Author Topic: Outgrowing our upside down house with another kid.  (Read 6139 times)

thisdoesfine

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Outgrowing our upside down house with another kid.
« on: July 07, 2015, 09:05:45 PM »
I live in FL and bought a house in 2007 for about $80,000.  I chose an 80/20 loan and am still paying on both portions.  It's a very small house.  900sqft which includes the 1 car garage.  It's 3 small bedrooms and 1.5 bath.  I was single when I bought it but am now married and have a toddler and one on the way in October.  I quit my job about 2 years ago to go back to school and change careers after 17 years of a job I hated.  Literally 2 months after quitting, my wife got pregnant.  Of course :)

We live ok financially as my wife is an RN and we don't spend a lot of money.  I had saved enough to pay all my college dues so that isn't a factor and school will be done in the next 8 months.

The area is not a nice area of town and there are a LOT of foreclosures surrounding us.  Similar sized houses are either for sale or being foreclosed and sold for around $35,000.  We need to get out of the house for the size factor as well as the fact that I don't want to raise a family here.  The house is in my name but I'm the one with good credit as she's never had anything in her name or purchased anything on credit.  Renting it MAY be a possibility once I have a job again. 

Anyways, I'm just wondering what to do.  My wife and I joked that before we got married I should have just walked away from it but now we wish we had actually thought harder and possibly done that.  Any suggestions on what to do?  Is walking away an option, should we wait for me to get a job and get a second house and try and rent this?  Thanks for suggestions / ideas.

4alpacas

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Re: Outgrowing our upside down house with another kid.
« Reply #1 on: July 07, 2015, 10:30:53 PM »
Why don't you want to raise your family in the house?

Do you think the area will rebound in a few years?

How much do you owe on the house?  What are the interest rates? 

CanuckExpat

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Re: Outgrowing our upside down house with another kid.
« Reply #2 on: July 08, 2015, 12:16:49 AM »
Do you have the funds to to cover the difference if you decide to sell short?
That would seem to impact the options you have.

former player

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Re: Outgrowing our upside down house with another kid.
« Reply #3 on: July 08, 2015, 01:18:47 AM »
The size of the house is probably fine for a family of four living in a great climate as long as you keep the number of your possessions under control - there are threads on this forum about decluttering and the KonMarie method.  I bet that with a toddler and a baby on the way you have plenty of clutter that you could take a good hard look at.

Why do the foreclosures matter to you?  Other people's poor financial choices and inability to pay their debts are only indirectly relevant to you.  As long as the neighbourhood is safe enough, ignore the foreclosures.  Is there anything you can do to improve your neighbourhood (politics, local voluntary groups, church activities, business support, school governance, etc.) so as to attract new people and families into it?

What are the interest rates on your loans? Would you be able to live more cheaply (taking into account housing and commuting costs) somewhere else, and what would be the break-even point on leaving your current home?


catccc

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Re: Outgrowing our upside down house with another kid.
« Reply #4 on: July 08, 2015, 02:15:52 PM »
I think this size house is fine.  We live in a small 3BR place, and we have 2 kids.  They share a bedroom (since the younger one moved out of our room) and we don't even use the 3rd bedroom.  Our place is a bit bigger than yours, but there are parts of it we rarely use.  Work on efficient use of space.  900 sqft should sufficient if you plan things right.

Our first place with one kid was 399 sqft.  It was doable.

We used a portable sized crib, and did not own any of the following big baby things: bassinet, "activity" exerciser thing, pack and play, swing, or changing table.  I'm trying to think of other big baby things people have that we didn't...  We got a pretty small high chair and probably could have gotten away with a multi-use booster type thing.

I would stay on at the current place for a few years and then consider moving.  The kids will not know the difference between a good neighborhood and a bad neighborhood at these ages.  Once school becomes a factor, that is when I would consider making a move.

thisdoesfine

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Re: Outgrowing our upside down house with another kid.
« Reply #5 on: July 08, 2015, 06:18:46 PM »
Thanks everyone for quick replies.

We still owe over 60,000 on the house.  Again, similar houses near us are being sold in the $30,000-$40,000 range.  The foreclosures bother me because they are keeping the houses that are being sold at very low rates.  It's not a great part of town and if the Florida market does get better, our neighborhood will probably be the last to go up.  There are a lot of vacant properties around me as well.

The house directly next door is literally falling apart after the guy who owned it died years ago and the bank keeps literally covering it with tarps that end up disintegrating and going all over everyone's yard. 

