VERY house poor, should we sell?

[nome220]

My husband and I, and 2 very young kids just recently relocated to a major east coast city where the cost of living is very high. About 7 months ago we bought a house here, which we now regret. The mortgage payments account for about 60% of our monthly income, leaving us with nothing at the end of the month (literally, $0). We also have no savings. If I saw this as just a temporary situation, I might be inclined to wait it out, but our oldest kid doesn't start school for another 3 years, which would only save us about $500/month anyway (he is in daycare part time).

The ironic thing about this situation is that we both have pretty good jobs, and a decent household income (about $130K), so it just seems backwards that we are so poor. We also have a loan of about $20K to repay for the house downpayment, and $35K in student loans which are in forebearance. We are not paying either of those, and not putting any money into savings right now.

My question is, should we sell our house? We would lose the $10K or so we paid in closing costs, and all of the taxes/PMI we have been paying over the last 7 months. The good thing is we live in a great neighborhood with a strong real estate market, so we wouldn't lose much on the sale.

We see our options as:
-sell the house and move to a cheaper area in the city (would make our quality of life go down significantly, increase commuting time, and we are not fans of the suburbs)
-sell the house and move to another city (totally open to that since we really don't love it here, but the thought of another big move would be tough on our family)
-keep the house but move to a rentalin the area until we get our finances in order
-keep the house and stay living month to month with debt and no savings indefinitely.

What would you do? Any advice is appreciated.

[mrpaseo]

My husband and I, and 2 very young kids just recently relocated to a major east coast city where the cost of living is very high. About 7 months ago we bought a house here, which we now regret. The mortgage payments account for about 60% of our monthly income, leaving us with nothing at the end of the month (literally, $0). We also have no savings. If I saw this as just a temporary situation, I might be inclined to wait it out, but our oldest kid doesn't start school for another 3 years, which would only save us about $500/month anyway (he is in daycare part time).

The ironic thing about this situation is that we both have pretty good jobs, and a decent household income (about $130K), so it just seems backwards that we are so poor. We also have a loan of about $20K to repay for the house downpayment, and $35K in student loans which are in forebearance. We are not paying either of those, and not putting any money into savings right now.

My question is, should we sell our house? We would lose the $10K or so we paid in closing costs, and all of the taxes/PMI we have been paying over the last 7 months. The good thing is we live in a great neighborhood with a strong real estate market, so we wouldn't lose much on the sale.

We see our options as:
-sell the house and move to a cheaper area in the city (would make our quality of life go down significantly, increase commuting time, and we are not fans of the suburbs)
-sell the house and move to another city (totally open to that since we really don't love it here, but the thought of another big move would be tough on our family)
-keep the house but move to a rentalin the area until we get our finances in order
-keep the house and stay living month to month with debt and no savings indefinitely.

What would you do? Any advice is appreciated.

Numbers help with advise (Income, budget etc).

Questions:
Are you upsidedown in your budget? Meaning at the end of the month are you further in debt or are you balanced (not saving any but not going further into debt)?
Do you have an emergency fund?
If you decided to move where would that money come from?
Would your jobs move with you?
Are you able to cut costs in your budget to get ahead a little?

These are just some of the questions that popped in my head.

Ray

[LivingAlmostLarge]

What are the numbers for the mortgage? Income? Daycare?

Realize when you sell you pay usually for the realtors so you could end up bringing money to the table, depending on how much you put down.

How easy is it for you to realistically move to another city with a snap of your fingers and find jobs?

How much can you rent out your house for and at a loss>?

[nome220]

Thanks for your quick replies. To answer your questions, Ray, we are not underwater at the end of the month, just breaking even. Our NET income is about $7000, childcare $1000, mortgage is $4200, everything else (transportation, food, utilities, phones)is $1800. So, no there is nothing we can cut from our budget. It is bare bones as is. We have no extravagences. We don't even have cable and don't buy clothes or go out to dinner. And no, we have no emergency fund at all.

