What is worse for my future/credit ?

[AshleyDillo]

Thanks to the OP for asking this question. I've been having the same debate with my condo. I haven't had any income other than unemployment for 7 months now and I've been underemployed since 2007. I'm upside-down in my mortgage because I bought solely based on location at the top of the market in 2006. My work was right behind my condo.

A year later I was let go and I haven't had any luck getting back to substantial employment. I bought for a lot more than was reasonable for my salary, but I never thought I'd end up losing the job. I've done as much as I can to save my place--drained my savings and went back to school and got 2 Masters degrees while working an entry-level job that was only 30% of what my income had been. I used student loan money to build back up my emergency fund but I'm quickly running out.

I've been working for nearly a year with my mortgage company on a refi, but they are dragging their heels and every other week they want more paperwork for this and that.

I have an IRA and a 401k from my previous employer to tap into but I don't know if I'm willing to completely lose all of my money just to try to save my place. I don't really want to stay in this city, but since I have shelter I'm at least trying to find employment here, but it is turning out to be futile. The downside is that the industry I'm trying to work in, and that I have my degrees in, is the financial services industry--which often require good credit for employment. I don't need any other strikes against me in finding a job.

I am fortunate that it is only me affected by this as I'm single and have no children. However, that thought doesn't soften the blow.

 

[angelmav]

Some people cannot take a second job - I am salaried, work 72+ hours per week and am prohibited from taking a second job by contract.



Remember there are widely varying income levels on these boards. For us a week these trips are not a splurge. Our mortgage dwarfed what we spend for a week at WDW.

We are in the situation we are in because my wife became disabled and could no longer work, we began caring for her disabled mother, financially and physically, and our dream home was only worth 30% of what we paid for it. It sold at less than 27% of our initial purchase price in the short sale.

I would have loved to have found a way to hang onto our home but we could not. Heck, I would have settled for just outright selling it.

I'll say it again - do not jeopardize your retirement to save a home - it is simply a thing and things are just not worth it.

Martin

Hey, why did you take your trips out of your signature? I am sure the $5000 or the $6500 you reported as spending on 2 of the 3 trips would have made no difference in 'your' situation, but an extra 12k would make alot of difference for most (not including the DL trip).

FWIW, alot of people are looking at this short sell thing as a way to walk away from an asset that has lost so much value. Wrong way to look at any long term investment, and unless your in absolute dire straights or have no other choice you should account for the fact that its likely getting credit in the future will be much more difficult and the past rules arent an accurate barometer, and that the interest rates will be much, much higher.

 

[punkin]

Hey, why did you take your trips out of your signature? I am sure the $5000 or the $6500 you reported as spending on 2 of the 3 trips would have made no difference in 'your' situation, but an extra 12k would make alot of difference for most (not including the DL trip).

FWIW, alot of people are looking at this short sell thing as a way to walk away from an asset that has lost so much value. Wrong way to look at any long term investment, and unless your in absolute dire straights or have no other choice you should account for the fact that its likely getting credit in the future will be much more difficult and the past rules arent an accurate barometer, and that the interest rates will be much, much higher.

That depends. If you put close to no money down and your investment has depreciated 70% (as the pp said), I think it makes perfect sense to walk away. I would.

 

[WDWisTheBest]

Please consult a bankruptcy attorney (just talking to one doesn't mean you need to file...they will look at your situation and give you advice) or a professional credit counselor.

DO NOT TOUCH YOUR 401K before talking to an attorney. Worst case, you file BK....retirement savings are exempt and if you pull your money out and still lose your house you just threw away your retirement.

Think of your finances as a business decision and not an emotional one. Yes, people feel moral/emotional obligations but at the end of the day you have to make a financial decision that is best for you and your family. To do that, please consult a professional (or two!) to get the best advice you can so you can make an informed decision.

Jill in CO

Very good advice. Please consult a bankruptcy attorney before doing anything. Please consult a professional to get advice before doing anything.

 

[ccgirl]

I disagree. The OP has the money in a 401k to be able to sell her home without ruining her credit.

If I had the money, I would not walk away from a debt obligation.

I do not see retirement savings as generally available funds, but faced with a short sale/foreclosure/bankruptcy, I would definitely tap into it *if* it would prevent any of these occurrences.Short sales can take a very long time. There is no guarantee that the bank will accept the price buyers are willing to pay. In the meantime, the OP may start defaulting on her mortgage (which will further lower her credit score), and may go deeper into credit card debt. Further, I believe she said that she had an equity line on the house. Debt forgiveness on these can be complicated for tax purposes (depending on the amount taken out and the use, the forgiveness could be a taxable event).

Withdrawing from a 401k results in ordinary income tax (at the marginal rate) + 10% penalty. It's not the end of the world, and if it would keep me from trashing my credit (and walking from an obligation), I certainly would do it.

Doesn't sound like tapping into the 401K would help. Sounds like she is already upside down meaning her house is worth less than she owes, or can get in a sale. Tapping in to the 401K would not get her out of this situation. When you tap in to your 401K that leaves you less money to retire on, potentially having you need to really on financial assistance later on in life.

So your monthly mortgage dwarfed a $5000 +/- WDW trip?

Golly-how can a mortgage be that high?


I also vote for not touching the 401k-I know someone who did that and did not prepare for the additional taxes and got in further money jam.