We do not have any savings to cover a short sale difference.  I don't know if you can take loans for the difference but outright paying isn't an option. 

We've never missed a payment and I don't want to ruin my credit obviously.  The interest rate fluctuates every 6 months as I'm on an ARM.  The 20% loan stays @ 10% and the other 80% that fluctuates has been under 3% for a couple years now.

We do have a couple years until the kids are in school.  I will not send them to the schools of this area though. 

We do live as stuff free as possible.  Our little one has a disability where she can't open her eyes all of the way and has to tilt her head back to see.  Unfortunately it took her a while to walk because of it and we didn't have the space to use any walking assist type toys.  Luckily, she's a trooper and figured it out :)

I will for sure check out the KonMarie method, thanks for that tip.

Ultimately we would love to keep this house as a rental and not take a hit to my credit but, when the time for the kids to go to school does come, I'm not sure what we'll do if we're still "stuck" in this house.  (Which is how we feel, stuck)

innkeeper77

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Re: Outgrowing our upside down house with another kid.
« Reply #6 on: July 08, 2015, 07:19:49 PM »
10% is a pretty bad rate.. and since it's underwater you probably can't refinance. You are however in the lucky position of having extremely cheap housing! (For context, my mortgage is currently over $200k for a smaller house- but it also has a finished basement. Yes it was pretty much the cheapest house anywhere reasonably close to our jobs)

If you don't want to walk away, what can you do to increase your income? If I were you I would be working like crazy to get rid of the 20% loan, and then you would be left with a lower overall payment. Then you could work on getting rid of enough of the other loan to refinance into a 30 year fixed or something.

I can't see any good options in between walking away and full on hair on fire urgency to pay down the debt. If you have a job, can you get a better one? If nothing else, can you work nights somewhere for a bit until the 20% is gone? Home based side hustles might be a better idea for quality of life reasons.

SwordGuy

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Re: Outgrowing our upside down house with another kid.
« Reply #7 on: July 08, 2015, 09:43:25 PM »
Why the hell do you think you need to move NOW?   You have a toddler and a bun in the oven.   So the oldest kid is, what, 3 years away from kindergarten?  You don't need to move into "the best" school district until the kid is actually in school.

And how big a house do you need for a toddler and a baby?   I mean, if you had a 6000 sf house, would you leave the two infants unsupervised in the far side of the house?   

I don't expect you'll be letting them run around the neighborhood - any neighborhood!!! unsupervised for a few years either.     So unless drive-by shootings and home invasions are the norm in your neighborhood, it's all a non-issue for the nonce.


Sorry to sound so harsh, but I just see this mindless "We need to get a bigger, better, bestest house now because of the baby!" situation come up over and over.

Use the next 3 years to build up a nest egg and move when the time is right.  Given that your spouse has a highly portable job and you are changing careers, you might want to take up a job opportunity in another town before your kids hit school age.


former player

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Re: Outgrowing our upside down house with another kid.
« Reply #8 on: July 09, 2015, 01:44:25 AM »
I agree that you should be sending any spare cash to the loan at 10%.  Is it 20% of $60K?  Aim to have that part of the mortgage paid off asap, and at least by the time your eldest goes to school.

About the bank-owned house next door in bad repair, how about getting in contact with your local elected representative(s) and get them to put pressure on the bank to sort it out properly?  And a bit of local activism to see whether you can get some regeneration money into your neighbourhood could be worthwhile.

I think for the moment your worst problem is probably that feeling of being trapped.  But I think you do have a potential way out: once you have paid down the 20% loan and your kids have reached school age you have a house which is pretty cheap to keep and which you can look at renting it out to cover its costs and rent somewhere else to live in as a family home.

SpicyMcHaggus

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Re: Outgrowing our upside down house with another kid.
« Reply #9 on: July 09, 2015, 09:38:45 AM »
Stay put.
A common thing in FL is converting the garage into a BR. You could install some windows, insulate it better, and park in the drive.

thisdoesfine

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Re: Outgrowing our upside down house with another kid.
« Reply #10 on: July 09, 2015, 12:32:20 PM »
Thanks guys.  The harshness is fine and probably needed.  We don't want a 6,000 sqft home.  Honestly, we'd just love to get into a 1,500 sqft.  Something where the toddler could run around. 

We do feel "trapped."  That's pretty much exactly how we feel.

Right now I stay at home with the toddler and do school full time in my free time.  For me to get a part time job to pay for daycare didn't make sense as it would be a wash.  Our area is one of the lowest in the state for income and we're a cow and horse town so no big companies really, just lots of retail jobs.  I could get a full time job but then I couldn't get school done so for now, no income on my part.  The wife goes in extra days sometimes here and there but much less since she's carrying. 

