Looking for wisdom re: our housing issue

[Moxie]

DH and I are on the DR get-out-of-debt plan. All our debts are student loans (and our mortgage but we don't think about that yet). We have 2 more years until we're debt free (except the mortgage). I'm the driving force behind getting out of debt; if I said "forget about it", DH would be fine with it.

 

Now the issue; our neighborhood is in decline. Lots of rentals with bad tenants, a couple of meth fires, etc. Right now, we can sell our house and walk away with a few thousand dollars. The concern is that the neighborhood will continue to decline and we will really lose money or not be able to sell in two years. The house is also pretty small and we're expecting our 5th child.

 

So, I'm looking at rentals. Houses that are the same size as our current home (but with 2 bathrooms :lol:), in better areas, are literally DOUBLE our current mortgage payment! That will really slow down our plan.

 

Since rentals are so high, DH is looking at houses that are on the market for sale :001_huh:. He has talked to a realtor that assures him that "with your excellent career, you'll have no problem getting and 80/20 loan" meaning buying a house without a down-payment (we have very little cash sitting around because we're putting everything towards the student loans). Our get-out-of-debt plan would still be slowed down but we'd have a better living situation.

 

I'll admit, I'm so tempted. On paper, it almost makes financial sense. It just feels unwise to me but I'm a pretty hardcore Dave follower (maybe too much so?). Buying a house probably wouldn't be the end of the world, right? But I also know that DH has house fever and he tends to think that things will work out somehow. I'm always the one pulling back on the reins.

 

Anybody have a crystal ball and care to share what the future holds :tongue_smilie:??

[DusksAngel]

We just started reading his book, but I know that he does say that although it's not his first choice, he knows that a mortgage is something some people have to have.

 

If you can comfortably make the payments and still have enough to work on those student loans I would probably want to get away from that neighborhood too (before it does get worse and you can't or have a really hard time doing so). Once you get the student loans paid off you'll be able to work on the mortgage. :001_smile:

[DawnM]

Is the house you are looking to buy comparable in price to the one you have now or are you looking at an even larger mortgage?

 

DR suggests buying with a 15 year mortgage and that mortgage being only 25% or less of your take home. Would your new house come close to that?

 

Dawn

[Moxie]

Is the house you are looking to buy comparable in price to the one you have now or are you looking at an even larger mortgage?

 

DR suggests buying with a 15 year mortgage and that mortgage being only 25% or less of your take home. Would your new house come close to that?

 

Dawn

 

Our mortgage would have to be bigger because the house we currently live in is so cheap! I'm sure we'll keep the house within Dave's mortgage guidelines. My main sticking point is the "nothing down" part. It feels wrong but maybe I'm wrong???

[DawnM]

Well, nothing down is NOT ideal, and you may have to pay PMI for quite a while.

 

However, I would not stay in an unsafe environment either and from what you are saying, this isn't the best place to raise kids.

 

I would be looking too and even my very frugal DH would agree with me on this one.

 

Dawn

 

PS: Just an FYI. We didn't start a DR type program before we purchased this current house. We did have the down payment in place, but we got a 30 year loan. Now that we have done Crown Financial, we refinanced to a 15 year loan and it is a bit more than 25% of our take home, but we are making it work because the thought of moving overwhelms us and because this is a nice area and we like our house for the most part.

 

Our mortgage would have to be bigger because the house we currently live in is so cheap! I'm sure we'll keep the house within Dave's mortgage guidelines. My main sticking point is the "nothing down" part. It feels wrong but maybe I'm wrong???

[TXBeth]

How big is your snowball? If you stopped snowballing right now and went to just paying the minimum on student loans for a few months, could you save up enough for at least a small down payment?

If the answer is yes, you could put your house on the market, then while waiting for it to sell, begin saving everything you can for a down payment.

 

What I would do? Go gazelle intense to get the student loans paid off as fast as possible, then save for a sizable down payment, then move. But if you really think the neighborhood is going to crash and burn within the next two years, maybe it's better to get out now.

[amy g.]

We bought our first house with nothing down. It was a 4,000 sq foot house in such bad shape that it only coat us $80,000.

 

We fixed it up ourselves over 10 years and made enough selling it to buy our current house and property here where we put 20% down.

 

The first loan was a huge help in getting us on our feet financially.

[Moxie]

We bought our first house with nothing down. It was a 4,000 sq foot house in such bad shape that it only coat us $80,000.

 

We fixed it up ourselves over 10 years and made enough selling it to buy our current house and property here where we put 20% down.

 

The first loan was a huge help in getting us on our feet financially.

 

Yeah, fixing it up to make a profit was sort of the plan with our current house. Then the neighborhood started going to hell. My risk meter is now pretty sensitive.

