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Need advice from home owners/sellers
I know over the past few years I've seen posts here about short sales, renting out houses, and various strategies for upgrading in this crappy market, and I'm looking for some words of wisdom for my family's situation.
It's a pretty common story. DH and I bought our little three bedroom ranch about six years ago, so of course we are now upside-down on our mortgage by about $60k. Our original plan was to stay here for about five years and then upgrade, but obviously that's just not so simple now. So before we started trying for "a baby" we changed the plan to staying here until we planned to have a second child. Ahh, the best laid plans...second child came two minutes after the first. Last summer we planned to cross our fingers that the market would improve a bit in the next year, we'd pay a tad more toward our home's principal, and some miracle would present itself to help us get out of here.
But here we are pretty much where we were last year with about a year until we'd like to move our twins into separate rooms and our house will feel that much smaller. We're pretty much resolved to give it one more year before we actively try to get out of here, but we want to approach this year wisely financially. Foreclosing is just not for us. A short sale sounds a little better. Renting out our house would be stressful, but if it's what's best, maybe that could work. The trouble is our negative equity, our nearly non-exitent savings, and the fact that even in the next year we could probably only save about 10% toward a downpayment on a new house.
Are we just stuck? Should we put more $ toward our mortgage? Should we make home improvements? Should we save, save, save, and save some more? WWYD? Any mortgage people or financial advisers you would recommend to help us make a plan?
Re: Need advice from home owners/sellers
Take this from someone who has not had to do any of this before, but just has a very small amount of knowledge from a few friends who have gone through the process of a short sale or foreclosure....
I assume your plan is to buy another house first, and then try to get rid of your current house? Is your current house in both your and your DH's names? Would you be approved for a second mortgage, financially? If you wouldn't be approved for a second mortgage while you're still holding your current home, then you'd have to get rid of the current home first, which basically will put you into a rental (because of the hit on your credit when walking away from the current home). Which might be ok if you can find a rental house large enough for your needs, but that would be for you to decide.
If you would be approved for a second mortgage, then you have the option of getting your next house lined up, then submitting a hardship letter to your bank to see if they would accept a short sale, or you can walk away and foreclose. There are a lot of moral issues with this situation (on both sides) that I won't touch upon because I know my personal feelings on the subject are often not shared by others.
One thing to consider is that if you sold your current home at a loss, yes you would lose some money. However, you also stand to "gain" that money back in terms of purchasing a new home at a lower price, because it too will have a decreased value in this market. The problem arises with how to pay for that shortage on the sale of the current home, because with stricter lending, you're probably not going to be able to roll it into the new mortgage (I assume this, but really don't know for sure).
If you decide to stay in your current home, I wouldn't recommend any major improvements. Basically I would do the minimum to maintain the home and that's it. (Unless you decide to stay there long-term, in which case you have to factor your own need into the value of the improvements.)
Ultimately, it's a very personal decision.
ETA: sorry, I didn't realize that got so long!
Thanks for the response, Mara. Those are pretty much the thoughts that spin around in my head and land with me thinking we're just stuck. Maybe this year that miracle will present itself, perhaps in the form of a short refinance program that actually has legs.
If anyone has gone through any of the scenarios Mara spelled out, please share your experiences. While none of them seem quite right for us, I'm considering all options.
I don't have any experience, though I'm in the same situation. I bought my "little 3 bedroom ranch" 8 years ago and planned on staying 5 max. Our hope is to eventually get a house in just DH's name & rent ours.
I wouldn't put anything additional towards your principal. I used to but at this point, it's senseless. My house is worth $40K less than I owe, if I'm lucky. It's probably more like $50K. I also wouldn't do any improvements, unless they're necessary. I've put off getting C/A because I honestly don't think it's worth it.
My cousin just got a short sale approved yesterday & they plan to rent for at least 3 years because their credit can't handle a mortgage now.
Good luck, I feel your pain. Well, a little, I don't have twins
Everything Wedding ♥ Persnickety Plates
I'm not really any more help than Mara, but I second pretty much everything she said. We're in a similar boat, although not so dire. The condo next to ours may have just sold for a few thousand dollars more than we owe (hasn't been listed on any of the free websites yet, but I'm hopeful that they didn't take a lowball offer).
