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Selling for less than I owe...options? (Super Long!)
I created an AE b/c I know several people IRL who lurk on these boards...
Background: DH and I purchased a home in 2008. House was in foreclosure and we got a great deal for the time. Neighborhood is transitional. Our immediate area is nice-ish, but it's in a weak school district and houses in a mile radius are now selling for less than what we purchased ours for.
Situation: DH will be graduating from medical school in May. We find out in March where he has matched for residency. We are living off of my salary right now and doing ok, but we now have two children and b/c of daycare costs, etc. our budget is stretched thin. We have approx. $10,000 in savings (not counting retirement, which we won't touch) but are not actively adding to it. I do have a bonus coming in March (approx. $7K) and potentially some sort of tax refund (~$2K). We are meeting with several RE Agents in the next few days and will get a better idea from them our home's market value, what we should list at, etc. I'm just guessing based on the comps I've found, but I think we'll have to bring approx $20K to the table just to cover the difference in price and mortgage. We might be able to cover this (assuming nothing happens in the interim), but it would literally wipe us out, leaving us with no safety net, something I'm obviously not comfortable with. Throw in the added costs of moving cross-country, deposits/fees for the apartment we'd be moving into, etc. So my first question is what are our options for covering this $20K spread?We don't want to rent it out; we'd prefer to wipe our hands clean of it if possible since we'll be out of state. Is it possible to take out a personal loan to cover it? We do have access to residency loans, but I'm not sure of timing and if we can use one loan to cover the next. Not sure how that works...
Also, we gutted the house and renovated it about 2 years ago. New hard wood floors, a brand new kitchen (cabinets, countertops, etc), a new hvac system. Basically, you name it, we did it. No other houses in our neighborhood are updated like this. Most were built in the 70s and the original owners live there. We'll need to sell the house quickly (we have 3 months from when we can list it to when my husband would start his job), but given that it's updated and in better condition than most around I'm not really inclined to make any more repairs/updates on the house, even if the buyers request it. It's hard for me to swallow putting any more money in the house when we'll be losing money overall. Is this justifiable or do we need to be flexible here? Obviously I'm jumping the gun a bit, but I'm trying to think through it all. If you can't tell, I'm fretting just a bit over all of this.
Re: Selling for less than I owe...options? (Super Long!)
What is the market like in your area? Do houses in the same condition typically sell in 90 days or less?
I have no alternate ideas for paying off the remaining $20k. I guess you might be able to get a loan, but considering your finances the bank might not like your DTI. Do you have family that can help? That's a crap-ton of money to borrow, but your options are slim.
You might have to come to terms with the reality that you'll either have to drain your savings, rent the house out or just walk away from it. Tens of thousands of people (probably more than that actually) have had to meet that exact same reality over the past few years.
http://pandce.proboards.com/index.cgi#general
To answer your first question, it's hard to say what the market's like, really. There are no houses like this in our immediate neighborhood for sale. The ones that are for sale are in pretty rough shape and are listed for approx $40K less than what we owe on our mortgage. I've seen investors sweep in and pick those up really quickly and cheaply, but I haven't seen any back on the market yet. People seem to be hunkering down and waiting out the down economy. As I sort of mentioned earlier, most of my neighbors are older (retired even) and have been here since the houses were built in the 70s. I don't see them going anywhere anytime soon.
I know it's hard to answer these questions given how little info I'm able to provide. I really appreciate the feedback you did give.
I hadn't thought about a family loan. I'm not a fan of this, but my husband's grandma has provided loans to his brother before and I think she'd be willing if it came to that. I feel confident we could pay it back quickly since we'll presumably (finally!) be a 2 income family.
A short sale has crossed my mind, but I haven't actually voiced it to my husband. It makes me a little sick to my stomach to even think about. I hate the idea obviously. I wonder if it would even be an option, though, given our income will jump in the next year once he graduates. I suppose I should at least start researching it just in case. Blah.
A short sale will likely screw your credit plus I'm not sure that you'd qualify considering the amount of money you have in the bank.
I absolutely hate borrowing money and I really despise the idea of mixing family and business, but if you have someone able and willing... that's the route I'd take. But pay it back ASAP.
You really don't have many options if you're underwater on a house. It sucks, but its really common now. Find whatever option is the least painful and go for it.
http://pandce.proboards.com/index.cgi#general
Thanks again. I think you're confirming what I knew (and didn't want to really admit). Kills me that 1) we've worked really hard to build up fantastic credit scores and now there's a possibility of ruining that and 2) that what we considered to be a really fantastic and even financially savvy idea (buying a house for really cheap) is now becoming such a nightmare.
I totally missed the residency loan in the OP.
BlueHorn... definitely check on that with your H's college. That's another very viable option. Honestly, it's coming down to grandma's money or the residency loan for me.
It seems like you have the means to keep your savings and not wreck your credit. It might be humbling (if you have to ask grandma) and definitely not ideal (it's always better to walk away free and clear), but it's better than the alternatives (long-distance landlord, foreclosure, etc).
http://pandce.proboards.com/index.cgi#general
Again, I want to thank you all for taking the time to comment and make suggestions. You've all given me a lot to think about, and if anything I know I have options (although none are super awesome!).
I think the residency loan is what we're leaning towards right now. I spoke to my husband last night, and he's going to consult with his financial aid contact to discuss timing. My main concern is that we won't get it in time for the closing. At least we know that if we have to wipe savings and even borrow from a family member for closing, it will be temporary until the residency loan comes in.
I was open to the long distance landlord situation, especially since we have several friends in the neighborhood who could drive by periodically, but my husband agrees with you all and thinks that we HAVE to wipe our hands clean of it now.
And to address some of swimbike's thoughts--Mortgage is in both of our names, so a short sale would be our very, very last option. And you're right, buying a home is not even on our radar for the next several years. I hate the thought of moving from a large house to a smaller apartment (especially with 2 young children and 2 large dogs), but it makes the most sense for us financially at this point in our lives. We won't have money for a downpayment, and who knows where we'll be in four years. I also appreciate that you addressed the "psychological pain." It is something that I'm struggling with, but it is nice to know that we hopefully won't ever be in this situation again.
As far as digging for change in the couch, you better believe we've been doing just that. I'm depositing savings bonds that were given to me as gifts as a child (all have matured); we've cancelled cable and gym memberships; we're selling all of our baby stuff and other various things in our house (less stuff to move too, right?); and I've even set up a bartering system with a friend who works at Starbucks to fill my coffee addiction. We are bare bones with our budget, and we're trying to turn it into a little game. "Who can save the most this week?" kind of thing.
We have an agent coming to our house on Monday who will help us price the house. I'm definitely anxious about it, but at least afterwards I'll have a better idea of what we're looking at.