The 10% interest portion is on 20% of $84,000.  I believe there's about $14,000 left.  Yes, we need to crank on that.  When I was single I wasn't very financially focused (which is why I bought the house in the 1st place, I really should have rented).  When I got married we started thinking more about structure and the future.  We had plans to pay more on that 10% loan but then our daughter came along.  On top of her showing up unplanned, she also has a rare condition and we've seen every specialist you can think of and they all like money.  She spent some time in the NICU when she was born as well, unrelated to her condition.  We probaby could have got a lawyer and sued as the hospital made a mistake which in turn caused our daughter to get a serious blood infection - hence the NICU stay.  We didn't, and we're still paying on her extended stay.  We've paid off all the other specialists and just the hospital gets a monthly amount.  They wanted us to have it paid off already but we just tell them we can't and they keep taking our $75.00 a month. 

Turning the garage into another room would be great but we have things stored in there.  We currently keep our cars in the driveway (both are paid off thankfully but are also both over 150,000 miles).  The garage is only a single car to begin with and it has our laundry and bicycles etc. 

We will probably stay here for at least another 2 years (as we've been feeling stuck for a couple years now, why not keep feeling stuck, lol).  My original plan when I bought the house was to move in a few years or when I got a family and keep this house as a rental.  It's needing repairs as all houses eventually do.  I guess as the repairs are getting bigger, our feeling stuck is turning into a feeling of what if we dump cash to fix this place up and then end up walking away?  We're looking to need roof / AC - Furnace / Kitchen cabinets.  The house could easily use $10,000 in repairs in order to rent it out.  The roof isn't immediate but the AC and others would be.  The AC is over 20 years old and my repair guy keeps telling me to use it until it dies but it's probably coming soon.  Luckily I've only had him out twice  for $95.00 repairs.

Thanks again for the input. 

MacGyverIt

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Re: Outgrowing our upside down house with another kid.
« Reply #11 on: July 09, 2015, 12:59:44 PM »
This is entirely doable. Many/most homes in Florida don't have a garage so yeah, you can convert the space. (I know this b/c most of one side of my family lives from the northern to southern end of the state.)

You don't need an entire garage to store your washer/dryer and bicycles. And in Florida, you really don't need a dryer - even in north Florida in winter.

I'm not sold that you need the extra space, quite frankly, but if you MUST then convert the garage. Keep the washer dryer in there. And the bikes, also. Hang them on the wall. It isn't like these four items take up a ton of space. My friend in the Tampa/St. Pete area did this with her single car garage and now she has a kick ass bedroom.

Seriously. Right now you aren't in the position to look for luxuries and anything above what is already a solid home with space for 2 loving adults and 2 amazing kids is kick ass. Your life is good.

Cassie

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Re: Outgrowing our upside down house with another kid.
« Reply #12 on: July 09, 2015, 02:16:26 PM »
YOu have to pay taxes on the part of the loan that the bank forgave for the short sale. For instance, if you owe 100,000 and the bank sells for $40,000 you owe taxes to the IRS for $60,000. That can be hefty but they will let you pay it in installments over a 5 year period but I think the interest rate is about 10%.

abhe8

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Re: Outgrowing our upside down house with another kid.
« Reply #13 on: July 09, 2015, 02:39:03 PM »
Stay. Build you bada**  muscles. Kill the 10% loan and fix the place up. Then save a new downpayment. Finish school and find a great job. Then move. :)

We were in a 3 bed 1 bath 850 sq ft until I was 7 months pregnant with baby #4. While both working full time, we moved ourselves. Sleep is over rated. You can do it!!!! De clutter. Buy smaller furniture. Live outside more. Kids don't need a ton of space or crap. And neither do their parents. Trust me, it's all over rated. And you don't have the money to move now.

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Trouble

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Re: Outgrowing our upside down house with another kid.
« Reply #14 on: July 11, 2015, 06:01:12 AM »
On the "we need more space" thing :

When my family lived in Rome, Italy for a year* my parents had no money and we lived in a 2br apartment. 4 kids (5, 7, 9, 11) and 2 adults.

*yes it was only for a year so there was a definite end point, probably much easier than feeling like it could be forever.

I'm a red panda

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Re: Outgrowing our upside down house with another kid.
« Reply #15 on: July 13, 2015, 06:55:41 AM »
You have 3 bedrooms?  And 1 kid + 1 almost kid?  So everyone still has a bedroom?

