Keep and Buy vs. Sell and Buy: Using Your 3% Home to Move Up

One of our clients was shocked by how much a neighbor was paying in rent for a similar home. In the same conversation, they told us they couldn't afford to move.

Then the conversation changed. What if they could access some of their equity, keep the house, and let that rent help cover the payment while they bought the next one?

It had never occurred to them. Like most owners, they assumed the only path was to sell and buy.

Option 1: Sell and buy

This is the simple route. You sell, pay off the old loan and put your equity toward the next home.

Your new mortgage may not grow as much as you'd fear, because that equity becomes your down payment. The big change is often the jump in rate.

The trade-off is that once you sell, your low rate and that property's future appreciation are gone. For many people, this is still the right call, especially if they want to simplify or need all their cash.

Option 2: Keep and buy

Here, you hold on to your current home and turn it into a rental.

Say you could rent the home for $5,000 to $6,000 a month, and your payment is at or below that. A tenant could cover the payment on your old place, keeping your low rate in force. In the best case, that home is close to net zero each month, before you count other costs.

You then use some of your equity to help buy the next home.

Ways to access your equity

You don't always have to replace your existing loan. Depending on your situation, the options include:

• A HELOC, which can leave your first mortgage in place
• A cash-out refinance, which replaces your existing loan and rate, so it won't suit everyone
• A bridge loan, which can help you buy before your current home sells

Each has its own costs, qualifying rules and risks. We'd compare them using your real numbers.

Run the numbers first

This only works with planning in advance. Before you decide, find out:

1. What will the home realistically rent for?
2. How much of your payment will that rent cover?
3. How much equity can you access, and at what cost?
4. Will you qualify for the new loan? Lenders have their own rules on counting rental income.
5. What's your backup plan? Budget for vacancies, repairs, insurance, property management and rising costs.
6. What are the tax consequences? Turning a primary home into a rental can change your tax picture, so talk with a tax professional.

Is being a landlord right for you?

Tenants, repairs and vacancies are real work and real risk. If that's not for you, selling may be the better answer. The point isn't that everyone should keep their home. It's that you should know this option exists before you rule it out.

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Curious whether keep and buy could work for you? Talk to our team. You don't have to move to have a plan.

Related reading: House Rich, Move Poor: Why San Diego Homeowners Feel Stuck

Disclaimer: Educational purposes only. The GreenHouse Group Inc. (CA DRE #01859042 | NMLS #366847). We are real estate and mortgage professionals, not CPAs, tax advisors or attorneys. This content is not individualized real estate, financial, tax, legal or lending advice. Examples are illustrations, not guarantees of rent, savings or approval. Loan programs and terms depend on eligibility and availability. Borrowing against your home puts it at risk as collateral, and rental property carries financial and legal responsibilities. Consult qualified professionals about your situation.