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My gut instinct says we need to downsize, sell the house and get into a more manageable mortgage. Here is the bio and info. 40yr old, married, 2 kids ages 4 & 8 and wife stays at home. My income varies but has never dropped below 170K and typically is between 180-205K. We've got a ton of debt, big mortgage and apparently live way beyond our means.
Background. Bought this house 4 years ago for 892K.
Mortgage: $5350 (625K balance 30 yr fixed at 5.75%)
HELOC: $400 (120K balance 3.9%)
Auto: $533 (28K balance 5yr 1.9%)
Utilities: $470 (average)
Water $125
Sewer: $70
HOA: $120
Alarm: $138
Home phone/internet/cable: $243
Auto insurance: $102
cell phones: $195
Kids sports membership:$400
Gas for cars: $400
Groceries: $1500
Going out to eat: $250
Credit card: $15,500 (0% till May 2014) typically pay $1200/month
Credit card: $15,000 (0% apr)
Credit card: $25,000 (13.25%) pay $150/month
401K loan: $11,000 (paid back $400/mo at 2%)
Income: 170K-200K
401K: 158K
Cash in savings:25K
Emergency fund: 0
College savings: 0
I feel like the this home is killing us. The mortgage, HELOC, the 15K/yr taxes is just too much for a single income family.
Found a smaller less expensive (very dated) 3100sq/ft home for sale. Could probably buy for 520K and immediately reduce the mortgage and overall debt burden. Not to mention 1/2 the taxes and a significantly lower APR on the mortgage.
I probably don't even need to ask this but I will....should I consider selling this home and buying a less expensive one? Seems pretty obvious to me that we are living above our means.
Quote:
Originally Posted by SeaNile31
I know there is lots of room to cut here and there but I feel like the house and the associated bills will never go away. Even if we were debt free and just had the mortgage, is it really worth staying here for $5400/mo (including taxes)? The 5400+the HELOC+50K in CC+ all other expenses makes it feel as if we will never get ahead. It just hit me that my oldest will be going to college in 10 years and we have absolutely ZERO saved for that. So that brings me back to my thinking, is it really worth staying here?? If I look at the numbers it's a pretty simple decision, move to the smaller home. It's the irrational emotional stuff that makes us want to stay in our current Toll Bro home.
You owe $745,000 on your current home. Can you sell it for at least as much as you owe plus real estate commission plus whatever other expenses you'd incur in selling and moving? If you can't, you are only adding more debt to your load.
Another issue: are you sure that you can even qualify for a mortgage on another, smaller home with your current debt load? IMO, if you haven't sold your house for enough to pay off the mortgage, the HELOC and at least some of the CC debt, you probably won't. You also need to have a down payment. That means that you probably have to sell your house and rent before you can buy another house. If you want to stay in the same school district, is renting an option? What do homes in this school district rent for?
Quote:
Originally Posted by SeaNile31
That may have been a typo on the amount paid to the CC. It's at least $1300/mo which I am sure does not make a dent in the balance since we use that card for typical purchases.
This seems to be how you have gotten into the trap you're in. The idea of using the cc for "typical purchases" to track your spending or to get reward points or cash back only works if you carrt a 0 balance and pay the entire new balance in full every month.
Quote:
Originally Posted by SeaNile31
My income of 175-200K is gross. Shame of it is the last two years I made 223 and 262 and somehow we are in a worse financial position!
You are definitely spending too much.
I totally agree with the others about the $1500 on groceries, the $400 on the kids sports, and the $138 on security.
I think that if you are spending $195 on cell phones, you don't need a home phone. If you feel that you have to have a home phone, then you need to seriously downgrade you cell phone service.
You should be able to get your internet/cable down to around $120-$180 by looking into downsizing your service or switching to another provider. You can get satellite TV packages for about $60 a month the first year. I, personally, wouldn't go with the home phone but that's just me.
