Author Topic: Help me cure my Car Clown Disease  (Read 2267 times)

ClimbingOut

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Help me cure my Car Clown Disease
« on: March 07, 2014, 07:24:35 AM »
Iím hoping to get some advice on the best course of action to take in order to get out from under my house and move so I can get rid of a 65 mile round trip commute. I have read through all the blog posts and many of the reader case studies on the forum and learned quite a bit, so I donít think I need a full case study.

Here is a little background on my current situation. Iím 35 years old married with two kids (ages 3 and 2). My wife has been working full time in order to help get the flames of our hair (if I had any) on fire debt emergency under better control, but she will go back to being a stay at home mom in May. We have put the information on this site to good use to cut our expenses and increase the amount we can throw at debt. In the past year and a half we paid off over 16k of credit card debt despite having to replace our furnace and central AC. There are still a few areas such as groceries that we will try to cut back on, but that should be easier when my wife isnít working full time (for a paycheck).

Now, hereís the big problem(s). We bought a house in a suburb right next to Detroit in 2003. The house is over 30 miles away from work. I like my job. It pays reasonably well and isnít very high stress, so I want to change homes, not jobs. My office is located in Ann Arbor where I would much rather live anyway. For anyone not familiar with the area, the housing market completely collapsed in and around Detroit, but took a much smaller downturn in and around Ann Arbor. The result is that my house isnít worth much and the area I want to move to is still relatively expensive. I should mention we have a fair amount of student loan debt as well.

Assets:
Retirement accounts total: ~100k

Liabilities
Mortgage: 85,000 @6.5% ($850 per month min Ė includes PMI, taxes and insurance)
Student loan1: 14,500 @6.8% ($345 per month min)
Student loan2: 20,000 @2.8% ($200 per month min)
Student loan3: 16,000 @3.5% ($145 per month min)

We paid 107k for the house in 2003 and I think the value of the house is probably 45k at best now.

Once my wife stops working, we expect to have about $1,200 per month extra after the payments listed above and other expenses to put towards debt repayment/house escape. I havenít been able to figure out what the best plan is.

My tentative plan right now is:
1) Throw everything we can at student loan 1. It has the highest interest rate and a fairly large monthly payment. We should be able to have it paid off by the end of this year since we still have a couple more two income months.
2) Throw everything we can at the mortgage until we can sell the house
3) Rent a house near work
4) Save money
5) Buy a house near work

Step 2 will take a while, and there are a few speed bumps that are likely to come up during this time.
1) It is highly likely that Iíll need to replace my car. I have 140k miles on it now and rack them up pretty quick with my commute.
2) The school district we are in is terrible. I havenít delved too deep into the options here, but home schooling isnít out of the question. Private school sounds expensive and might not be worth it for elementary school.
3) Iím also not sure how much money to spend on updates to the house during this time. I know maintenance stuff like repainting the house needs to be done, but Iím not sure if I should undertake some DIY remodel projects as well. The kitchen sucks and could be greatly improved and the same is true of the bathroom. I just donít know if itís worth it either in terms of being able to sell the house or making it more livable for the duration of time we are stuck there.

Other notes:
I have thought about the possibility of renting our house, but the rent we could get wouldnít even cover the mortgage. There were a number of houses on my street where investors bought up foreclosures for less than 24k and rented them out at pretty low monthly costs. Renting our house at a loss doesnít seem like a sound idea, especially because I have no desire to be a landlord at this time.

I looked into getting the mortgage refinanced, but our loan is not backed by Freddie Mac or Fannie Mae, so we were not eligible to take advantage of an underwater refinance through HARP.

That didnít wind up being quite as concise as I hoped it would. Thanks for reading, and I appreciate any advice you can give me.

Gimesalot

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Re: Help me cure my Car Clown Disease
« Reply #1 on: March 07, 2014, 11:20:21 AM »
Some advice:

Student loans:  Can you consolidate these?  I consolidated from 6.5% to 2.25%.  That would lower your payments a bit.

Current house:  Is 45k an estimate based on similar houses? If so, I would not make any investments other than upkeep.  I am doubtful you can make an investment payoff.

Future house:  I know you said that you didn't want to be a landlord, but the rental market in Ann Arbor is strong, due to the University.  Have you considered buying a rental you later live in?  You need approximately 40 months to pay enough on or mortgage to sell.  Maybe you can buy something now, rent it our for 3 or 4 years, since you can't move in that time anyway. 

Job: Is there any possibility to work from home?  Or maybe work four 10-hour days?  What about carpooling? Also, you might consider the half-way commute.  Load bike in or on vehicle, drive 15 miles, bike 15 miles.  For an average car, this trick could save you about $3 to $4 a day, and make you healthier.

ClimbingOut

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Re: Help me cure my Car Clown Disease
« Reply #2 on: March 08, 2014, 07:43:39 AM »
Thanks Gimesalot.

The student loans are already consolidated, so I don't think I can do it again. Student loan 1 was a few combined for going back to school to get a teaching certificate. Figured out after a little while I didn't like teaching, so in hindsight that was a rather foolish choice. Student loan 2 is from my wife's undergrad degree and student loan 1 is from my undergrad degree.

Yes, 45k is an estimate based on similar houses. It's a little hard to judge since most of the recent sales in my neighborhood were foreclosures. I think you're right and any investment in the house is unlikely to payoff.

I don't think I would be able to get a mortgage for a rental house right now. We do not have any money saved for a downpayment and if anything went wrong with the rental such as vacancy or a furnace going out we would be in trouble.

I work from home once in a while, but usually just when the roads are nasty in the winter. The expectation is to make it in to the office when possible. This may change in the future, but I'm not sure. There aren't really any good carpool options that I know of with people at work. The halfway commute is intriguing, but I'm very hesitant to increase the time it takes to get to and from work and reduce the time I have available to spend with my kids.

You're estimate of 40 months to get out of the current mortgage is in line with what I have figured. It's longer than I would like, but I don't see any acceptable shortcuts.