Financial problems + job moving = What should we do for housing?

Question

My wife and I have owned our house for about 5 1/2 years, but we refinanced about 2 years ago. The terms of our loan are really good for us (30yr fixed 6.5%).

However, this year has been terrible for us financially. My wife's income fell by about $20,000 annually, and then we had some friends in a very bad car accident in which some of their family died, and we helped out financially. Then my son needed massive dental work. Then we had more medical expenses. Then the water heater exploded. And so on...

So, we have fallen behind on our credit card bills. The car payments and mortgage still have perfect payment history, but the credit cards are a wreck. And, since we were barely getting by to start with, we have no prospect of getting them caught up any time soon. So our credit sucks now...

Now, my work is moving me about 400 miles away. I don't think we'll be able to get a new mortgage to buy another house, but we don't want to have to go back to renting.

What should we do?

Answer 1

What state do you live in? That will help me formulate a more detailed answer.

Let me give this a try:

I don't need to know how much equity you have since you've owned the house for 5.5 years. You have little to none. For now, I can tell you that you need to sell your house and settle up with your creditors. If the credit cards haven't gone to collection, request your cards stop interest payments. If they won't, work out a reasonable payment plan before they go to collection. It is still worse to have collection than sixty or ninety days late. If they have gone to collection, negotiate settlements. If you get 50-60%, take it. You still have jobs and assets and the banks will laugh at any lower offer (though you should still start lower like 25% of the credit card debt). Make sure you have a good story like what you wrote here and how you may file Chapter 7. Not a sob story for bedtime, but a story of how they won't see their money because you're so overwhelmed.

The medical and dental will be deductible over 7.5% of your total AGI. The water heater......malfunction (don't want to trigger a Homeland alert) will also be deductible. Be creative and figure out every deduction you can for the 2007 tax year including the losses you took. Don't rely on your accountant. Read a book, beforehand at the public library. The Dummies series sucks and it's too much reading. Go with a simple book.

Keep the car payments up. I am against a refi on the vehicles unless your credit is at least 650. Otherwise, you'll get like a 15% interest rate. When you have extra money, throw it at the car, not the house. Brokers recommend against paying the mortgage faster. It is so de minimus that it won't do jack and it can actually confuse the banks. I believe it is also tacked onto the very end of your payments and won't help you in the here and now. I don't necessarily agree, but that's what brokers have told me. I tell you to throw money at the car because you can pay it off faster or at least turn the loan around right side up. If you do this, you have an asset to borrow against. Or, you can sell the vehicle and get a much cheaper one lowering your payments by hundreds per month. A 25000 auto loan can equal 400-500/mo. A 15000-20000 auto loan can range from 250-300 - do the math. I have a feeling that you paid around 30000 for your car.

Ask for some of the money back from the family of the departed. I know it sounds tacky but you must look out for yourself right now. Ask relatives for a co-sign on the house. Draw up a credit improvement chart so you can convince them that your credit will rise in a few years and you will assume the mortgage (if it's assumable) or re-write. Or, you're going to have to share the spoils of equity. This time, buy a condo, not a house.

If you cannot purchase property because your credit wreaks, then you must rent. I recommend renting for three to six months before you buy so you can scope out the area. In the meantime, since your wife will need a new job and/or have a lot of time on her hands, tell her to get her real estate license. It takes about three weeks (at home courses available) to do the time, two weeks to study, two weeks pass and get the paperwork processed. If she can get down with a broker part-time (and they're all looking for people now) it will cost her about 300-500 to get started. If your wife can pre-determine what brokerage will hire her (she can do this just by asking who is hiring) the brokerage often has an accredited real estate licensing course that you can take. This will save on some of the fees and kind of set her up for hire if she can pass on the first time. I am telling you to tell her to do this so that when you are ready to purchase a new home at say 300000 you will receive an instant commission of 9000 that you can share with your co-signing relative. If you have time, I'd tell her to do it now so you can get a commission on the sale of your current house. Her business and everything associated with same are also tax deductible and you can declare a loss for two out of every five years. Instant 5000 tax refund next year BINGO! Don't forget to tell your wife to hire your freeloading son who has crooked teeth. I deduce he needed orthodontics. You can hire your son up to $5000, I believe, per tax year to do silly stuff like file her paperwork, clean her home office. Just make sure it's reasonable work for his age. You don't hire a two year old to file paperwork, but an eight or nine year old could pass. The money your son obtains as income should not be subject to federal or state tax. A local tax may apply and he may have to pay $10 due to some nickel and dime local tax law. But it's a $5000 write off. Are we learning, yet?

It's tough, isn't it my fellow colleague in financial strife? Tough even for a mind like mine. My answer ain't sexy, but it works and is relatively fast and easy to implement.

Answer 2

How much equity do you think you have in the house? Unfortunately, its no longer a sellers' market, but if you can sell for a reasonable price and pay off the credit cards, that may be the best. Then rent for a couple of years while you save up. The housing market may actually be better then.

Answer 3

put the house on the market, rent it , rent for a short term and then start fresh .. trust me i tried to do it all and not wanting to give in and rent .. but it allowed me to let the dust settle and now i am way better off. the renter Will be able to afford . you pay your rent .. regroup... even consider if you cant sell the house do a lease option with the renters.. buy you time and the loan company gets paid ... lease for payments not profit ..

Answer 4

Live with reality. Consider renting.