I can understand the want to upsize, but I guess I don't see the NEED.

If you have good salaries and a high savings rate, it doesn't seem like it would take that long to pay off the mortgage and just eat the loss.  What you paid for your whole house is what we put down for our downpayment, and it only took a few years to save on a PhD student's stipend and entry level professional salary.

SpicyMcHaggus

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Re: Outgrowing our upside down house with another kid.
« Reply #16 on: July 13, 2015, 08:45:13 AM »
regarding your daughters infection and return to the NICU, you may want to seek the advice of an attorney.
I believe that medical services should be performed with the utmost care, and, due to the extreme expense, there's no reason for them not to provide the best technology, sterilization, education, and speed of care. Sounds like you didn't get that. If it was indeed a mistake they made, I would at least ask them to waive the bill, and at worst would file a lawsuit to recoup the costs + attorney's fees, lost wages, and punitive damages.

Mirwen

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Re: Outgrowing our upside down house with another kid.
« Reply #17 on: July 13, 2015, 10:39:43 AM »
I understand that you feel trapped and don't like your neighborhood.  I don't understand needing more than a three bedroom house for 2 kids.   As for space, learn to use vertical space, outdoor space, and generally declutter.  Do you have a yard?  Why is there not room for the kids to move?  It sounds like the use of the space is the issue without having seen it.

The bigger issue here seems to be that you don't like your previous job or your neighborhood.  You are already doing something about this by going back to school to start a new career.  When you finish school you should find a good paying job in a new town and move close to work.  Get settled first (ie secure a place to live and a good job) and then ask the bank for a short sale.  You won't owe any taxes on any amount forgiven to the extent that you're insolvent before the forgiveness. However most short sales do not include loan forgiveness.  They just transfer the amount still owed to an unsecured loan and you still owe the difference of the amount borrowed and sales price.  They also generally still show up as a poor mark on your credit.  If you are prepared to ruin your credit for a few years to get out of the house it might be worth it.  Note that this may make it difficult to change jobs or rentals for about 3-4 years depending on your industry.  So you'll be just as trapped in the new place.  This is why it's important to get a new job and a rental before you start this process. Start working on building your wife's credit now.   I think it's more important to focus on moving to a place with more earning potential and getting your new career off the ground than to worry about how to manage getting out from under the house.  Nobody can force you to stay or to pay, the worst they can do is ruin your credit.  They can sue if they believe you have the resources to pay, but it doesn't sound like you do.  But, I'm much more of a risk taker than most people here.  I don't expect most people will agree with me.

In the meantime, if you are expecting repairs you can't afford it might be worthwhile to get a homeowners warranty policy.  The kind that most people get for the first year after buying a house.  It can be worthwhile if things are just old but not broken yet.
« Last Edit: July 13, 2015, 11:08:00 AM by Mirwen »

kendallf

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Re: Outgrowing our upside down house with another kid.
« Reply #18 on: July 13, 2015, 10:58:20 AM »
You might want to explore refinancing options on your current house, especially when you've gotten out of school and found a job.  Since you're underwater, the HARP program may be able to help here.  It's possible though that your 80% ARM will be cheaper for now than a refi, especially if you can work on that additional loan at 10% interest.
 
http://www.harp.gov

Probably the biggest return on investment you can get right now is to learn some DIY skills and work on the house.  You can do this with kids at home, get it ready to rent or sell, and the payoff for your labor can be huge.



cchrissyy

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Re: Outgrowing our upside down house with another kid.
« Reply #19 on: July 13, 2015, 11:42:13 AM »
Quote
I think for the moment your worst problem is probably that feeling of being trapped.  But I think you do have a potential way out: once you have paid down the 20% loan and your kids have reached school age you have a house which is pretty cheap to keep and which you can look at renting it out to cover its costs and rent somewhere else to live in as a family home.


Yes, this


You don't need more space than this for 2 adults and two tiny children. But you feel trapped, you want to move, and I do get that. Deal with what you can to feel better, but moving or foreclosure or short-selling is not the answer.