I don't think we could move to another city overnight, but it is definitely feasible. Both my husband and I are mid-career specialists with lots of experience. We had no problem finding jobs for this move. As for moving expenses, it cost us about $6000 last time, which we'd have to put on a credit card or borrow.

[bjl584]

I think that you should sell your house. A mortgage of 60% of your monthly take home is crazy. Put it on the market today. Even if you do take a loss you will be better off in the longrun.

If you aren't thrilled about where you live, then you could always move. You may want to stick it out until the place sells, then rent until you can secure jobs someplace else.

[DebbieL]

You cannot afford the house. The mortgage payment is way too high for your income.

[riverwed070707]

In no situation is a house that takes 60% of your income a good idea. I think the only choices you have at this time are to move to a rental in the city and keep the house until you can afford to sell (considering you even borrowed your DP, I don't think you can afford to sell), take in a roommate which could be tricky with two small kids or find a way to bring in more money -- second jobs, promotions, side business from home, etc. None of them are going to be easy choices and all have downsides. You can't just keep doing what you're doing because 1) you have loans you aren't paying on and 2) you're setting yourself up for a grim financial future.

In the meantime, if you have a line by line of your expenses, I'd venture to bet that this board could help you find some areas to trim.

[riverwed070707]

I think that you should sell your house. A mortgage of 60% of your monthly take home is crazy. Put it on the market today. Even if you do take a loss you will be better off in the longrun.

If you aren't thrilled about where you live, then you could always move. You may want to stick it out until the place sells, then rent until you can secure jobs someplace else.

But where does that money come from? You can't just take out a loan for selling costs -- they don't have any money to sell the place and they borrowed their DP. They has to be a short term financial change to even put them in a position to sell the place.

[disneysteve]

About 7 months ago we bought a house here, which we now regret. The mortgage payments account for about 60% of our monthly income

It is really disturbing to hear that after the whole real estate crisis, there are still lenders out there today willing to make insane loans like this. How the heck does anyone get a mortgage with a payment that equals 60% of their income? Anyone who opposes government regulation needs to take a look at stories like this.

OP, certainly you can't afford this house and need to do whatever you can to get out of it.

[mrpaseo]

Well, the good news is.

1. You and your husband both have jobs.
2. You are not going deeper, just having issues staying afloat.
3. You have an occupation that is easily transferable.
4. You are seeking guidance before you are sunk.

So keep in mind, that all is not grim.
______

That said, the first knee jerk answer is (As what has already been said) 60% of your income is way to much to be going only towards your house. I think you need to address each scenario that you have and see what the least damaging is.

For example:

Scenario 1: Stay at current house until you can afford other options.
1. Post your budget and let's see if we can not trim it up with some suggestions.
2. Develop a course of action for the next step (Sell/rent etc).
-----a. Sell: (What costs will you need to sell the house, what costs will you have to move etc.
-----b. Rent: (What costs will you have to move, what costs will you have to set up a new appartment/house, how much rent can you get for the house/will it cover the mortgage)


Scenario 2: Move to a new city
1. Locate job market, locate cost of living in those areas, locate area to move.
2. Money to move?
3. Time period, reverse planning plan.

etc.

That said, I think the first step is to lay out exactly your income and budget so we can take a look at it. This will help us help you trim the fat (If there is any) and recommend ways to save money for your emergency fund and moving costs, home sale costs... etc.

You do have to decide if you want to "Jump in" to a change or stay a float until you come up with the money. Again, each takes plans. You may be able to crawl out of this but it may take you seven years where as if you jump ship, you could recover with some bruises in a few years. again, the planning will help you decide.

Now, let's see those numbers.

Ray



Ray

[bjl584]

But where does that money come from? You can't just take out a loan for selling costs -- they don't have any money to sell the place and they borrowed their DP. They has to be a short term financial change to even put them in a position to sell the place.

