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cws, I think your options are 1 and 2(3) (2 and 3 are the same thing). There is a lot to learn to being an owner/landlord. You may want to look into it before you jump in.
As far as the home being too small, no way is it too small. I have no idea how big it is or how large your family is but I know you can make it work.
As for the school system, this is one of the more confusing issues. School ratings can be skewed depending on how districts do their rankings. As an example, two neighboring communities out here each had the same school aptitude tests given to the students. One district encouraged the under-achievers to not take the test and the other district forced everyone to take it. This was many years ago and maybe things have standardized.
Another point on schools is I believe any good parent, which you are, can have their children get a good education no matter what school they attend by working directly with their child. Neglectful parents, that just toss their kids in a school and say 'good luck' are more dependent on a good school system.
Obviously, I made a lot of assumptions. Just wanted to give you something to think about. Maybe you don't have to move.
Thanks for the different perspective. I'm sure our family could make do in our current home, 2 kids, 3 bedrooms. I also agree that good parenting is much more important than a good school. Having both a good school with good parents is ideal though. If my current home had a better public school nearby I would certainly just wait for the housing market to turn around without considering other options.
I worry that my children could get mixed up in the wrong crowds at school. I know from personal experience that the peer pressure of fitting in and being cool can become more important than the lessons our parents teach us. Fortunately for me, my parents moved to a better neighborhood/school system and I avoided the drugs and fighting that all my friends were getting into.
4. Try to get the bank to accept a short sale. Doubt this will happen because of my good financial standing. I am also worried that the hit to my credit would prevent me from getting a new mortgage
Do they have a choice ? If they don't accept a short sale, and you just mail your keys to them and walk, what can they do ?
Would having a strong down payment (you have 60 saved ... ) help compensate for a blemish on your credit report ?
"3. Use the 60K I have in savings to pay off my second loan and rent. Paying off the second loan would reduce my mortgage payments to ~$1400 dollars so the rent could fully cover my mortgage. My mortgage is an ARM so there is always the chance my mortgage goes up."
So, what would you do for a down payment if you use your savings to pay down this mortgage? Get another 100% loan and be upside down automatically when you start? Talk about repeating mistakes and not learning from the past.
How about you use the 60K to buy the new house, and then let this one go into foreclosure? I think I've heard of people doing that. Not that I think that is good advice, just saying it is an option to think about.
That's called buy and bail, aka mortgage fraud.
Not so easy to do these days And glad it isn't.
Thanks for the different perspective. I'm sure our family could make do in our current home, 2 kids, 3 bedrooms. I also agree that good parenting is much more important than a good school. Having both a good school with good parents is ideal though. If my current home had a better public school nearby I would certainly just wait for the housing market to turn around without considering other options.
I worry that my children could get mixed up in the wrong crowds at school. I know from personal experience that the peer pressure of fitting in and being cool can become more important than the lessons our parents teach us. Fortunately for me, my parents moved to a better neighborhood/school system and I avoided the drugs and fighting that all my friends were getting into.
Oops, I didn't consider the kids getting in with the wrong crowd. That certainly is a concern. I only considered the quality of education.
I worry that my children could get mixed up in the wrong crowds at school. I know from personal experience that the peer pressure of fitting in and being cool can become more important than the lessons our parents teach us.
That can happen even at good schools, private schools, and going to a school that has a less than exemplary reputation is no indication that your kids will automatically fall in with a bad crowd. Sounds like maybe your kids are still kind of young, so you might have a few years yet before you have to worry too much about those problems anyway?
Unless the school is so bad that you're worried about gangs or violence I think sucking it up and staying put for a bit might be something to really consider.
I'd pay off the second loan and stay put for a few more years. The $400 a month you won't be paying on that second loan could be socked away for a down payment on another house in a few years, could be directed toward principal of your remaining loan, or a combo of both.
Unless your current school district is a wasteland, your kids will be OK.
How old are the kids? I get the impression that they are young. If we are talking about elementary school than chances are the local school will be fine if you remain an involved parent. Obviously you don't live in an outright ghetto. Based on the "wrong crowds" comment maybe the kids are older, but everything else you said makes me think they are young. Parents have the tendency to think about things that really aren't a concern for another 5 or 10 years.
As to what you should do...
Out of all the options you listed I would explore the rental angle the hardest. You need to do a lot of homework seeing what is involved, but the $200 a month loss can be a nice write-off and you still own the asset and can wait for it to recover value.
Outside of that I think staying put is your best bet. What kind of return are you getting on the $60k? I will assume it is less than 8%. If so, it wouldn't be a bad idea to pay off the second mortgage and then take the money saved and put it back into savings. Before doing that though, I would contact a lender and see about what they can do to get you into a fixed rate 30 year that pays off both mortgages. With the $60k in the mix, you may be able to get it done, chances are you won't be able to do it, but it would be worth trying. That would probably save you a ton and also make it easier to comfortably rent the property.
The situation is tough, but the best option is to stick it out. As for people saying that buying a home with zero down is stupid, well it is and it isn't. The smart person would be keeping as much of their money as possible liquid and working while getting the best deal they could on the house. The dumb ones were the people with $2.00 in their bank account that bought a home with no money down. Putting liquid assets into a house is foolish if you have other options.
Out of all the options you listed I would explore the rental angle the hardest. You need to do a lot of homework seeing what is involved, but the $200 a month loss can be a nice write-off
...
There is also depreciation to write off.
However, here is a catch to this. You need something to write it off against. If you have other passive income, no problem, write it off against that. If you only have active income (stuff you actively did to earn a paycheck) then you are limited by your income (MAGI)
Less than $100,000 - You can write off up to $25,000 of losses
Between $100k and $150k a partial deduction ($2 deduction for every $1 over $100k income)
Over $150k, no write off
There are other conditions but this gives you an idea
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And glad it isn't.