People are not comparing apples to apples here. You cannot compare the size of your house and assume everyone pays the same mortgage. COL varies WIDELY throughout the country as do home prices.

A $600,000 load would result in a mortgage payment of approx $4,000. That just not take into account property taxes.

And, before people say you should never get a mortgage that big.....there are people that make 300K a year. This particular poster writes how he works 72+ hrs a week and is prohibited to take a second job by contract. This leads me to believe he was probably making somewhere in this ballpark. It is important to remember we all have budgets. Just because someone makes more than you and falls on hard times does not make it any easier. They have to adjust their budget and downsize as well.

Good luck to everyone in this. I was laid off twice in 2 years. I, myself, have taken a 25% pay cut with my current position. We were lucky to purchase our home 10 years ago so nowhere near the high point. We also purchased a home we could afford on just one salary if we had to.

People really need to read what they sign. Just because a bank says you can afford something doesn't mean you can. Not saying this to any poster in particular, just a general statement.

 

[mombrontrent]

The cost of a mortgage payment doesn't come from just the cost of the mortgage itself. It has to do with your intrest rate as well as how long your mortgage is amortized over. Someone with a $250,000 mortgage with a low interest rate and a long amortization could be paying a lot less monthy than someone next door on their $250,000 mortgage that has a high intrest rate and a low amortization. Ideally the best way to do it is to get a low interest rate and have it amortized over as little years as you can afford the monthy payments. Then pay over and above your monthly payments and get that mortgage payed off as fast as possible to avoid wasting all your money on interest. Our home is amortized over 17 years but we always make extra payments when we have extra money so in reality we will have the house payed off before the 17 years is up. I live in Canada and we have to refinance our mortgages here every 5 years or so (whatever is agreed to at the time) so we get a new intrest rate and amortization time. So far our housing market is going strong and homes are selling like hotcakes still, prices just keep on going up and up even throughout the recession. So glad I got into the housing market when I was young because I would never be able to afford to get into it now. It's crazy how expensive houses are here.

 

[mom2pandc]

You need to quit paying the credit cards for right now. Debt consolidators don't work, loan remodifications are 1 in a million. The worst thing a credit card company can do is ding your credit (that's going to happen with any scenario) they can scream and cry and perhaps some day get around to suing you. (all of which a mortgage company can and will do) The mortgage companies will take your house and leave you homeless, sell your house and then sue you for the difference.
I listen to Dave Ramsey a LOT and you need to immediately put your house up for sale and take every offer (short or not) to your bank and second mortgage company to try to get them to accept it as settlement in full. You may be able to get the 1st bank to accept the short sale and have to sign for an unsecured loan with the second (it's basically unsecured anyhow if the house isn't worth enough to cover the first and second). Or as a last resort you could cash in some of your retirement IF and only IF it settles the deal completely (short sale covers the first mortgage, lump some from retirement fund to get the second to go away)
Down the road when you get on your feet a bit you can start hacking away at the credit card companies and get them to settle for less.
It doesn't sound like you're trying to skip out on your bills, the truth is you can't pay them.
I sincerely don't understand why anyone would recommend paying a stupid credit card and NOT paying on your mortgage because of a flippin interest rate
Any way you dice it you can't pay everything right now and the one that can do the least damage to you and WILL settle for less if you're behind is the credit cards.
As far as needing another car, you need a garage sale car that costs about $1000 and you need to scrape together cash to buy it. (can be done by not paying the credit cards for a month or so) It may be ugly, but that's the sacrifice you'll have to make at this point until you can get a hold of your financial life. Quit borrowing money, that's what got you into the mess your in.
I'm not trying to be harsh, because I know you're hurting and your scared, but I think you need to take a hard look at the situation and not look for the easy or tricky way out.

 

[Mandyjg20]

Hello, sorry you are going thru this! I have not read all the other post so if I am repeating something sorry. I work in collections in a bank. Foreclosure is worse than a short sale. The foreclosure is going to stay on your credit report for a total of 7 years where as a short sale is going to noted as settled. Not only that but with a foreclosure you will more than likely have a higher left over balance to pay off. (short sales need to be approved with an offer ready, you can let the banks know what you plan on doing but if there is no offer there is nothing they can do)

#1 to do is call your banks tell them your situation, if you have a rude unhelpfull person ask to speak to the supervisor.
#2 Get loan mods going on both the mortgage and loan
#3 call hud, of if you have fannie, or freddie get on their websites and look for the help that they could offer
#4 keep in contact with your banks, they help people more who are in contact with them and will try
#5 ask if they have a extention program, do you have income coming in at all?, what these do will give you a few month off the loan, there may be a cost invovled but not as much as your reg payment. I know we offer 2 months as long as they have income coming in
All the while doing this try and sell the property.
Also someone said you can do a deed in lieu, since you have two different banks this is not an option, unless one is willing to be an unsecure amount for the entire balance, which will not happen

About the credit cards call and try to negitiate the balance, if that does not work get in contact with a credit counseling agency that will neg for you. Also this is done by proposals as well, so if your agency is telling you that you are set up call your banks and make sure if it really done. I have seen numerous times these agencies start taking your money and the bank does not even know you are working with the agency.
Hope this helps!

mom2pandc is right about, if it does come down to you paying your mortgage or credit card pay your mortgage, rule of thumb is if the balance is under 4k they will more than likely write it off a charge off will also effect your credit report for 7 years but makes more sense than a foreclosure.