Underwater mortgage and our future plans...looking for advice! (Huntington Beach: foreclosure, rental)

[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.

[EscapeCalifornia]

What if your condo's worth $150k in two years? Don't forget it's going to cost money to sell it too. If you want out, I'd get out sooner than later.

[00molavi]

It is a difficult situation, but I will say that nobody really knows what the prices would be in 2 years. They can't even tell you right now if a house listed for X amount would sell $100K above or bellow asking, so forget the 2 year prediction. When you are ready to move to OC as far as jobs and everything else, then see how much the condo would rent for. Then maybe rent a house in OC for a year or two until you figure what you are doing; save and then buy. I think if you sell now you will take a 50K hit and you are not sure if you would recoup that. It seems like you have lived within your means and are not under water by any way or form.

[Charles]

There are costs of selling and buying, rule of thumb is 8%-10%.
What happens if interest rates go to 7% in three years?
As a family with two or more kids, how realistic is it to be a landlord on the condo?
Will both parents be working indefinitely?
Does future mortgage depend on two incomes? What if one person loses his job?
In general, it is better to move up in a down market. If everything goes down 10%, then the $250K condo goes down $25K but the move up house goes from $400K to $360K, a net benefit of $15K.
Do you max out your 401(k)s and Roth IRAs?
Do you have life insurance for both of you?
Do you have disability insurance?
Do you save for college educations?

Consider posting this on one of these other forums or subforums:

http://www.city-data.com/forum/busin...nce-investing/

http://www.city-data.com/forum/mortgages/

http://www.city-data.com/forum/personal-finance/

[bobs11]

$150k would be back to 1999 levels, and 62% off the peak. I guess that's possible, but like someone else said...hopefully then that would be good for the home we'd like to move to. Obviously then we'd have to spend a LOT more to get out of the house.

Both jobs are secure, with guaranteed minor raises every year, and we will both continue working. As for renting the townhouse, I was thinking that using a management company would be a lot easier (and worth the cut they would take).

Like I said, a moderator is welcome to move this if they see fit.

[killer2021]

This is a risky proposition but you could always try forcing the lender to renegotiate the terms of the loan.

Perhaps stop paying and when they try to collect or threaten foreclosure you could ask if they will lower the balance down to 250k. There is a lot of stuff being pushed through congress to force banks to do this, it is a form of bailout for the homeowner. Then pay the loan back up to date. It will ruin your credit but for 50k, it is worth it.

[BayAreaHillbilly]

Good, you have both a plan A and a plan B. I sort of like the renting it out idea, nothing like cash flow, in the long term.

[bobs11]

I'm definitely not going to do something risky like not making payments and hope the bank will forgive me. Last thing I need is them coming after my assets.

The renting idea intrigues me because, even though it might cost us for awhile, if I continue making an extra payment per year like I have been, in another 20 years we'll own the place outright. Then it turns into rental income for our later years, and eventually for our children. I also don't have to worry at all about the home's value as long as making up the difference isn't a problem. If home value's continue to sink, and we really do end up owing $100k...then it doesn't matter if we're renting it (not to mention the new house is probably cheaper, with a lower mortgage, and making up the difference is now even easier).

[flo2900]

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.

You owe 300k, have 140k in savings, save 40k a year. in 4 years you can pay off your condo!!!!
Why, why, why complicate your life?
Stay where you are, pay off your condo in 4 years and live rent free afterwards. If you want to buy more properties in 4 years do it AFTER you have the roof over your head paid off.
Please do not discount the fact that jobs are not forever, and possible health risks. Be conservative with your finances and you`ll win in the long run!

[bobs11]

Originally Posted by flo2900

You owe 300k, have 140k in savings, save 40k a year. in 4 years you can pay off your condo!!!!
Why, why, why complicate your life?
Stay where you are, pay off your condo in 4 years and live rent free afterwards. If you want to buy more properties in 4 years do it AFTER you have the roof over your head paid off.
Please do not discount the fact that jobs are not forever, and possible health risks. Be conservative with your finances and you`ll win in the long run!

That sounds good flo....but our place is only 2 bedrooms, 1200 sq ft, and we have one kid already, and we'd like a second soon (and maybe a third after that). Our place will just be too small!

We have very secure jobs in education (please, don't throw anything!) By my calculations, if we save for another three years we'll have enough to cover the $50k we owe, make a down payment on a new place up to $700k, and still have $50k in savings. Of course the big wildcards are the price of our home and a potential home. Any calculations I made three years ago are now out the window! Even if our place does drop some, I'm hoping the drops in a bigger/more expensive place will be even greater.

But of course there is always the idea of renting our townhouse and making up the difference. Any ideas on how that debt would affect our ability to get a loan for a new house?

Thanks for all the replies.