Cassie

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Re: Outgrowing our upside down house with another kid.
« Reply #20 on: July 13, 2015, 03:14:18 PM »
I have known a lot of people that have done short sales due to the economy, etc & they all got loan forgiveness. Yes you can avoid taxes if you are insolvent but you need to print out the IRS form for insolvency to see if you will qualify.

thisdoesfine

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Re: Outgrowing our upside down house with another kid.
« Reply #21 on: July 30, 2015, 09:37:05 PM »
It's been a couple weeks with the mother in law staying with us (talk about no room in the house, lol) and I haven't replied to any of your responses.   A few things to note:

The overall feeling of being stuck is probably the biggest issue at this point.  We can afford the house on just my wife's income so that's really where we need to be anyways.  My mother in law was staying with us for a couple weeks while she was house shopping (She's going to be a snowbird) so unfortunately we got to see just what is out there for the same money we're paying for our house.  ::barf::  lol

I've talked with the wife and we've started a plan to really crank on that 20% of the 80/20 loan.  I never really paid much attention to what I was paying on it until recently and I about puked when I saw the principal vs interest amount.  I basically pay $15 a month towards principal.  I'll be calling the bank next week to make sure if I pay more there are no penalties.  We can't afford much but even another $20 a month would help tremendously until I get income again.  We pay per month now, I might check out the twice a month option instead, a friend said that helps shorten the loan time. 

I'm hoping we got good news about our immediate neighborhood.  The house next door that's literally falling apart had someone changing the locks yesterday.  I asked if it was recently sold and he said yes, that's why he was out changing locks.  I'm super excited that maybe it will be fixed up soon and I won't have to look at it anymore :)

As far as the harp loans go, mine isn't owned by either FM so it appears there's no refinance option that route at least. 

Lastly, our house is small and unfortunately laid out pretty horribly now that I've lived in it.  I didn't notice it when I bought the place but, there are a few nooks throughout the house that just flat out waste space, lol.  We've got a small dresser in one that's in the hallway but it blocks about 6" of the entrance to our room as a result. No big deal, we're not usually fat (my wife won't be in another 2 months).  Opposite that area is another wasted space.  There's not enough room to put much of anything there though.  We are looking at ways to use the space better.  The original reason I found this site was because I was searching for information related to mattresses.  We still haven't purchased one yet but we have decided to change our frame.  We found a storage bed @ IKEA that will really help store winter items / blankets / stuff under the bed  (http://www.ikea.com/us/en/catalog/products/00249883/ ) .  Walking through IKEA, we also found some good ways to get more storage in the kids' room.  I don't know how I feel about hanging storage on the walls, but the wife would like to put storage cabinets close to the ceiling in the living room, above your head when you sit on the couch for example.  Our ceiling is only 8' though and I'm 6'1" so I don't know how that would work out, even over the couch.  We'll see how it goes.  As was mentioned a few times, we do need to de-clutter, for sure.


Rezdent

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Re: Outgrowing our upside down house with another kid.
« Reply #22 on: July 31, 2015, 08:54:11 AM »

The overall feeling of being stuck is probably the biggest issue at this point.  We can afford the house on just my wife's income so that's really where we need to be anyways.  My mother in law was staying with us for a couple weeks while she was house shopping (She's going to be a snowbird) so unfortunately we got to see just what is out there for the same money we're paying for our house.  ::barf::  lol
What if you reframe this thought?  I think it was fortunate, not unfortunate.

You mention feeling stuck.  Is it really only because of this house, or could there be other reasons?

druth

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Re: Outgrowing our upside down house with another kid.
« Reply #23 on: August 03, 2015, 08:36:32 AM »
Could you work some built ins into the non-functional spaces?  You can make these yourself with some really basic carpentry skills, and they will be location suited.

zephyr911

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Re: Outgrowing our upside down house with another kid.
« Reply #24 on: August 03, 2015, 01:32:16 PM »
Sounds like the only hard deadline is the day your oldest starts public school. That gives you a whole 3+ years to improve the situation. Definitely kill off the high-interest note and start saving money. Make improvements to make the place more livable. Then rent it out or sell it, and move on.

GFPchicken

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Re: Outgrowing our upside down house with another kid.
« Reply #25 on: August 04, 2015, 07:28:51 PM »
I'd second (third) that the house size sounds fine. We live in a 654sqft house in the same situation as you (one toddler and one to be born in March) and it's plenty big. 2br 1 bath and we don't really even use the second bedroom yet. Is your layout bad? Maybe something could be done about that (knock out a wall, etc) to make the space feel bigger/more useful.

Josiecat

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Re: Outgrowing our upside down house with another kid.
« Reply #26 on: August 04, 2015, 09:33:21 PM »
You have house fever.  Stop it. You are not even working right now.  You've already said you don't live in a good area for jobs.  When you do become employed, you can move anywhere really.  At that point, sell or rent your house and move on.

In the meantime, declutter.