Ask The Money Coach

Posts Tagged ‘Homeownership’

Start by asking your husband’s employer what relocation benefits, if any, they are willing to provide. Some companies will do just the basics: like paying for moving costs. Others will offer more assistance, like reimbursing you both for house-hunting trips, putting you up in hotels during temporary stays in your new state, or even paying for meals and local transportation during the transition period. With really generous companies, they may offer to fund some of the cost of buying a new home (like providing money for a new down-payment), or may consider buying your existing home, or perhaps reimbursinig you at some level if you have to take a loss to sell it quickly. Relocation packages vary greatly based on the industry, region of the country and, of course, the specific employer involved. But you should ask about any or all of these options. Also inquire about neighborhoods and the cost of living in your new region. Do some basic online research, yet ask your husband’s soon-to-be boss or his colleagues about desirable communities and where there are good schools in your new state. This later area will be of particular importance if you have kids. Ask too about taxes in your new state. Not just property taxes, but also ask whether or not your husband’s employer may consider “grossing up” his income to cover some of the taxes you’ll have to pay if he gets a cash relocation stipend or bonus.

Regarding your existing house, I don’t have to tell you that it’s a buyer’s market – particularly in Florida. Without knowing any specifics about your home or your particular neighborhood, I can only really tell you to price it agressively (i.e. make it attractive to potential buyers) if you want to move quickly. Also, if you need to sell your current home in order to afford a new home (as most people do), then you might as well get the ball rolling and put your home on the market as soon as possible. Ask for referrals or drive around your current neighborhood and look for signs to find a local, experienced real estate agent. Then call that person and have him or her come by your house to do a complete market analysis and tell you what your house is likely worth. Good luck!

This is a classic case of “which should I do first – pay debt or save more”? The answer isn’t really a matter of either/or. It’s a question of how to do both simultaneously because that’s the best approach. You need savings to avoid going into debt. After all if you don’t have a cash cushion, the slightest emergency – like a flat tire or a leaky roof – will send you heading for your credit cards. Also, you should pay off debt as soon as possible because you don’t want to pay unnecessary interest charges and be prevented from saving money for other future goals. The good news for your situation is that both of the loans you’ve taken on – school debt for your son, and a home equity line of credit – carry relative modest interest rates. You didn’t say when you got your HELOC, but I assume it’s in the single digits (i.e. less than 10%, and probably significantly less if you got the loan in the past couple years). Ditto for that student loan. So divvy up the available cash you have and work at meeting both objectives: knocking down that student loan balance and your HELOC and also adding consistently, month after month, to your savings nest egg. If I had to prioritize, I would say slash that HELOC debt first and put more emphasis on that than the student loan debt. If it’s a federal loan, the student loan debt may be subsidized (meaning the government is paying the interest on the loan while your son is in school). Lastly, because the healthcare reform bill recently signed into law by President Obama includes student loan reform as well, you can expect college loan costs to come down significantly. For instance, starting in 2014, student loan repayments will be capped at 10% of a borrower’s income. That means even if you can’t pay off that loan in five years, your son can start working on it — and it’ll be relatively affordable for him to do so.

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Yes, a mortgage company can send you late notices and tack on late charges to your mortgage when you don’t pay on time. Unfortunately, those fees can add up, because sometimes they include penalties, added interest, collection costs, and maybe even attorney’s fees if they have to get lawyers involved. It doesn’t sound like you’re at the point of foreclosure, but clearly you are in a very difficult financial predicament. Based on everything else you said to me, it seems that you bought your home in 1990 when you children lived at home, but now they’re gone. You described a roof problem which will take $3,000 to repair, and you also have the added financial burden of having recently taken in 3 of your grandchildren. I think you need to be realistic about your circumstances and consider whether or not you can afford to live in the home you currently have. Chances are, the home is too big for you all by yourself. Also, I recommend that you begin the process of telling your adult children that you can not afford to take care of their children. I admire the love and selflessness that you have shown in taking care of your grandkids, but this entire situation sounds like simply too much. Unless your children are providing significant financial support for you to keep their kids (which I doubt), I think you should unwind that situation and simply tell your family that you are being buried under a mountain of bills. You said that you have a car note, as well as credit card bills, some of which have been sent to collection agencies, so that tells me you are really struggling to keep your head above water. Since you are working, talk also to your mortgage lender and see if they have any options to offer you, such as a forbearance or deferment on your loan, or perhaps a loan modification. Also look into the Obama plan, www.MakingHomeAffordable.gov and see if you qualify for that program. Good luck!

I’m sorry to hear that you are in a financial bind. But you’ve definitely taken the first step to turn things around financially, which is to recognize that you do indeed have a big problem. Maybe you were in denial in the past, or maybe your economic fortunes simply changed recently for some reason. Whatever the case, you seem to acknowledge that things can’t go on the way they have been. Not with you living $400 in the red each month.

If you’ve had a home for 22 years without missing any payments, I would hate to see you lose your house, so I hope you’re not talking about skipping payments on the home. Probably not. Since it sounds like you’ve reached out to your mortgage lender and received at least some support. I assume you are considering not paying other creditors, like credit card companies or perhaps your auto lender, that kind of thing.