Time to get creative. Get a loan for the difference if need be, take on extra work, sell stuff, do whatever it takes.

They could try to get a personal loan. Not the best option, but they will be able to pay it off quickly without that huge mortgage payment hanging over them.

[Redraidernurse]

Buying a house that you could not afford a really stupid decision (which you now realize). Sell the house. Whether you move cities or not is up to you.

[LivingAlmostLarge]

Couple of issues, they have a loan for the down payment already. Will they even qualify to borrow more money to get out of the house?

How expensive a home are we talking about selling? Is it even sellable? At $4200, is it $800k? That price of home isn't easy to sell either. Plus to sell a home, rather than buy it WON'T be $10k. If it's $800k we're looking more at $25-30k in closing costs, probably because you have to pay a realtor. There is a price point where it will likely be easier to sell using a realtor.

I agree with riverwed, selling the house is the best idea but it may not be financially feasible is the BIG problem.

The OP may have to eat some of the costs and rent it out, and rent something substantially cheaper to get foot hold on balancing their budget.

Based on gross $130k you should be spending about 25-30% on housing. $32.5k to $39k/year. So $3k/month on a mortgage PITI. That should include the down payment loan to boot.

So if you move out and rent I'd look for places around $2k, $1k to carry the mortgage and work from there? Maybe a 2 bd apartment for the four of you. It's not forever just until you can unload the house then you can rent something around $3k and work from there?

What can you rent the house out for? Again I may be wrong but is there really a strong market for people renting homes at $4200/month? Seems steep personally speaking from experience and we live in a hcola.

I do agree with others to sell but it's not always feasible unless another family member can loan you the money to get out of it?

[nome220]

thanks everyone for your replies. for those who were asking, here is our monthly budget:

mortgage 4200
childcare 1000
utilities (gas, electric and water) 250
phones 180 (required for jobs)
internet (required for jobs) 40
car insurance 120
gas for cars 100
other transportation (bus, parking) 50
groceries 700
restaurants, coffee and lunch at work 100
diapers 30

i really don't think there are areas that can be trimmed, but would appreciate any feedback.

also, to be fair to our mortgage lender, i was working full time when they made the loan (am now 3 days/week). but even so, that made the morgage 46% of our income. with 2 kids, going back to full time is not an option for our family.

[josetann]

thanks everyone for your replies. for those who were asking, here is our monthly budget:

mortgage 4200
childcare 1000
utilities (gas, electric and water) 250
phones 180 (required for jobs)
internet (required for jobs) 40
car insurance 120
gas for cars 100
other transportation (bus, parking) 50
groceries 700
restaurants, coffee and lunch at work 100
diapers 30

i really don't think there are areas that can be trimmed, but would appreciate any feedback.

also, to be fair to our mortgage lender, i was working full time when they made the loan (am now 3 days/week). but even so, that made the morgage 46% of our income. with 2 kids, going back to full time is not an option for our family.

Childcare - shop around; don't just get the cheapest of course, but maybe there's a cheaper option that's still decent. If you're just working part-time...maybe you could get with some other people who work part-time and have kids and swap babysitting? Just an idea.

Utilities - Just the standard advice, keep the temp higher in summer and lower in winter, turn off lights, etc. etc.

Phones - Are the $90/mo plans required for your job, or just A cellphone of some type that you can be reached at 24/7? Look into prepaid, even unlimited plans can be had for $50 or so a month.

Car Insurance - Shop around, get a few different quotes, see how much cheaper coverage would be if you upped your deductible (and bank the savings, so you can cover that higher deductible), etc.

Gas/Parking - Look into carpooling.

Restaurants et al - Stop or cut back, at least until you have a little more breathing room.

Diapers - Could try cloth diapers, supposed to be much cheaper in the long-run. Check Amazon's prices, sometimes you can get name-brands for less than the off-brands elsewhere.