VERY house poor, should we sell?

[LivingAlmostLarge]

$4200 = 46% = $9130. Extra $2130. Why isn't it worth going back to work full time to get out of the house. That extra $2k will likely allow you to save up to dump the house. Childcare would be an extra $700/month is that right at the rate of $1k for 3 days? So you would net an extra $1400 probably a month? That would allow you to save for paying to get out of the house, paying of the down payment.

This is not a long term solution, nor am I telling you to work, but this is a possible scenario to get out from under a house you could easily lose to foreclosure with one major financial accident. Not necessarily a job loss, but maybe broken arm, illness, etc.

Could this be a possibility going back to work full time?

Second, the budget can be cut. $100 from eating out needs to stop and $700 for a family of 4 is high. Do you cook or shop exclusively at whole foods? You need to reconsider. If you want organics fine, but look at normal stores for their generic organic or using coupons. Also it's not worth buying stuff at whole foods if it's conventionally grown fruit for the name. You are better off at farmers markets or a normal grocery store. You can cut the bill by $100 probably just by shopping sales.

Personally I'd go back to work full time and get the extra $2k. It's easier than finding a second job for one of you. This is a temporary thing and I think it's great to stay at home with the kids (i do it). BUT i don't think you're in a position to do so right now.

Did you see my last post about how much the home is? How much can you get in rent? Write down what you think about that and maybe it'll be more feasible to move out, rent it at a loss, and carry a smaller burden plus your own rent if you don't want to work more.

[riverwed070707]

thanks everyone for your replies. for those who were asking, here is our monthly budget:

mortgage 4200
childcare 1000
utilities (gas, electric and water) 250
phones 180 (required for jobs)
internet (required for jobs) 40
car insurance 120
gas for cars 100
other transportation (bus, parking) 50
groceries 700
restaurants, coffee and lunch at work 100
diapers 30

i really don't think there are areas that can be trimmed, but would appreciate any feedback.

also, to be fair to our mortgage lender, i was working full time when they made the loan (am now 3 days/week). but even so, that made the morgage 46% of our income. with 2 kids, going back to full time is not an option for our family.

Glad to see you don't have a bunch of debt eating up your budget.

Biggest area to cut here is groceries. I feed our family of 3 for less than $300/mo and I'm not as frugal as I could be... pack lunches, meal plan, shop sales, eat meatless a few nights a week, etc until you can get this under control.

I agree you need to shop phone plans and I'd consider cutting data. If your job requires a data plan they should be paying for it.

What comes out of your paycheck pretax? Are you contributing to retirement? An HSA? Are those things you could scale back on a temp basis?

Also, you said you net $7k/mo, this adds up to $6,770... where's the other $230/mo going?

While its probably not what you want to hear, going back to work FT is probably the best case scenario for getting you back on track -- its an easier way to get more cash flow than moving/renting the house/etc.

[disneysteve]

groceries 700
restaurants, coffee and lunch at work 100

i really don't think there are areas that can be trimmed

This is certainly trimmable. $800/month to feed 2 adults and 2 kids is too much. Cut out the restaurants. Brown bag your lunch. Make your own coffee at home and knock a couple hundred off the grocery bill.

also, to be fair to our mortgage lender, i was working full time when they made the loan (am now 3 days/week). but even so, that made the morgage 46% of our income.

That really doesn't make the lender look any better. The guideline is that your house payment shouldn't exceed 28% of income. The fact that they made you a loan at 46% of income is criminal in my opinion. Those places need to be fined, sanctioned, shut down - whatever it takes to make lenders get the message to stop doing that crap.

going back to full time is not an option for our family.

Well, it certainly is an option. It might not be what you'd prefer but it is definitely an option, and a darn good one.

[nome220]

Thank you all for your thoughtful analysis of our situation. It is really nice to have people to bounce idea off of.

It's encouraging to hear that many of you have been able to live on less than $800 a month for grocery bills. I will definitely focus some attention to cutting down on that this month. I also love the idea of swapping for childcare. And we are also going to ask grandma next week to do chilcare for free.

