Mortgage?

[Donna423]

I inherited a house. It needs a LOT of work. Major repairs. For the past four years I have been doing repairs a little at a time. Consequently, because all of my extra money has been going into the house I have started to get into CC trouble. I took out a loan from a finance company at a very high interest rate. I still owe about $6,000 on it. I also owe about 6,000 on my car at 13% and I also owe $20,000 in inheritance taxes on the house at about 25%! I really don't want a mortgage. I am single and 50 years old. I feel like it is my only security. I went through a divorce and it also ruined my credit. I am ready to walk away from the house and just go rent an apartment. I appreciate you thoughts.

[bjl584]

I agree with you. Sell the house and get yourself into an affordable apartment. The money that you get from selling the property should help to pay down a good chunck of your debt (if not all of it depending on the condition/size/location of the house.) You will then be free to start to tackle any debt that may be left.

[Donna423]

My total debt including the inheritance tax is only $35,000. House is worth much more but I am really on the fence with whether to put a mortgage on it or just keep paying down the debt with high interest rates.

[bjl584]

My total debt including the inheritance tax is only $35,000. House is worth much more but I am really on the fence with whether to put a mortgage on it or just keep paying down the debt with high interest rates.

Are you talking about opening up a HELOC on the property to do the repairs? You could probably roll all of your debt onto that. It won't fix your problem, but it will get your interest rates down, and your debt would be tax deductible. Don't even think about doing that if you are still thinking about selling the home near term.

[Donna423]

Heloc

Thanks, Brian.

I am really struggling with this. Instead of a HELOC I was thinking of doing an equity loan with a fixed rate. Paying off the high rate debt would improve my credit score and then It would free me up to throw extra payments onto the mortgage. I want to be debt free asap and would not want to carry a 30 year mortgage. I am not going to borrow to finish repairs, as I am getting by doing it little by little and not incuring any more debt. I appreciate your comments.

[Petunia 100]

Why do you owe inheritance taxes? Any tax owed should have been paid by the estate. Can you explain this?

Personally, I would not make this decision hastily. Look at all of your options and crunch numbers before proceeding.

What is the house worth as is? If you sold it and paid all of your debts, how much would you have left?

Is the house too large for you, or is it about right? Does it require a great deal of upkeep? Are you willing to do this upkeep? Would you be happier in an apartment?

[Donna423]

The house is right around 1,000 sq. ft. a little cape cod. I live alone and it is perfect. I have a large yard - 120 x 125 that backs up to the woods, which I enjoy. Very few of my neighbors have decent size lots - they have all subdivided. I pay $100 per month do have the landscaping done. If I sold before it is finished and in this market I know I would get much less - I would be selling it for someone to tear down and subdivide the lots.

I don't know if I would be happier in an apt. I know the maintenance would be less. Sometimes I think so, but then I go to visit my daughter and can't find a parking space! My plan was to finish the house and stay there until I retire - eventually sell to help fund my retirement and move South.

1) I could get a mort. to finish the repairs and then still have the unpaid debt at high interest. 2) I could get a mort. and pay off the debt and still have to finish the house. 3) I could keep on the way I am trying to throw some extra towards the debt. 4) I can sell - pay off everything and have enough (comfortably) to start over with my credit repaired. Although I would not have enough to be mortgage free again.

[bjl584]

The house is right around 1,000 sq. ft. a little cape cod. I live alone and it is perfect. I have a large yard - 120 x 125 that backs up to the woods, which I enjoy. Very few of my neighbors have decent size lots - they have all subdivided. I pay $100 per month do have the landscaping done. If I sold before it is finished and in this market I know I would get much less - I would be selling it for someone to tear down and subdivide the lots.

I don't know if I would be happier in an apt. I know the maintenance would be less. Sometimes I think so, but then I go to visit my daughter and can't find a parking space! My plan was to finish the house and stay there until I retire - eventually sell to help fund my retirement and move South.

1) I could get a mort. to finish the repairs and then still have the unpaid debt at high interest. 2) I could get a mort. and pay off the debt and still have to finish the house. 3) I could keep on the way I am trying to throw some extra towards the debt. 4) I can sell - pay off everything and have enough (comfortably) to start over with my credit repaired. Although I would not have enough to be mortgage free again.

