Underwater mortgage and our future plans...looking for advice!

[masalamomma]

Originally Posted by bobs11

I'm not delusional...I even said it could easily be 10 years before prices recover (and our son will barely be in Jr. High).

And thanks for the family advice, but I'm not sure how deciding to wait a couple years until our financial situation is more secure is waiting for the perfect time.

I'm also not sure why you sound so defensive the whole time.

Actually I was being supportive and defending you against the people who were suggesting you shouldn't have another kid now..... it's your life afterall....but if that is how you took it....sorry.

As for the "defensive" claim - I don't see how clarifying is defensive - it is a challenge to communicate online you know.....but AGAIN if that is how you took it....sorry. Maybe someone is a wee bit sensitive when someone is not telling them EXACTLY what they want to hear?

[bobs11]

Originally Posted by masalamomma

Actually I was being supportive and defending you against the people who were suggesting you shouldn't have another kid now..... it's your life afterall....but if that is how you took it....sorry.

As for the "defensive" claim - I don't see how clarifying is defensive - it is a challenge to communicate online you know.....but AGAIN if that is how you took it....sorry. Maybe someone is a wee bit sensitive when someone is not telling them EXACTLY what they want to hear?

Nope...not sensitive. I thought when you said "But hey, good luck with that plan," it was meant negatively, but if I misread that, I apologize.

[BayAreaHillbilly]

Ignore the house flippers and get rich quick people on this thread. They have no concept of the buy and hold strategy for property. Ever notice that that's precisely what many Asian immigrants do? After 30 years they have major income property operations. Who cares what the assessed value is (other than vis a vis taxation) it's the cash flow that matters. Especially 20 years or more down the road.

[Charles]

Is it time for underwater homeowners to be given a get-out-of-debt-free card? - Los Angeles Times

[Raelyn28]

Bob, we are in the same exact situation and we will be forced to move out of state with a job relocation. We are going to short-sale the house take the loss (the bank cannot ask for the 50K). Did you know that? There is a new law that was just passed in 2007. Yes.. your credit will be dinged for it but then you could rent for a few years until the economy stabalizes and then have time to look around for a house while you are saving and your credit is building back up. Trust me.. I have went over all the options with people that I respect, real estate experts and a real estate attorney. Short sale although not being a perfect option is your best bet and truthfully 50K is not that bad... Get out of this while you can. Regarding your thoughts on renting the place out....I actually have friends that buy and sell homes and you need to remember that sometimes renters trash your place and then you have to pay for costly repairs because you are responsible as the owner for everything that breaks down, etc... Good luck and I will be thinking of you

Originally Posted by bobs11

Hi everybody. I was hoping to post our current financial picture, and what I think are the best plans for the future. If you see anything wrong with this picture, or other suggestions, I would love to hear them!

Current Situation: We are currently in a 2 bedroom townhouse for myself, my wife, and our infant son. Our outstanding mortgage is $300k, but the value is down to about $250k, leaving us $50k or so underwater. We currently have about $140k in savings, and no debt (other than the mortgage). We have two cars that run well (and are paid off), and no student loans or credit card debt. Our credit rating when we bought 4 years ago was in the high 700s if I remember correctly. We both have secure employment.

We currently have a mortgage/prop taxes/HOA of about $2500 a month, and taking all expenses into account, we are able to save about $40k-50k a year.

Future Plans: I'm posting this in the Orange County forum, because eventually we would like to move there from LA County. Our son is still young, and looking to the future, we'd like to have another child. At that time our 1200 sq. ft, 2 bedroom townhouse is going to get a little cramped. We like the Huntington Beach and Los Alamitos area, and many things there are going for between $500k-700k.

Right now, my current plan is to stay where we are for another couple years. I think that's a good idea to help get our mortgage down closer to what the house is worth, and also as an opportunity to save more money. If we stay another two years, we should be able to save close to $225k total, which would then be enough to pay the difference on the mortgage, a downpayment on a new house, and still have some savings. In that time I also hope housing will stabilize (which could make a new house cheaper, but also put us further underwater).

My other thought is to keep the townhouse, rent it, and make up the difference. I figure that even if we have to make up $1000 difference every month, that $50k we're underwater would pay for 4 years. The only drawback I see here is the hassle of renting, and how that would affect our ability to get approved for a new house.


So that's our situation. Good plan? Any other ideas of how we could go about it? Thanks in advance for any help you can provide.