As for selling and renting, this is not our first home, and on the sale of our first home we made about $40K. Essentially, if we sold now, we would lose all of that money in realtor fees and closing costs from when we bought. I guess I am still not convinced that this is a good idea. The way I see it, it would take us 1.5-2 years to save 40K again if we were renting (assuming a 2K/mo rental, with me working full time, in a teeny apartment with 2 kids-- none of that is ideal), and we would still have no house. We probably wouldn't save enough for a down payment for 5 years, at which point all of our savings would go towards the down payment, leaving us again with no savings.

On the other hand, if we stay in this house and it appreciates with the rest of the neighborhood, we will have more than that in equity, and we still would not have lost the 40K. We will also be able to start saving at least $500/mo in 3 years when school starts, and we might also get raises. How is this a worse situation? I am taking the advice of some posters here and playing out the scenario year by year, and to me keeping the house seems to make the most sense. Am I missing something? Is the only real worry about emergency funds?

[mrpaseo]

thanks everyone for your replies. for those who were asking, here is our monthly budget:

mortgage 4200; childcare 1000; utilities (gas, electric and water) 250;
phones 180 (required for jobs); internet (required for jobs) 40; car insurance 120
gas for cars 100; other transportation (bus, parking) 50; groceries 700; restaurants, coffee and lunch at work 100; diapers 30: Total of: $6,770

I really don't think there are areas that can be trimmed, but would appreciate any feedback.

Also, to be fair to our mortgage lender, I was working full time when they made the loan (am now 3 days/week). but even so, that made the mortgage 46% of our income. with 2 kids, going back to full time is not an option for our family.

Believe it or not, the areas that you can cut are:

1. Car Insurance: Call around, each insurance company will undercut your insurance for the first year (Meaning give you reduced rates for the first 12 months). If you do this every year, you will always stay in the reduced price. Takes a little time is all.

Also, as has already been mentioned, you can raise your deductible. This will lower your payments a little but you must save that money to cover your deductible. When you finally have an emergency fund, you can use that as your deductible i.e. if you have $5,000 in your emergency fund, you could raise your deductible to $5,000.

2. Gas for vehicles: Carpool, drop offs, combining trips all at once. Even cutting one trip will save gas money.

3. Other transportation: Maybe this is a way you can save gas money, is this for a monthly bus pass or something?

4. Groceries: I did a little research for a few months on "Couponing", what I found is it is not worth my time because I was buying stuff that I did not normally buy i.e. I could never find a coupon from the laundry detergent that I use but could always find one for the more expensive brand which does not save me money, or the junk food is always giving coupons/samples... again, not what I want. What I did find that saved me a TON of money, is bulk purchasing of the items that I normally use. Also, you can go to the websites of the products that you do use, type a review and often they will send you coupons for the food that you do use. Again, something that takes a little time (E-mails and shopping for the bulk items) but if you work only three days a week then you should be able to find some time.

5. Restaurants, coffee/lunch: My wife is a Starbucks fan... but that is EXPENSIVE, so I purchased her a Keurig, the cups can be found for about .55 to .75 each and you can have a good coffee for under a dollar. The bottom line, buying coffee for five bucks at a time is crazy, cut it out NOW.

6. Diapers: I hear coupons for diapers come out in cycles (Every three months or so), when they do, stock up. Of course you could go to cloth diapers but I'm not sure you can save more than $30 a month.

As with the lender... no way no how did they do you right... they put you into this situation, you both share equal responsibility for this. You and your husband were semi-blinded by the possibilities of living in a beautiful home in a great part of town... but they were not blinded, they knew what they were doing when they put you in that house... and this is exactly what happens, you realize that you can not stay afloat.

7. Childcare:

Childcare - shop around; don't just get the cheapest of course, but maybe there's a cheaper option that's still decent. If you're just working part-time...maybe you could get with some other people who work part-time and have kids and swap babysitting? Just an idea.

Excellent ideas.


8. Utilities:

Utilities - Just the standard advice, keep the temp higher in summer and lower in winter, turn off lights, etc. etc.