If you plan on staying in the home until retirement, then look into a home loan with a 15 year term. You should have enough to cover your debts and your renovations. Your sticking point may be your credit score. You'll have to work to get that up by paying down your current debts aggressively. Can you list your income and your other expenses and assets?

[Donna423]

Here goes:

My only asset currently is the house which is only worth about $100K as is. I cashed in all of my jewelry, mutual fund, etc. during the divorce. As stated above the total debt is about 30K at high interest. $20K of that debt is inheritance tax as I inheritated the house from a "friend" and was taxed at a high rate.

Bring home per month = $3,200.

Real Estate Tax - $350.
Inheritance Tax - $300. (25%) 20K balance
Loan - $250 (25%) - $6K balance
Car - $250 (13%) - $6K balance
CC - $150 (29%)- 2K balance
Phone - $100
Elect - $100
Cable - $100
Groc - $250
dog groomer - $60
lawncare - $100
car ins - $120
house ins - $80
train - $90
gas - $120
water -$60
clothing - $100

Needless to say, anything extra is going into repairs. I have children/grandchildren and trying to keep up with birthdays/holidays has helped to incur some of the debt. (my fault totally). I am trying to stop the bleending. I appreciate you advice.

[Petunia 100]

Still not understanding how you could inherit 100k and owe 20k in taxes. Was it a large estate?

Did you borrow the 20k?

[Donna423]

Class D Inheritance - I was taxed at a 15% rate on the estate. It was not large. About $120,000 value.

[Petunia 100]

Oh, so this is owed to a state? Are they charging you 25%, or did you borrow the money elsewhere?

I understand wanting to keep your home mortgage free, and I also understand not wanting to pay such huge interest rates. Both are valid viewpoints.

I think your first order of business is to decide if you want to keep the home or not. Once you make that decision, the others will fall into place. Easier said than done, I know.

Do you have a sentimental attachment to the house?

How is your credit score now, do you know?

[bjl584]

Here goes:

My only asset currently is the house which is only worth about $100K as is. I cashed in all of my jewelry, mutual fund, etc. during the divorce. As stated above the total debt is about 30K at high interest. $20K of that debt is inheritance tax as I inheritated the house from a "friend" and was taxed at a high rate.

Bring home per month = $3,200.

Real Estate Tax - $350.
Inheritance Tax - $300. (25%) 20K balance
Loan - $250 (25%) - $6K balance
Car - $250 (13%) - $6K balance
CC - $150 (29%)- 2K balance
Phone - $100
Elect - $100
Cable - $100
Groc - $250
dog groomer - $60
lawncare - $100
car ins - $120
house ins - $80
train - $90
gas - $120
water -$60
clothing - $100

Needless to say, anything extra is going into repairs. I have children/grandchildren and trying to keep up with birthdays/holidays has helped to incur some of the debt. (my fault totally). I am trying to stop the bleending. I appreciate you advice.

OK.

I'm coming up with $2580 per month in expenses. With a take home of $3200, that leaves you $620 per month. Where is that money going? That's $7440 per year that can be used for debt repayment. Another way to look at it would be you would be debt free in about 5 years if you changed nothing about your current lifestyle.

Onto your expenses. I see a lot of things that could be cut back. I would cut back on the phone service and maybe consider dropping the cable. Also, I have a dog, and I don't spend anywhere near $60 a month on grooming. Can you cut that back to a quarterly visit? Clothing expenses seem high too. There are probably other areas where can cut back too.

You should try to get the interest rates down on your debts. I'm not sure if they will because of your credit score, but calling and asking them is free.

In the meantime, I would buckle down on your spending as much as possible and work on getting all that high iterest debt paid down.

[Donna423]

The house is very sentimental. I also forgot to mention that my income just recently went from 2800 to 3200. My heating is very expensive - almost 200 per month also in the winter for oil heat. I just bought a new heater so we will see how that goes. I have asked for lower interest rates already. no deal. As I said, the remainder of the money has been going to repairs. I like the idea of the 5 year deal. Thanks to everyone for their ideas.

[Eric80]

Interest rates are low at the moment and therefore if you get a fixed rate for an x amount of years then maybe it is worth considering? Also the housing market has fallen and you may not get it true value for an x amount of years. Maybe consult a financial advisor to see what your options are and get the house valued to see what value it is.