08-17-2011 10:36 AM
We just got the plans approved to build another bedroom & bath which will cost us approx $40,000 - we already spent $6,000 on the plans & permits. We love our neighborhood & the house but we're thinking of backing out? the problem is that we cannot buy another house because our credit was affected when we lost an investment property that we had in AZ a couple years ago. Any suggestions?
Solved! Go to Solution.
08-17-2011 03:33 PM
It seems you have the obvious 2 choices - stay or leave.
Here is the question - can you afford the housing payment and have money to build the addition?
If your answer is YES, then you should stay, do the addition, and enjoy your house. In the long run you should be fine. You have already spent $.
If you can't afford the housing payment, due to a hardship (loss of employment, health issues, or other catastrophic event), you can short sale the property (sell for less than you own to the bank). Your credit is affected and you want be able to buy another home for some time if you are planning financing.
Please talk to your local Ziprealty Realtor and she/he will help you with your specific situation.
08-17-2011 05:17 PM
Hi and thanks for your response. YES, we are comfortable with the payment right now, but in four years it will start going up. We're not sure if making the addition is the smartest thing to do right now since we are upside down, but we are crunched up and need the room. Do you suggest we let this house go and use that money for another house in the future or invest the $40,000 and stay?
08-18-2011 08:05 AM
I see. Your loan will reset and starts with adjustable rate, which we expect could be much higher than today's rates.
On the other hand, from what I sense, you won't have a hardship situation to try short sale your home. The only option is to ether ask the lender for "deed in lieu of foreclosure" or foreclose. Neither is good.
If you do the above you loose your house.
Think about this:
- You won't be able to purchase another house for a long time.
- Real estate market condition at the time you are ready to buy
- You will need to rent - how much rent you will pay vs. you are paying now for your house (including any tax benefits) and how long
It is a difficult decision you need to make.
08-18-2011 10:26 AM
YES, you are correct. We're more convinced now that staying & moving on with the addition is the best thing for our family. Thank you so much for your feedback, it's been helpful.
08-18-2011 02:30 PM
if you house only worth 330 and you own 460, you are not getting any asset by keeping the house. in the long term, it is more beneficial for you to rent. lets say even if you rent a bigger house, you will have less debt than keeping the house. if you look at the current economy and housing trend. you are not going to get a return on keeping a house for a long time.
08-18-2011 07:14 PM
Let's do a simple math. All rough numbers.
Assume you "dump" the house and move with renting for 5 years.
Assume you paying 6% interest rate on the 470k loan, and you paying principal and interest every month.
- after 5 years of paying the loan, the principal balance is approx. 435k
- add your income tax saving, mortgage interest and property tax deductions - say conservatively 5k/year (please check your CPA for exact $). Total saving is 25k
So, at the end of the 5 year renting vs. owning your principal balance is approx. 410k.
I hope this helps.
08-19-2011 12:24 AM