Excellent advice.

I cut off a room from the HVAC in my house since we do not use it much. The temp of the house is controlled by the room with the thermostat, spend most of your time in this room. Even a few hours a day (Like at night when you are sleeping) you can cut off a room or two to save energy. Also, use the ceiling fans, this will help by a few degrees. Do some research and there is a lot to save, every cent counts at this point. If you leave a room, even if you are coming right back, shut out the lights/electronics. It has been determined that anything longer than a second will save you money.

Phones - Are the $90/mo plans required for your job, or just A cellphone of some type that you can be reached at 24/7? Look into prepaid, even unlimited plans can be had for $50 or so a month.

Being in the Army for 20 years I understand the "need" for a phone for work, that they will not pay for. I'm not sure if this is your situation or not (Need a phone that they will not pay for) but it is understandable. That said, you should be able to lower your plan. You can get an unlimited pre-paid for $50 bucks a month and I think you can even keep your same phone number. If it is a fact of "Smart phones" and the games/ apps then you need to make a decision if you can live without them or not. Keep in mind any of the things you do to save a penny now isn't necessarily forever. Cut your phones down for 6 months and save 600 dollars then once you are in a better situation, move back to the smart phones if you think it's a good idea.



_____

You also have a minimalist budget, you should have a few more areas to maintain a household, for example:

1. School fund: The schools are always asking for $5 here, $10 there.

2. Emergency fund: Have something like $50 a month going to your emergency fund, if your e-fund is fully funded, then you can put the $50 back into your budget, save it or spend as you like. i.e. If your e-fund is $5,000 and it is fully funded, then that $50 that was "budgeted" can be saved or spent. But if you needed new tires, and your e-fund is down to $4,500 then that $50 will go into your e-fund account until you are back at the full $5,000.

3. His/hers spending money: This is a set amount that you and your husband can spend without talking with the other. My wife and I have $150 a month each.

4. Trash: Do you have free pick up? Do you recycle? You didn't mention it.

5. Entertainment: What do you do for fun? Something as little as $100 a month will give you $25 per weekend to take the kids out for ice cream or something.

6. Clothing: Eventually, all clothing wears out, if you do not save money monthly, then you will have to come up with or charge the clothes... not wise when you are trying to stay strict on a budget or digging yourself out.

7. Home insurance (Is that wrapped up in your mortgage?)

8. Life insurance?

9. City/State real estate tax? (Is that wrapped up in your escrow as well?)

10. Christmas?

11. Vacation?

12. Vehicle maintenance?

13. House maintenance?

14. Savings/Investments?

15. misc items such as filter for the fridge (Mine costs like 50 bucks a pop) propane tank for the grill, bug and feed killer for the yard?

All these items cost money that you should be considering in your budget when you purchase a home, the banks know this but they do not consider them because they do not care if you have a Christmas, only that you make your payments. If they considered all this, no one would be able to afford a house. That's why they should not give you a loan that is more than 28% of your income, to ensure you have $$$ for all these other areas.

[mrpaseo]

What do you use to manage your budget?

[LivingAlmostLarge]

Look honestly you can't afford the house if you don't go back to work full time. It's not going to happen.

What are you going to do if you car breaks down? What sort of cars do you drive? How much are the tires? One major $2k repair?

What happens if the roof starts to leak? Or a branch falls and crashes through? How will you handle the repair?

You aren't saving anything right now. You aren't paying back your student loans, borrowed the down payment to buy the home. You cannot afford this home on your salary without you working full-time.

People are giving you good ideas, but a lot of your expenses will be location and personal dependent. How expensive the cars you are will affect the cost of your insurance. I'm pretty you aren't driving a beater?

Second groceries, if you live somewhere that a mortgage is $4200, it's likely a HCOLA and groceries aren't cheap. Things costs more in places like that. River feeds a family for $300 it's possible eating their exact list will still be $100-200/month where you live. But you can do things like not eat out and save $100.

But saving

$100/month eating out
$25/month Carpooling
$25/month gas
$80/month cell phones
= $250/month.

