Housing Options

Updated on March 12, 2010
M.R. asks from San Rafael, CA
4 answers

Hi- This is such a great group, thank you for so generously sharing your advice. I now have another question- financial/housing-
We are trying to figure out what to do about our house and we are getting all sorts of different opinions. We bought the house in 2005, top of the market- told we were stupid if we weren't buying, etc. Well now here we are with $650,000 we owe on the house, it might be worth $370,000. We are in Dave Ramsey's Financial Peace University right now, so we are living very frugally and really focused on paying down our non home related debt aggressively and our high mortgage payments are really hurting us. We also have an office rent that we pay monthly for my husband's business. So that is our background, my question is- has anyone gone through a short sale or a foreclosure or had a remodification that really reduced their mortgage. We just aren't sure what is in our best interest right now.

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answers from Fresno on

In terms of your credit, short sale and foreclosure are about the same thing. You end up with no house and bad credit. However, tons of people out there (including me) have been through it, so there's not as much of a stigma around it as there used to be. As far as loan modification, it really depends upon who holds your mortgage. Every lender makes it as difficult as possible, and many won't even talk to you until you are a month or more late on your payments. But it's worth a try, you never know. No matter what, your credit will not escape unscathed.

What I have learned is that although your credit will be in the dumps right after foreclosure/short sale, within 4 years it will have improved enough to get a new home loan (A-paper). For sure the housing market won't have recovered enough during that time so that if you'd stayed in your house, you'd have recovered the value, so financially it might make sense to get rid of the house.

The other thing I've noticed is that people out there will tell you that it's "irresponsible" to give your house back to the lender. But actually, a mortgage is NOT a moral obligation. It's a contract, and the contract lays out very clearly what happens in the event of default by either party. I wouldn't look at this as an emotional or moral decision, it's very simply a financial decision. Being that you are nearly $300K underwater right now, my advice would be to get out from under it. How much money every month could you save by renting a comparable house? (And then by putting that money toward your debts?) We were able to save nearly $2500/month by getting out of our house and WOW did it help. In a year and a half, we've paid off half of our consumer debt, and being a renter isn't that bad. (Recently our water heater went out - not our problem! Landlord had to fix it!)

I hope that helps. Best of luck to you.

1 mom found this helpful


answers from Los Angeles on

It seems that a short sale and a foreclosure affect your credit in much the same way but a short sale is much more frustrating to deal with since you have to sell the house whereas with a foreclosure you can just walk away. My husband bought a 1bdrm condo before we got married and we found ourselves in pretty much the same situation as you once the market went down. We decided to foreclose because again, we didn't want to deal with the hassle of a short sale if credit was going to be ruined anyway. My husband's credit would be the only one that's affected (since he bought it before we got married) so that also helped our decision to foreclose. I have great credit so we figured that whatever we need credit for in the future (car loans, utilities, etc.), we could just use my name. Our foreclosure recently went through and now we are condo-free and it is a HUGE relief. Rent is so much cheaper than mortgage! One caveat though -- if you want the house in the future, you may want to try loan remodification. We didnt consider it because the condo was a 1 bdrm and we didnt want to live in a 1 bdrm for a decade or so while waiting for the value to go up again. Best of luck!

1 mom found this helpful


answers from Phoenix on

We're in the same boat and I too have read Dave Ramsey's book "The Total Money Makeover." We tried several times to refi or do a loan modification and our mortgage company won't help us. We don't qualify for anything. We looked into forclosure or short-sale but we'd end up having to file for bankruptcy because the bank will come after us for the difference of over $100,000. We decided to get out of debt and sell a lot of our stuff so that our mortgage is the only debt we have. I'm not sure if it will work or if our mortgage will still be too much for us after it becomes adjustable but we figure it's worth a try. If we can't afford it and end up having to file bankruptcy, then at least we know that we tried to do everything we could to keep our house. Thankfully, we still have a year and a half before our mortgage becomes adjustable. I'm sorry you are going through this hardship and I'm so glad to hear you're going through the Financial Peace University with Dave Ramsey. I wish you all the best!



answers from Los Angeles on

We are going through the same decision process since our townhouse is worth 1/2 of what we are paying on and with the cost of our HOA ($400) we could be living in a nice 5 bedroom house with a yard for our kids... sure puts things in perspective.
We are most likely going to proceed with a Loan Mod and if we don't get the house down to fair market value - then we will probably move in order to save money for a down payment doing either a short sale or foreclosure. In the place we are at there is basically no room in our monthly budget to save money (other than our life insurance and our son's college fund). Renting for a year or two will allow us to save $1200 to $2000 a month toward a down payment on something our family can grow into.

Talk to financial people and mortgage experts about this. It seems that it is all a matter of timing what you do and when. And they say that it is easier to get a loan mod when you are behind on your mortgage (but if you are saving, then you could easily become current). We are still doing our own research... and want to be 100% sure first. It is a big decision especially since I'm pregnant and that means two little kids to be responsible for. Stressful. But if we downsize a little now so that the kids reap the rewards when it most counts since they will never remember these beginning years.

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