This past Spring my wife and I sold our house. We had spent 8 years in it, our first home (a townhome in community we really enjoyed living in). We made a very nice profit on it (bought for $130k, sold it for $275k). Our house sold very quickly - 2 days on the market - and it caught us off guard. We were thrilled at the time, but it was stressful trying to find our 'dream home' with just 2.5 months before closing on this sale.

We spent about 6 weeks looking at purchasing a larger single home in a community fairly far from where we were living, but never found the right house for us. We got scared, being under the pressure of a looming closing, and wound up looking at houses about 10 minutes away (except for rush hour, when it's 25 minutes away...). Although I wasn't sold on the neighborhood, we loved the house and purchased a 4 br house for $385k. I put down $105k on it.

We moved into this new, much larger and nicer home, in July. From almost day one, my wife has hated it. Not the house, but the neighborhood. And I am not loving it either. Our neighbors are all much older (70's), and there are no young children in the area (I have 2 young kids) even though we were told by our then realtor that there were. But perhaps just as annoying is that there is a gun club/shooting range about a mile from my house and in the summer you can hear the sound of gunshots at times, especially on some nights until 10pm at night! We had no idea before purchasing/moving in that this would be the case.

My wife, about 2 months ago, after having been in the house only a month, dropped the bombshell on me that I suspected but didn't want to believe - that she wanted to move back to our old neighborhood. We've been devastated/sad about this and I was hoping it was simply buyer's remorse but she is insisting that she will never change her mind and I don't blame her - we just do not like this neighborhood/location. We royally screwed up.

So we met with a couple of realtors (not the one who we used before) and got some listing presentations. We've chosen one, and the plan now is to do a 'soft listing' of the house until Mid-January. The purpose of the 'soft-listing' is just to generate some interest, and give me time to make some cosmetic changes to the home as our realtor suggested (painting, some bathroom work, etc.). The house will not be on the MLS and no sign will be up as I didn't want it to be officially listed until after the christmas season.

The realtors all said we overpaid for the house at $385k, which I knew at the time but thought it was no big deal because we were certain we'd be here for a long time...boy were we wrong : ( The general consensus, based on comps, current market, is that the house should sell for somewhere in the $370k range, but the house is in such great showing condition that they feel there is a good chance it could sell for what I paid. The house was appraised by Wells Fargo/RELS via a 'Rapid Value' appraisal at 72%/100 LTV. The 'Rapid Value' document doesn't have a dollar figure on it. The mortgage agent I used said it appraised for $385k, what we paid for it. I assume he's not lying and they didn't just 'rapid' it through because of the large downpayment we made.

Either way, I am well aware that I will take a huge financial hit due to the closing costs/commission I'll pay to sell this house and buy another, and I'm prepared to not sell the house for what we paid for it.

If we eventually sell at $365k, after commissions/closing costs we're looking at having about $60k net cash back. I have about $10k in cash that I can add to that, so conservatively we estimate $70k in cash to purchase another house with.

We expect to purchase a smaller home in the $350k or under range. My calculations put the mortgage payment at under what I'm paying now, because the houses are cheaper and the taxes are MUCH lower in the township we want to move back to.

Based on this figure of $70k cash to buy, we wouldn't have enough of a downpayment to make it to 20%. Fortunately, I'm a vet and can qualify for a VA loan, so that's what I'm thinking right now would be the best approach - to put down the proceeds from the sale of this house, which would be under 20% but at least 10%.

So my understanding is that I'd have to pay a 1.15% funding fee that I can roll into the loan, but I wouldn't have to pay PMI, correct?

Other than having to finance the funding fee, what other negatives are there to the VA loan? Are there any other pitfalls with my scenario that you pro's can help me see? I very much appreciate any advice you can provide. My wife and I are devastated at the thought of the financial hit we'll take, but at the same time, we both know we do not want to continue to live in this house/township. I've tried to talk her into 'liking the place' but she's sticking to her guns and I don't blame her.

Not sure if it matters, but we have outstanding credit/credit scores (both in the 790 range) and I have a lot of money in my 401k but I refuse to take any of it out to fund this. So the way I see it, I'll lose half the equity we had accumulated in our home but that tradeoff is acceptable to us.

Mark,

From the info you have provided, a VA loan is probably the best option. VA rates are right in line with conventional and since you wouldn't have 20% down you would avoid PMI going the VA route. I believe the funding fee for 10% down is 1.25% and not 1.15% but I may be wrong. The only other option that would be worth looking at is a conventional loan with single premium financed MI. The financed MI premium works just like the VA funding fee. You need to speak with an experienced mortgage pro who can explore both options for you. 

Even though it's not pleasant losing some of the downpayment that you put into your place, feel blessed that you owned a previous home that did net you a very nice return on investment. There are so many homeowners out there who have lost 20% or more in property value and have no opportunity to sell without serious damage to their credit rating because they are underwater.  

The odds are in your favor that a home you buy today will appreciate over the next 5-10 years and will be a sound investment as well as a nice place to live.

Good Luck!

Bob - thank you for the great advice. I will look into the single premium MI - I wasn't aware there was such a thing. I suppose, if it is similar in cost to the VA loan, then it will just boil down to whether one is more attractice to buyers than the other.

After a few months of stewing and unhappiness with the situation, this week we're finally starting to sleep again at night knowing that we are fortunate enough to be able to even consider moving so quickly again.

Mark,

One advantage to the VA loan is that it is assumable with qualifying. If you ever want to sell and interest rates have significantly increased, having an assumable loan at a low interest rate can be attractive to a potential buyer.

By the way I admire your attitude.

Mark:  Bob gave some great advice, and yes, the VA funding fee is 1.25%. However, the LPMI that Bob suggested appears to be a more cost effective approach. yielding a lower premium than the 1.25% VAFF. 

Another consideration that you might want to discuss with your Realtor is requesting that the seller pay your closing costs. This would allow you to put 20% down and eliminate the LPMI all together.  This would be much more advantageous than submitting a reduced offer, if that is happening in your particular maket. 

I hope this helps!

Thanks Lea! I will definitely look into that when the time comes.

Over the past few weeks we've interviewed realtors and last week picked one. Last night, we signed the selling contract. For now they are just going to push it out to a number of websites and keep it low-key, as I insisted that I did not want a sign out front or, more importantly, it listed on the MLS during the November/December months. So the plan is to list it 'officially' in mid-January, after the holidays.

Just one more thing to add.  If you are 10% or greater disabled through the military then there is no funding fee........

Just making sure you explore all options and have all the info....