Is that really enough? Where is your medical expenses category? Clothing for kids? School fees? life insurance? Home insurance? vehicle maintenance? Home maintenance? Gifts? You don't spend a penny on anything else? Nothing ever comes up and needs repairs? Bikes? Window breaks etc?

It's really not life. Right now the truth is to hang onto the home you need to work fulltime. Without it you can't pay your bills. If you aren't paying student loans, house down payment loan you aren't paying all your bills.

I know it sucks but you don't have many choices. What's the price of the home? What can you rent it out for?

1. Go back to work fulltime
2. Sell house
3. Move and rent out house at a loss probably, but only carry a smaller loss plus rent for $2k
4. lose house unless you can borrow again

[ActYourWage]

Glad to see you don't have a bunch of debt eating up your budget.

They do, they just are not paying them now.

"We also have a loan of about $20K to repay for the house downpayment, and $35K in student loans which are in forebearance. We are not paying either of those, and not putting any money into savings right now."

The mortgage is the issue.

Also, OP are you receiving a big tax refund each year? It seems with a yearly income of 130k, those numbers you posted seemed low if you are breaking even each month.

[josetann]

Being in the Army for 20 years I understand the "need" for a phone for work, that they will not pay for. I'm not sure if this is your situation or not (Need a phone that they will not pay for) but it is understandable. That said, you should be able to lower your plan. You can get an unlimited pre-paid for $50 bucks a month and I think you can even keep your same phone number. If it is a fact of "Smart phones" and the games/ apps then you need to make a decision if you can live without them or not. Keep in mind any of the things you do to save a penny now isn't necessarily forever. Cut your phones down for 6 months and save 600 dollars then once you are in a better situation, move back to the smart phones if you think it's a good idea.

Actually, you CAN have a smartphone on that $50/mo plan I was speaking of. Checked and it's $45/mo for Straight Talk: Straight Talk. Unlimited talk, text, and data. It uses either T-Mobile or AT&T (read up on it, basically it has the same coverage as postpaid; I'd choose the AT&T service unless you have a phone locked to T-Mobile and don't want to get it unlocked). I've read where people get data cut off if they go over 5-10GB in a month; so just don't do a lot of tethering, streaming, etc. and you'll be fine.

If Verizon coverage is a must, then PagePlus is worth looking into. A similar plan is $45/mo with unlimited talk, text, and 20MB of data. $30/mo gets you 1200 minutes, 2000 texts, and 100MB of data. If you can keep usage under 1200 minutes (that's 20 hours on the phone), that can be very doable.

And of course...I'm assuming that you MUST use your phone quite often. If you can cut usage to just mere minutes per month (I'd often use 10-15 minutes total), you can reduce your monthly bill quite a bit further. Even if you must have a cool smartphone (that's another weakness of mine ).

[josetann]

Look honestly you can't afford the house if you don't go back to work full time. It's not going to happen.

....

But saving

$100/month eating out
$25/month Carpooling
$25/month gas
$80/month cell phones
= $250/month.

Is that really enough?

....

I know it sucks but you don't have many choices. What's the price of the home? What can you rent it out for?

1. Go back to work fulltime
2. Sell house
3. Move and rent out house at a loss probably, but only carry a smaller loss plus rent for $2k
4. lose house unless you can borrow again

$250/mo can give them some breathing room...but agreed, it's likely only going to help delay the inevitable. Drastic changes will need to be made somewhere. I think it MAY be possible for them to stay in the house without extra income, but it's not looking too feasible right now.

I'd step back, figure out exactly WHY they are in that house. Ask yourself...if you did NOT have that house right now, if you were living somewhere more affordable...bit more cramped BUT with plenty of breathing room in your budget...would you run out and immediately buy way more house than you could afford? If so...ok, fine, see what you can do to keep the house. If not...then you just identified that the house is not the right choice for you at this point in time. What you do with that information, is up to you.