You are spending $470 on gas and/or electric and garbage (I guess) plus $195 on water and sewer for a total of $665 monthly. This seems excessive for a family of four unless you have a pool and are including its maintenance in your utilities. Even then, you need to seriously look at how you are heating/cool/lighting your home.
One more point: I have to wonder how your car insurance is only $102 a month for 2 cars when at least one is new enough that you owe $28,000 on it unless you only have 1 car. I hope you aren't skimping on coverage. You probably should have at least $1 million in liability coverage.
That's the big question. What can I sell my home for and what will the seller sell for? I think absolute worst case is I sell my home and net about 50-75K. I'd like to think the other house can be bought for 510-520. Not that I like the idea but I could cash out some 401k if needed.
Wife really doesn't like the home I found and wants to wait for a different home to become available. I've been looking at homes for 3 years and this is really as good as it gets. She hates the house, because its dated and "is a dump" but I feel as if it needs to be done. She really wants to wait it out.
That's the big question. What can I sell my home for and what will the seller sell for? I think absolute worst case is I sell my home and net about 50-75K. I'd like to think the other house can be bought for 510-520. Not that I like the idea but I could cash out some 401k if needed.
Wife really doesn't like the home I found and wants to wait for a different home to become available. I've been looking at homes for 3 years and this is really as good as it gets. She hates the house, because its dated and "is a dump" but I feel as if it needs to be done. She really wants to wait it out.
why do you have to immediately buy?
Why not sell, get out of debt, rent a house, save up a down payment, and go from there.
No, the car payment isn't more. The wife going back to work is just going to increase their costs--day care isn't cheep but maybe working evenings/weekends or something. I think she just needs to cut back on the spending and they should be fine. 200K is MORE than enough for a family to life off if they are reasonable with their spending....
This poster was just saying that the OPs car payment was more than that poster's mortgage. Not that the OPs car payment was more than the OPs mortgage. Their car payment is almost as much as my mortgage as well.
To me, the thing that jumped out most was the $1500 groceries bill. My husband and I spend around $300 a month on groceries for the two of us, without using any coupons, and including non-food goods like toilet paper, cleaning supplies, cat litter, toothpaste, etc. 4 people should cost less than twice as much. So even not using coupons, it should be less than $600/month for groceries, but you are 2.5 times that. Even figuring in different costs of living for different areas, your groceries are way out of whack.
Back to your question...could you afford to sell the house? You currently owe $745k. Would it sell for enough? Because you are going to have expenses to sell. Just to pick some numbers to make my point, let's say the market supports an $800k sales price. At 8% costs to sell, that is $64k. $800k-$745k = $55k, meaning you'll have to pay the remaining $9k out of your $25k savings. That only leaves you $14k for a down payment on the new house, meaning you will be limited on which kinds of loans you can get and almost for sure will have to pay PMI, which is wasting money. So I'd say unless you can get enough out of the house to pay expenses and leave enough for 20% down on the new house, it may not help that much. That would require around a $920k purchase price. So if it will sell for $920k or more, I'd say go for it. If not, think twice.
Assuming you can afford to sell, you could easily go to a smaller house and cut at least a couple thousand off the mortgage, and will also reduce the utilities cost. You should also be able to cut a thousand off the food budget pretty easily. Combining that with other cuts everyone mentioned, such as your home phone/cable/internet bill, which is twice what it should be, it isn't out of the realm of possibility to cut $4000 out of this budget. $4000 a month would go a long way toward paying off those credit card bills so you can start saving. Heck, $4000 a month is what my husband and I make each month, combined.
I know a young man has always made your income level ... and who is almost an identical situation, except for housing costs and debt. However, he has a $350-$400K house that 'WAS' worth about $600K 4-years ago ... and only has about a $325K mortgage. He would like to downsize to a smaller house (payment, taxes, insur), but, can't get out with enough equity to get in somewhere else. Otherwise, he has paid-off most of his debt, has plenty of money for college savings and spending ... and can afford to simply 'sit on the house' for a while.... but, still feels 'stressed.'