Edit: Didn't see the "personal finance" sub-forum. If that would be a better fit, feel free to move this. Thanks.

[NYSD1995]

I am in almost the same situation with the same timeframe ~2 yrs. Wife and a 1yr old in about 1k sf. I am just about breakeven on debt/equity and could probably squeak out right now if I had to. I don't have the cash you have but we are planning to move to a cheaper area outside of CA. We have no risk of foreclosure or anything like that, easily can make our payments as we bought well below our means. We don't really want to move right now either, no sooner than 2 years from now.

We would most likely rent the property out if possible and rent in our new location for one or two years. At that point we would want to buy a new house so we would either sell it, do a short sale or continue to rent it out if necessary.

Short sale is an option you should consider if you don't want to play landlord. We have a friend that did it and was able to buy another house a year later. The ratios are set up so that practically anyone in CA can qualify. However assuming you are willing to deal with being a landlord it seems like the better option. Several of my friends are doing that now, there are some pretty good tax scenarios that open up as a result as well.

Either way it doesn't seem to make much sense to cut and run now, not while you have a couple years to pay down equity. Best case for me would be a straight sale in 2 years, I certainly am not going to pony up any cash before I absolutely have to and unlike some people I am no good at predicting the future.

[Raelyn28]

Very good information. Many people are going through this situation right now. I feel for them. We are going through it because my husbands company downsized and now we need to relocate to another area but we have only owned our home for a little under 3-years. With the economy the way it is we have lost equity...

Originally Posted by Sassberto

I am in almost the same situation with the same timeframe ~2 yrs. Wife and a 1yr old in about 1k sf. I am just about breakeven on debt/equity and could probably squeak out right now if I had to. I don't have the cash you have but we are planning to move to a cheaper area outside of CA. We have no risk of foreclosure or anything like that, easily can make our payments as we bought well below our means. We don't really want to move right now either, no sooner than 2 years from now.

We would most likely rent the property out if possible and rent in our new location for one or two years. At that point we would want to buy a new house so we would either sell it, do a short sale or continue to rent it out if necessary.

Short sale is an option you should consider if you don't want to play landlord. We have a friend that did it and was able to buy another house a year later. The ratios are set up so that practically anyone in CA can qualify. However assuming you are willing to deal with being a landlord it seems like the better option. Several of my friends are doing that now, there are some pretty good tax scenarios that open up as a result as well.

Either way it doesn't seem to make much sense to cut and run now, not while you have a couple years to pay down equity. Best case for me would be a straight sale in 2 years, I certainly am not going to pony up any cash before I absolutely have to and unlike some people I am no good at predicting the future.

[Raelyn28]

Hi, It seems like many people on this OC forum just cannot stand to hear reality spoken for some reason. Not sure why... but it happens quite often. I have even been accused of never living in OC. Don't worry about it just stand your ground and state your opinion. This is a free country. If they don't like what you say too bad...

Originally Posted by bobs11

I'm not delusional...I even said it could easily be 10 years before prices recover (and our son will barely be in Jr. High).

And thanks for the family advice, but I'm not sure how deciding to wait a couple years until our financial situation is more secure is waiting for the perfect time.

I'm also not sure why you sound so defensive the whole time.

[jordanrbennett]

bobs11,
The one nice thing about the crash in housing prices is that it is a great time to sell your current place and move into a bigger place at a much smaller premium than would be paid in a regular market. However, if it is financially possible, I would do everything possible to avoid selling in this market. If you are able to hold on and rent your current condo, I think that is your best bet. If you can save $150K, with 25% down (which is really the max you would need down to obtain the best interest rate), you could get yourself into a $600K home, which in this market is a LOT of home. If you look at the stock market after the depression or any other significant downturn, the returns that can be earned after the crash are much greater than what is earned on average. Keeping in mind that in the history of the market, an average rate of around 10% could have been earned (taking into consideration the great depression), I would make sure that I was well diversified, and earning a good return right now. Given this scenario, you should be able to get into a new place within a year and a half maximum. Nevertheless, given the fact that around 25% of home purchases right now are by investors, that is a good indication that prices are at such a level that many intelligent people think the bottom is near. It will take several months to see the bottom after it has occurred, at which point I think prices will begin to increase somewhat dramatically in the beginning, given the amount of government intervention that has taken place thus far and considering the typical lag in government spending and the corresponding uptick in the economy.