Take house in divorce? (financial Q)

[creditcardfree]

You sound capable of making it work. You have a steady job. You are willing to get a second job.

Can you start saving that extra $300/mo before you move into the house? I guess I'm not sure when you are moving.

I would make the emergency fund your first priority, since it is about to be depleted. This will give you the piece of mind to handle a roof or plumbing repair. Then start paying off the debt. Good luck.

[DebbieL]

I haven't read the entire thread yet, but I just have to say - living in the same house that I had previously lived in with an ex doesn't bother me in the slightest. I am still in the same condo that I spent the worst 4 years of my life with living in hell with my psycho ex boyfriend and I couldn't care less. I have since gotten married, and we both live in this place still. I barely even think about my ex (unless it's to be grateful that he's not ruining my life anymore).

[DebbieL]

Having now read the rest of the thread, in my opinion you should keep the house. I think you can afford it, and you love it. If you must, you can always get a roommate. I would keep it if it were me.

PS - I envy you the low house payments. Houses in my area are stupidly expensive

[edenequinox]

I am very lucky. I have an all brick 2000 square foot house on a 10,000 square foot lot with a pool in a nice neighborhood for a good price. That's one reason I hate to give it up. In case you can't tell, I love that house!

[disneysteve]

Your numbers look good. I can't see any financial reason to get rid of the house.

I do think $20/month for car maintenance is way too low, especially on a car with 60K miles on it. I budget $1,000/year for each car, so more than 4 times what you are setting aside, and I've used it all more often than not as the cars have aged. For example, depending on the model, you'll be needing a timing belt soon. That's several hundred dollars right there. Cars get more expensive to maintain as they get older. Things start wearing out. Just the other day, my cousin went to open his car door and the handle broke off in his hand. Summer before last, my windshield developed a crack from the heat. Last year, my wife's van failed inspection and needed a costly emissions repair. $20/month just isn't enough IMO.

[Runaway Finances]

Your list of expenses above have nothing listed for discretionary expenses. You only have $100 for misc. My guess is that you really don't have $600 left each month. What you really need to do is develop what we call a "spending plan". This determines your fixed expenses and how much you have for discretionary spending. I'll bet if you take your last 12 bank statements and list down your fixed expenses, you will find more than you listed. It is not uncommon for your expenses to be significantly more if you pulled those numbers from your head. I recommend you develop a spending plan.

Everyone always hates to dump money down the "rental drain" but most people I know who rent spend significantly less on housing than homeowners. Think about the true cost of homeownership besides the mortgate payment. Everything is generally higher....property taxes, insurance, utilities, not to mention the maintainance costs you don't have when you rent. Add up just the bigger things you have put into your house like landscaping, drapes, decorating, large repairs. When you add all those items in, plus the mortgage interest and property taxes, you have invested more than you can sell your house for in most areas, especially after the big housing decline. That is not always the case, but when you add it all up, owning a house is not ALWAYS a great investment. I will agree that owning emotionally is better than renting. You can afford the house because you are able to save money. The problem comes when you have a major repair. You don't say what the apartment rent is. My guess is that you could save significantly more, plus get the equity out of the house if you sold it. Personally, I would much rather have the ability to travel and live life than to barely make it to maintain some worldly possession.

I have lots of clients that work their tails off to maintain a certain lifestyle instead of keeping their cost of living down so they can do all the fun things in life, like travelling and doing things for others.

I'm with disneysteve, you need to have more set aside monthly for car repairs and/or to buy another car in the future. What are you going to use to buy a car in the future? Are you going to have savings to buy the car or are you going to have to have a car payment?

The question really is: do you want to saddle yourself with the cost of maintaining the house, or do you want to have the flexibility to things on a whim as you say?

[maat55]

IMO, a house is just a dwelling. With your new circumstances, are you sure this is the house you would buy if you did not already own it?

You could probably swing it, but are you able to invest and maintain other future expenses comfortably?

[Alex_Adviser]

I guess you can mange to have the house with your current income. You can currently afford to loose the house now, but its actually very difficult to buy one in the later phase of life. I know that you have to face more expenses of about $600 on keeping the house, but if you rent it for some time, you may actually overcome this additional cost as well.

You have go some very valuable advice above, some also discussing their personal life, but the decision is yours, so think wisely and make your decision.

[edenequinox]

Runaway Finances,

Thanks for the advice. I do think the car maintenance may be more than I have thought, especially since my house is further away from my work than my apartment. The 1100 a month includes principal, interest, taxes, homeowners insurance, association dues and PMI (which I may be able to get rid of pretty soon). Right now my apartment is $830 a month. I could get a cheaper one, but would have to get a storage unit for a lot of my furniture. I know that big repairs could set me back, but I have lived in the house for a year, and I paid all the bills so I think my estimates are pretty good, but not counting extra repairs. Right now my expenses are pretty low except my student loan. I basically make 3 payments a month- rent, student loan and my electricity bill, but will have to add phone and car insurance soon. In an apartment my electricity is only about $50 a month so it is probably about $150 more a month there for a house, as well as trash, water etc. the only thing is that every apartment I have lived in has upped the rent after the first term of the lease. We lived in one that was $875 a month and jumped to $1050, I would hate to have to move every year just to keep getting the fresh move in specials when I could have a house for $500 more a month. I appreciate your comments and will have to think about those things. Again, its just a really hard decision. And since I am just starting my career, I guess I am hoping I can some how ride out having higher monthly payments until I start getting some raises or my income naturally increases, but may make for a hard couple of years. the thing is though, if I dont take the house I lose the equity. That's what we agreed on. We dont want to make the other one sell it. I am building in a little bit of savings in that I get paid every two weeks but still count it as twice a month. So I guess twice a year I'll get an extra paycheck, but its funny how you dont really seem to notice that!!! You seem like you know a lot about this and may work in this area... Does any of this extra information change your mind? I really just want to give as much information as people need to help me.