Another couple would like to move from their $250-$300K house, that was worth $450K 4-years ago. However, they also added a $150K HELOC to pay for lots that are now only worth about $50K. Therefore, to get out of the 'package deal', they would go about $200K in the hole ... so, they are somewhat 'stuck' with the 'stress' of making higher payments than their property is worth ... and not moving ... until some indefinite time in the future when the market recovers.
You say that you paid $900K for a house that currently has a $750K mortgage, plus a huge tax and insurance bill. Your family of four could obviously live quite well in a much less expensive home today. -- Of course, like so many, the 'elephant in the room' is 'the current resale value of your $900K home in this market! -- Even if you could get $810K to cover the mortgage, RE fees and closing costs, (unlikely, unless you are in a really hot market!), you will still need another $100K cash (downpayment) to qualify for a $600K replacement home ... with your debt load. ... (Taking money out of your 401K is a bad idea that will really only further compound your long term debt and financial problems)
In a different market/economy, the obvious answer is sell your house and downsize into something less expensive. (Of course, in a different market, you would be building equity, rather than debt). But, like other over-extended young couples, the solution is probably driven more by financial necessity, than preference. You may simply be 'stuck' with high payments, in a market that may not fully recover for some time to come. Meanwhile, as you already know, you need to cut your other expenses by at least $2-3K per month, in order to get in a better position to do something else, when the right opportunity presents itself.
My gut instinct says we need to downsize, sell the house and get into a more manageable mortgage. Here is the bio and info. 40yr old, married, 2 kids ages 4 & 8 and wife stays at home. My income varies but has never dropped below 170K and typically is between 180-205K. We've got a ton of debt, big mortgage and apparently live way beyond our means.
Background. Bought this house 4 years ago for 892K.
Mortgage: $5350 (625K balance 30 yr fixed at 5.75%)
You could refinance. Would reset the clock on the 30 year, but would be around $3,000 a month. If you had to stay in the district. Assuming you've already put money in the house.
Quote:
Originally Posted by SeaNile31
HELOC: $400 (120K balance 3.9%)
Auto: $533 (28K balance 5yr 1.9%)
Utilities: $470 (average)
Water $125
Sewer: $70
HOA: $120
Alarm: $138
Home phone/internet/cable: $243
Auto insurance: $102
cell phones: $195
Kids sports membership:$400
Gas for cars: $400
Groceries: $1500
Going out to eat: $250
Really need to cut that grocery bill. Family of 4, $1500 a month is a bit excessive. Even for eating healthy.
Utilities seem high. Do you use the cable enough to pay for it? Everything I watch I get usually free off the internet, just have an old laptop hooked up to the tv.
Quote:
Originally Posted by SeaNile31
Credit card: $15,500 (0% till May 2014) typically pay $1200/month
Credit card: $15,000 (0% apr)
Credit card: $25,000 (13.25%) pay $150/month
401K loan: $11,000 (paid back $400/mo at 2%)
You're paying $1200 a month on 0% interest and $150 a month on 13.25% interest? Need to focus on the interest bearing one first.
Need to knock out the credit cards asap. And don't do it again.
Quote:
Originally Posted by SeaNile31
Income: 170K-200K
401K: 158K
Cash in savings:25K
Emergency fund: 0
College savings: 0
On your current income with what you have left to pay off, you should be okay in the house, but I'd refinance. Will suck, but you need to start saving more. You're 40, with two kids, and you don't have nearly enough put away.
Quote:
Originally Posted by SeaNile31
I feel like the this home is killing us. The mortgage, HELOC, the 15K/yr taxes is just too much for a single income family.
Your mortgage is high but a refinance can get it down. Not sure why you have the HELOC. 15k/yr taxes depends on where you're living, but for your income it's manageable. I know people in NY with 15k/yr taxes making much less. Assuming you put the HELOC into renovations, you've already done all the work.