Edit: Oh, if it were me, I would pick one of these options:

-sell the house and move to a cheaper area in the city (would make our quality of life go down significantly, increase commuting time, and we are not fans of the suburbs)

Ok, quality of life may go down...but how much less stress will be in your life now that you're living within your means? Maybe the quality of the HOUSE will go down, but your overall quality of life will actually go up?

-sell the house and move to another city (totally open to that since we really don't love it here, but the thought of another big move would be tough on our family)

If your kids aren't in school yet (sounds like they're not), then a move wouldn't be that traumatic to them. What WILL be stressful to them, is YOUR stress. That's been my experience anyways. We've moved around quite a bit in the past several years, and our kids have handled it no problem. Though with the oldest now in a school he loves...we may have inadvertently settled down here.

-keep the house but move to a rental in the area until we get our finances in order

Personally I wouldn't do this for an extended period of time. If you're breaking even or making just a bit under...I guess it's ok for a little while. I just wouldn't want to be throwing $1,000/mo for a year or more, just to end up where I started. But hey, it might buy you some time to regroup and think about what to do next.

[Christian321]

You need to sell the house if you can. Only other thing I would suggest is getting basic phone planes (or pay as you go plans). There are still 39.99+tax planes out there. Also, $800.00 per month in food costs seems a bit high.

Good Luck.

[dawnwes]

You may "lose" $40K in the immediate sale, but you will more than make it up by moving. Heck, if you can find a rental for $2K per month, you can save $40K in only 10 months compared to your current house.

I assume you have a 30 year loan. Have you amortized that loan? Bankrate.com has good calculators. Plug in your loan amount, your interest, and the length of the loan.

I am going to assume an $800K house as previously stated based on your payment. 800K loan for 30 years at 4.5%, you will have paid $650K in interest plus $800K for your house.

Dave Ramsey strongly suggests 25% of your take home income on a 15 year mortgage. 15 year mortgages also have lower interest rates.

A 400K mortgage at 15 years at 3.5% yields a total of $114K in interest (quite a huge difference from the extra of $650K you would pay above!) Payments would run about $2,800 not including taxes and insurance.

Dawn

[Stump1000]

You may "lose" $40K in the immediate sale, but you will most than make it up by moving. Heck, if you can find a rental for $2K per month, you can save $40K in only 10 months compared to your current house.

I assume you have a 30 year loan. Have you amortized that loan? Bankrate.com has good calculators. Plug in your loan amount, your interest, and the length of the loan.

I am going to assume an $800K house as previously stated based on your payment. 800K loan for 30 years at 4.5%, you will have paid $650K in interest plus $800K for your house.

Dave Ramsey strongly suggests 25% of your take home income on a 15 year mortgage. 15 year mortgages also have lower interest rates.

A 400K mortgage at 15 years at 3.5% yields a total of $114K in interest (quite a huge difference from the extra of $650K you would pay above!) Payments would run about $2,800 not including taxes and insurance.

Dawn

I agree with this.

I couldn't be happy living in that situation. I think you should cut your losses now and get rid of the house. Honestly, I'd do whatever I had to do even if it mean't bankruptcy.

[Auditum]

Try to look for the place to rent as close to your jobs as possible. Find out if it is possible to rent you current house. The rent for your house should be higher that the price that you will pay for the rented. The difference of this will help to increase your monthly budget, lower the costs of traveling to job and not to lose the house that you dreamed before you faced financial problems.

[nyliguy]

I doubt it's a $800K home based on the mortgage payment, in that most people state their mortgage payment including property tax. She mentioned a NorthEast city with High Cost of Living, so I assume their peoperty taxes are extremely high.

You can have a $550K home with $12k/year property taxes and have a $4,200 mortgage payment.

If your property value has declined, have you grieved your propery taxes?

Hope you find a way to cut costs and stay in the home, as well as you having children, and a new mortgage you should get a nice tax return. Hope you can use that to offset some areas you have fallen behind.

The end of the day it might just be better to find a way to get the home sold without losing anything, and moving in to a cheaper home. Sacrific quality of the neighborhood for something in a so so area if you're comfortable sending your kids to school their.