since you spent savings paying off the loan.

I say let the equity at the sale pay the loan off.

Will you have enough for 20% down on the new house or do you have some other way to prevent paying PMI since you don't have 20% equity? Like an 80/20 loan or a VA loan. Either way, If you needed more money to make the 80% equity on the new house you could use the money in savings that you were going to use to pay off the equity loan. (If your in ok enough shape to part with it).

Bottom line, With the uncertainty of winter coming up, hold on to your emergency fund and see how the sale/purchase plays out.

 

[scokill]

Agree with Big Shasta above.

 

[Shuck Water]

Couple of observations:
-Rolling $9k into a new mortgage "i.e. levering up" is only going to bump your payment about $40 per month on a 30 year loan.
-In most situations, PMI is something to avoid if possible. However, if crossing the 80/20 threshold is unavoidable, hold the line at 90% loan to value. Borrowing more than 90% will have a costly impact. PMI rates jump from the 33-47 basis points to over 100 basis points.
-Throw all of this out the window if you are getting a VA loan. VA has no PMI and great rates. I'd borrow 100% of the purchase price in that situation (assuming the payment is within your budget)

 

[Speedling]

I will have more than 30 percent even after equity loan.
Sounds like the cash is the way to go!
Thanks guys!

 

[0627Devildog]

@Speedling - With everything you have laid out above, I would keep the cash in pocket for unexpected expenses. Moving itself is not a cheap proposition and a new house will bring new expenses even if it is set up exactly how you want it. If you have no concern about being upside down in your current house and having the requisite down payment on the new house I would hold the cash for sure. $9k isn't really a lot of money to roll into a mortgage (or in this case have up front instead of taking from the "profits" of the sale). But it can certainly be stretched to help ease other day to day burdens.