Quote:
Originally Posted by SeaNile31
Found a smaller less expensive (very dated) 3100sq/ft home for sale. Could probably buy for 520K and immediately reduce the mortgage and overall debt burden. Not to mention 1/2 the taxes and a significantly lower APR on the mortgage.
I probably don't even need to ask this but I will....should I consider selling this home and buying a less expensive one? Seems pretty obvious to me that we are living above our means.
Like some other posters have pointed out, moving into a very dated home with two little kids is going to cause a lot of stress. One would hate for that to take a toll on your marriage.
You guys need to sit down with someone and go over it. You're not beyond hope, but you need to change your spending habits and take actions to cut costs. The house is a bit big for you when you originally bought it, but you should be able to afford it with a refinance on your income.
City Data isn't a great source for great personal financial advice. Lots of people here take starter courses like Ramsey or Orman and think they know it all. You should sit down with someone. Moving into the fixer upper could easily cost you more than refinancing and cutting costs where you are. It's a pool day for me, so it was a quick glance, but that quick glance has me leaning towards staying where you are, especially if you have to stay in the school district with limited options.
Worst part is I occasionally feel stuck in this position with the housing market. If the numbers don't work for selling my home then I will really feel stuck in this position. I want to make a decision in the next few weeks and then either move forward with the downsizing or begin to pay down the CC debts.
My gut instinct says we need to downsize, sell the house and get into a more manageable mortgage. Here is the bio and info. 40yr old, married, 2 kids ages 4 & 8 and wife stays at home. My income varies but has never dropped below 170K and typically is between 180-205K. We've got a ton of debt, big mortgage and apparently live way beyond our means.
Background. Bought this house 4 years ago for 892K.
Mortgage: $5350 (625K balance 30 yr fixed at 5.75%)
HELOC: $400 (120K balance 3.9%)
Auto: $533 (28K balance 5yr 1.9%)
Utilities: $470 (average)
Water $125
Sewer: $70
HOA: $120
Alarm: $138
Home phone/internet/cable: $243
Auto insurance: $102
cell phones: $195
Kids sports membership:$400
Gas for cars: $400
Groceries: $1500
Going out to eat: $250
Credit card: $15,500 (0% till May 2014) typically pay $1200/month
Credit card: $15,000 (0% apr)
Credit card: $25,000 (13.25%) pay $150/month
401K loan: $11,000 (paid back $400/mo at 2%)
Income: 170K-200K
401K: 158K
Cash in savings:25K
Emergency fund: 0
College savings: 0
I feel like the this home is killing us. The mortgage, HELOC, the 15K/yr taxes is just too much for a single income family.
Found a smaller less expensive (very dated) 3100sq/ft home for sale. Could probably buy for 520K and immediately reduce the mortgage and overall debt burden. Not to mention 1/2 the taxes and a significantly lower APR on the mortgage.
I probably don't even need to ask this but I will....should I consider selling this home and buying a less expensive one? Seems pretty obvious to me that we are living above our means.
If you plan on dying in the next couple of years, you are doing just fine.
Those figures are so insane to me that I find it hard not to be overly judgmental. You don't mention what area of the country you are in and what options there are, so there is an unknown. Also, some professions require a certain apparent level of wealth, so I'm reticent to comment too much on the car situation.
Looking at everything there, you have come to a proper conclusion - that house is killing you. $60+K per year is going right out the window. You are spending 1/4 of your time working for a bank instead of for yourself and your family. Have a sit down and discuss w/ wife if she wants the kids to go to college. If she does, you need to move ASAP and start a fund for that. I'll comment that at the same time you would do well to start another fund towards your retirement that is equally funded. Kids can and do abandon parents, fail at creating decent lives for themselves, and end up with debilitating illnesses. You cannot depend upon them to bail you out when you are 70.
Currently the LTV with the HELOC is not allowing a refi.
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