We've been doing a lot of home improvements because we'll likely stay in our condo for another few years and these improvements have made the house more liveable for that amount of time. If you're planning to move within a year, the most I would do is make sure you have decent curb appeal (shrubs, etc) and maybe a coat of paint right before putting it on the market. You will likely not get back your investment on anything more drastic than that.
I've also heard of several different new home companies offering up to 6 years leasing on your current home if you buy from them. Although I think they give you a break off of the price if you don't exercise this option (like $10,000 of purchase price if you don't, or something like that). I really do not know if this could be considered some type of scam or if it is really a good option for some people, though.
I know how you feel though. It really sucks feeling trapped when you thought you were doing the right thing 6 years ago.
DH bought our 3-bedroom ranch 5 years ago as a "starter home." Personally, I love our house and would be perfectly fine staying here forever (we only want 2 kids, and we have 3 living spaces between the family room, a finished basement, and a 4-seasons room). DH wants to upgrade at some point, but with each year that passes (and as neighboring homes sell for half the price he paid), it becomes less and less likely. Therefore, we have been putting money into making our house our "dream house." We are just about done redoing the kitchen, we put a full bath in the basement, we are redoing one of the upstairs bathrooms, refinishing floors, putting in carpet, etc etc etc. It sucks that we paid double what the homes are currently selling for, but we can afford it and we are making the best of it.
My sister bought a condo in Canton 6 years ago with the same idea... She and her husband have since moved to Traverse City -- since the mortgage was only in her name, they were able to buy their "forever home" under his name. And she is currently renting out her condo to a couple that has been living their for over 2 years. She loses about $250 a month on rent, but she figures she breaks about even between the tax write-off and the money she gets back on interest. She doesn't feel comfortable walking away from it since she made that financial obligation and hopes to continue to rent it out until things turn around.
Wwe bought a new house (we were approved for a second mortgage. not as much as we would have if we didnt have house #1, but it was enough), then rented out house #1. We also were able to get the mortgage company to do a modification of house #1's mortgage.
They dropped our interest rate really low for 2 years, then will gradually increase it 1% a year until we get back to our original interest rate (5 year program). With the modification we only lose about $60 per month (rent less the mortgage payment). It was a tough go with the mortgage company. I had to call weekly to make sure they were still rewviewing our case!
We are hoping that after the next 4 years that we will be able to sell our house for what we owe!! If not, then we might have to short sale. With our interest rate back up, we would lose about $300 per month renting and as much as the tax break is nice, the $300 per month is out of our pocket each month!
I'm not even sure sharing our situation will be helpful. We lived in Detroit, and really needed to get out of there. The neighborhood was declining fast. We knew that the house would never sell or rent for what DH owed (it's in his name).
To make a long story short, DH tried to work with GMAC and they said too bad, so sad. We listed it for over a year. They wouldn't approve a short sale until we received an offer. No one even looked at our house until it went to $13K. I think 2-3 people came to check it out. lol It started out at about $65K, I think.
We're not going down the road we wanted to, but we've tried every option to avoid this path.
I agree with a lot of what has been posted already, especially Callie. Minor updating isn't a bad idea, but in the end it won't matter if your home is in good shape.
If you're saying you're walking away, I certainly can't blame you in this situation. I couldn't see making payments on a mortgage for a house that appears to be worth absolutely nothing and has little hope of regaining much value anytime soon. Your attempt to sell proves that. Good luck, and thanks for sharing your experience with me.
Thanks!
Yea, he's walking away. It's a sucky situation. He bought the house 11 years ago when it was a pretty good neighborhood. Then people starting losing their homes, renters came in, our PD department was shut down...you know, downward spiral. lol I would never recommend living in Detroit based on taxes, lack of city services, and public safety alone. It makes me laugh that the house went down to $13K. It's ready to move in, big yard, 2 1/2 car garage, mostly finished basement. However, it is only 750 sq ft. I'm not sure how we lived in such a small space with all of my crap! ha ha!
We were in the same situation (minus kids) wanting to upgrade. We were fortunate enough where we were able to get approved for a second mortgage. We chose to rent out our first home (which I bought myself before we met). We have been very blessed for the past 9 months with our renter. He signed an 18 month lease and we hope he wants to extend (which he said was a possibility). We hope that our next renter is as great as this one.