[zetta]

While it's wise to run the numbers without a renter, if you do decide to keep the house I would recommend that you do rent out a bedroom to someone for the first year or two. The cushion will enable you to build up a good emergency fund to take care of house/car repairs and save toward your next car.

[DebbieL]

I agree that a renter could be a great idea. You might even end up with a friend out of it - or maybe I just watched too many episodes of Kate and Ally when I was growing up, lol.

[Runaway Finances]

I didn't go back and read every post but I don't think you ever said what your house was worth. Since I don't know what your actual principal and interest payment is, I can't estimate it. But, I'm guessing it is in the neighborhood of $150,000. Assuming that is roughly correct, and the fact that you have about 20% equity (I think), and given the fact you say that you lose the equity if you don't take it in a divorce, then I'd take the house. Then, you have two choices: 1) sell it after the divorce, or 2) rent it out. Unless you can rent a room out to someone you know, I'm not sure that you can get enough money to make that worth your while.

You need to be very conservative in what you could sell the house for. If you have a house that is worth $150,000 and you owe $120,000, you have $30,000 equity. Generally, you will have to pay closing costs of about 10% of what you sell the house for based on my experience (limited, others may have better knowledge). That means you will pay $15,000 in closing costs and will net $135,000. AFter the mortgage is paid off, you walk away with $15,000. Do the math on this and if you aren't going to walk away with much if you sell, then I wouldn't take the house.

Let's assume you could walk away with good money. Next thing to look at, where do you live? Are people getting layed off in your town/city? Is the economy bad in your area? For example, Texas is not being affected as much as other areas. As long as your area is holding up well, then most likely we are close to the bottom of this recession and you ability to sell the house will be reasonably good. That is the main question you need to ask. If you have a reasonable prospect of EASILY selling your house, AND you could walk away with a good amount of money, AND if you are most likely not facing major repairs (Heating/AC systems, Roof, etc.) then I'd take the house.

Decide this now, but let's assume you take the house, then decide whether you are going to sell right away. You are renting cheaper than you can own as the tax deductions of mortgage interest and taxes aren't helping you much (I'm assuming they are not much more than the standard deduction you would get if you were renting). But, I understand the issue of rents going up.

My biggest worry when I see people who own houses, are on fixed income, and who have little savings, is major home repairs. Most people go into debt for those repairs that is why I previously said renting is better.

In summary, I am leaning toward taking the house because of the equity, but you need to do all the math above that I stated to make sure you would walk away with something significant if you sell. This buys you some time to get your career going. If you get raises or bonuses, save every penny of it towards that "major house repair fund".

Boy, this is tough when I don't feel like I have enough information to give you a definite recommendation. If you feel comfortable posting this information, give me your mortgage balance, interest rate, #of years left on the mortgage, property taxes, homeowners insurance. Talk to a realtor and find out what your house would EASILY sell for QUICKLY and tell me that amount. I'm trying to look at these posts every day, but it doesn't always happen. You can also post a message to our runawayfinances.com website if you don't see a reply. This is a good place because many people can benefit from everyone's advice.

[reptile411]

Runaway Finances,

Thanks for the advice. I do think the car maintenance may be more than I have thought, especially since my house is further away from my work than my apartment. The 1100 a month includes principal, interest, taxes, homeowners insurance, association dues and PMI (which I may be able to get rid of pretty soon). Right now my apartment is $830 a month. I could get a cheaper one, but would have to get a storage unit for a lot of my furniture. I know that big repairs could set me back, but I have lived in the house for a year, and I paid all the bills so I think my estimates are pretty good, but not counting extra repairs. Right now my expenses are pretty low except my student loan. I basically make 3 payments a month- rent, student loan and my electricity bill, but will have to add phone and car insurance soon. In an apartment my electricity is only about $50 a month so it is probably about $150 more a month there for a house, as well as trash, water etc. the only thing is that every apartment I have lived in has upped the rent after the first term of the lease. We lived in one that was $875 a month and jumped to $1050, I would hate to have to move every year just to keep getting the fresh move in specials when I could have a house for $500 more a month. I appreciate your comments and will have to think about those things. Again, its just a really hard decision. And since I am just starting my career, I guess I am hoping I can some how ride out having higher monthly payments until I start getting some raises or my income naturally increases, but may make for a hard couple of years. the thing is though, if I dont take the house I lose the equity. That's what we agreed on. We dont want to make the other one sell it. I am building in a little bit of savings in that I get paid every two weeks but still count it as twice a month. So I guess twice a year I'll get an extra paycheck, but its funny how you dont really seem to notice that!!! You seem like you know a lot about this and may work in this area... Does any of this extra information change your mind? I really just want to give as much information as people need to help me.

Whats the car warranty like? I purchased a 100,000 mile bumper to bumper warranty and a 75,000 mile maintenance plan with my car so untill then I pay nothing for maintenance. If I have trouble it gets towed for free and fixed for free less for a $50 deductible with warranty work but oil changes, wipers, tire rotations, washer fluid, all other fluids and so much more is covered for free under the maintenance plan.