Our house is currently on the market. If you’ve ever been in this position, you know what a headache – and a heartache – this process can be. Having to scurry to clean the house for a last-minute showing, reorganizing rooms to make them appear larger, and trying to explain to young children that they’ll make the move with you (my three-year-old thought just her daddy and I were moving!) are just some of the trials.
And then there’s the price tag.
Having your home for sale is an emotional roller coaster. Start with the fact that you bought the house – so you obviously liked it – only to have potential buyer after potential buyer tell you they don’t like it can make you feel downright judged. Why don’t they like it? Do they hate my style of decorating? Is my furniture too bulky? The old adage “it’s not you, it’s me” feels trite and, frankly, fake.
Our Asking Price
When we met with our listing agent more than two months ago now, we had an idea of what price we should list our house. Based on the neighborhood, we were thinking in the mid $150s. However, a recent sale just down the street had our Realtor thinking we could go higher. Ultimately, we went with a listing price of $163,900. I thought it was $4,000-$5,000 too high, but went with the agent’s professional judgment instead of my own gut. Over the past several months, we’ve seen people come and go, without a single offer. I take this as proof that our asking price is, indeed, too high.
But here’s the thing: we want that money. Between an ill-advised addition we put on the house nearly four years ago and the depressed housing market, we’re simply hoping to get enough out of the sale of this house to put down a ten percent down payment on our next home (thanks to a great lender, just ten percent down will help us avoid private mortgage insurance). For us, that $5,000 could mean the difference between PMI or no PMI on our next loan.
What’s $5,000 Worth?
I started examining exactly what a difference of $5,000 on the sale price of our home would ultimately mean to my family’s finances. It seems like a huge amount on the surface. But I was surprised to see how little it would matter with respect to our next mortgage.
I used a mortgage calculator to compare loans:
- Scenario A: 30-year fixed loan with an interest rate of 4.25 percent. The purchase price would be $200,000 with a 10 percent down payment of $20,000. Factoring in escrow – $2500/year for taxes and $1000 for homeowner’s insurance – we’d be paying $1177.16 a month
- Scenario B: still a 30-year fixed loan with that 4.25 percent interest rate – however, with a down payment of just $15,000 (7.5 percent of the $200,000 purchase price), we’d face private mortgage insurance of 0.78 percent. We’d pay $1322.01 a month for the first seven years of the loan, then $1201.76 for the remaining 23 years
Over the life of the loan, that original $5,000 that would go toward the down payment in Scenario A would save us $19,076. Split up over 360 months (a 30-month term), it breaks down to just $53 a month.
Mortgage Rates Mix It Up
I’m not trying to suggest that $53 a month is chump change – I’m sure that five years from now, 15 years from now, 30 years from now, I’d appreciate having that extra cash in my wallet instead of sending it to my lender. These days, I go out of my way to save $53 a month. However, dropping my home’s purchase price $5,000 should help us sell our home faster.
For example, say we’d originally gone with a lower listing price when we first put our home on the market in February. At the time, interest rates were about half-a-percent lower – around 3.75 percent instead of today’s rate of 4.25 percent. Had we sold our home for $5,000 less than our current asking price – $158,900 instead of $163,900 – and locked in that lower interest rate, we’d have paid $1268.68 a month even with mortgage insurance. Over the course of the loan, we’d have paid about $700 less had we sold our home for $158,900 back in February than even if we sold it for our full listing price today.
Mortgage rates are continuing to climb, meaning our monthly mortgage on a new home is going to keep climbing regardless of whether we can bank an extra $5,000 on the sale of our home.
Reader, do you think we should drop our asking price?