I would suggest you take two steps. The first is to do an honest assessment and overhaul of your budget. Even if you get some relief from your creditors, it won’t do you any long term good if you are deficit spending. Go over your spending with a fine-tooth comb and see where you can cut back. Surely there are some areas/expenses you are willing to sacrifice or slash in order to keep your home, maintain your very good credit rating, and have financial peace of mind. Read this post about how to create a proper budget and this article on overhauling your budget too.

Additionally, before you simply stop paying creditors, contact each one directly and see what options, if any, might exist. Perhaps some of them are willing to put you on a deferred payment plan. You suggested in your email that a six-month reprieve from certain payments would give you some breathing room. Tell that to your creditors. If you make small token payments, that may show a “good faith” effort on your part, and it may keep bill collectors and creditors from hounding you. But those partial payments won’t necessarily stop creditors from reporting you to the credit bureaus. Anytime a debt is not paid as originally agreed, the creditor has the legal right to report that information to the major credit reporting agencies: Equifax, Experian and TransUnion.

If your creditors won’t offer any relief, and there’s nothing else in your budget to cut, yet you find yourself still in the red, then yes, it’s time to “cry Uncle.” At that point, I would make strategic decisions about what bills get paid first and which are second and third-tier obligations. See this TV interview in which I explain how to prioritize bills when you can’t afford to pay everything. Good luck!

It sounds like you and your mother can not only not afford your home, but the house itself is also severely underwater. I understand your desire to improve your credit and get your own place, but honestly, you must fix problems A, B, and C before you can move on to issues D and E. In this case, problems A, B and C are: getting realistic about your financial past and present, learning how to create and live with a budget, and dealing with your home dilemma. Until you first do those things, you won’t be able to pay off your debts (issue D) or improve your credit (issue E). Without tackling first things first, you’ll also put yourself at risk of losing another home simply because you’ve neglected to learn certain financial lessons.

So let’s start with the first thing: a reality check. You seem to have attempted to throw your mother a lifeline, only to wind up nearly drowning yourself. Your email said you bought the home from her back in 2004 to help her avert bankruptcy and foreclosure. Despite your best intentions, you also stated that you and her wound up 3 months behind on the mortgage and in danger of being foreclosed upon anyway. That’s what led you to seek out the $10,000 loan you’re not saddled with. What happened to during the time of your unemployment? Your message indicated that you were twice laid off and that you “made some not so smart money decisions?” Whatever those decisions were, you have to truly acknowledge them, and make sure that you don’t repeat them.

It sounds to me as if you had your mother have been stuck in a cycle of making repetitive bad decisions. I hope you don’t think I’m being too harsh on you. Because I’m telling you these things honestly out of care and concern for your situation. I can sense your struggle and I know it’s very hard to be in such a tough predicament. I’m just giving you a bit of “tough love,” however, because I’ve seen cases like this time and time again. The only way people get out of these dilemmas is by actively breaking the cycle and ending the behavior that landed them in hot water.

Now let’s move on to the second issue: having a proper budget. Unfortunately, most of us grow up never having learned to create a realistic budget. This is likely true of your mother, and it’s probably true for you as well. Read this article I’ve written on budgeting and this post too, to get some ideas on how to budget to better manage your finances. Additionally, read this post about budgeting and financial planning when you go thorugh a layoff or have reduced income.

So what about the house? The fact that you’ve both faced foreclosure at least twice, and have even refinanced twice since 2004, yet you have still wound up deep in debt and deeply underwater tells me that you can not truly afford this home. I assume you refinanced in recent years to take advantage of relatively low interest rates. But I also suspect that you took cash out of your home as well. I could be wrong. But that’s certainly what many people did during the heydey of the housing market. How was that money used? Did you pay off debt, set aside any savings, or do something else with it? I recognize, of course, that part of the reason your house is likely under water is because home prices have fallen greatly in many parts of the country. But the fact that you owe twice as much as your home is worth signals that something else was going on.

If I were you, I would investigage the prospects of a short sale or a deed in lieu of foreclosure. I don’t know where you live, but it’s highly doubtful that your home will “come back” in value anytime soon. Unfortunately, short sales and deeds in lieu of foreclosure do have negative ramifications for your credit. But these are short-term hits from which you can recover, if you’re prepared to move on and do the right thing financially in the future.

You asked about the loan you got while you were unemployed. I don’t know of any way to legally get this loand eliminated or removed from your credit reports. Just because someone loaned you money at a time when you weren’t working doesn’t make the loan a “predatory loan.” Unfortunately, scores of lenders all across the country did this — both reputable lenders and not-so-reputable ones. Honestly, I don’t know which camp your lender falls into.

Nevetheless, again, I want you to be willing to take responsibililty for your own actions, and not put the blame elsewhere. You stated to me that you knew you shouldn’t have applied for the loan in the first place but that you were “desperate.” Plus, the reason you applied for the loan was because you were in arrears on your mortgage. That’s certainly not the fault of the lender that gave you the $10,000 loan. So it’s not fair to now accuse them of “predatory” lending. Predatory loans are characterized by unreasonably high interest rates, abusive pre-payment penalties, or excessive loan fees including enormous commissions for lenders or mortgage brokers.

Don’t worry about paying off 5-year-old debts at this point. You’ve got enough on your plate to try to pay your current bills. And trust me: In the long run, you will be far better off if you take my advice and deal first with these issues before you attempt to pay off old debts or improve your credit rating in order to try to get another place to live.