[livingnlearning]

I'm only slightly familiar with DR and can't predict what he would say in this situation, but how long would it take you to get where you want to be financially? I only ask b/c interest rates are going to go up significantly in the near future. I'm looking at making a tricky real estate move right now too and I feel pressure b/c of the economic atmosphere. Right now rates are very low... not sure how it's going to be in the future.

[elfgivas]

:grouphug:

 

money is just a tool to a life that you want. it doesn't sound as if where you are now is where you want to be.

 

no crystal ball, but if it were me, i'd bail out of the house now, however we did it.

 

i liked the idea the poster had of listing your house, paying minimum on student loans and saving as much as you can for a down payment. how does the monthly payments on the houses your dh is looking at compare to the rental cost of a similar house? is a slightly smaller house feasible?

 

:grouphug:

ann

[Moxie]

:grouphug:

 

money is just a tool to a life that you want. it doesn't sound as if where you are now is where you want to be.

 

no crystal ball, but if it were me, i'd bail out of the house now, however we did it.

 

i liked the idea the poster had of listing your house, paying minimum on student loans and saving as much as you can for a down payment. how does the monthly payments on the houses your dh is looking at compare to the rental cost of a similar house? is a slightly smaller house feasible?

 

:grouphug:

ann

 

 

See, this is where we go in circles.

We could buy a smaller house but then we're slowing down the plan and the only benefit would be living in a better area and our family is about to expand.

So, we should just stay here for a few more years.

But what if it really tanks?

We should buy now.

But we might as well move to a better area and get a home to fit our family.

But that will slow down the plan......

 

I'm not sure if there is a right answer and a wrong answer, we just need to figure out our comfort zone as far as debt and risk are concerned.

[tammyw]

meth fires? Get out now! I think that neighborhood is just going to get worse and worse, imo.

[jenL]

We are DR followers too, and sometimes we struggle with how he is so cut & dry because there's a human element you are speaking of in your situation that DR doesn't address. You are facing a potentially unsafe/undesirable situation with your current home, and with the state of the economy now, it would seem more than likely that the neighborhood would continue to crumble (imho).

 

For us, we would slow down the plan to become debt-free because of the safety factor. There's too much of a what-if in your current home that points to the negative. We'd go for a larger home in a better location (after a ton of research for said location) that would protect us in the long run simply because your family is expanding while your current neighborhood is deteriorating.

 

We are exactly where you are in the DR process (school loans and a mortgage), so I can fully understand your dilemma. We tend to view school loans as "less bad" than CC debt, so psychologically for us, we'd be okay with slowing the pay-down to obtain better housing. We believe you have to have safe shelter while not being excessive in terms of size.

[Joules]

I would get out now. I'm thinking it's only going to get worse. I sold about a year before my sis did. We took about a 40% hit on value...she about 70%.

 

I would think that DR would agree that your family's safety has to balanced with a debt plan. Otherwise, he would suggest that we all live in homeless shelters or under a bridge until we got our debts paid off.

 

It's hard to think about using money wisely when you are worrying about one of your family being caught in cross-fire. I don't think there is one right answer, you just have to look at the reality of the safety situation and your finances and make the best decision you can.

[Jenn in FL]

It just depends...I would consider the following factors:

 

1) What is going on with the property values in your local market? Are they somewhat stable or are they plunging? (Remember this comment is coming from someone who owns property in FL!):glare:

 

2) How long are you planning on remaining in your future property? Any chance of a job change or relocation in the short term?

 

3) I am assuming that your 80/20 scenario equates to NO PMI? Right?

 

4) What would be your rates on both the first and second mortgage? Likewise, the length of term on each? Obviously the second would be at a higher rate.

 

5) Genuine neighborhood decline is never a good sign unless you are desiring to be a part of an urban renewal project--and some people are. For others, decline spells the beginning of the end. If you are wanting to leave, sometimes the safest course is to "go while the getting is good."

 

6) Can you comfortably afford the increase in housing cost? (Either with or without the DR plan--as in is it affordable at all regardless of whether or not you are snowballing at the time?)

 

 

Just a few things for you to mull over.

 

Jen

Edited August 8, 2011 by Jenn in FL
Typos

[SunD]

I think DR is very grounded in reality. The reality of your situation is that you don't feel your children are safe in that neighborhood. To me, that means you need to move. If you can keep your mortgage to 15 years and the payments within 25% of your income, great. About the "nothing down" ... is there anything you could sell to jump-start the "down payment" savings fund? I might consider dropping back down to the minimum payments too, if it would be a significant enough amount of money that you could actually get a down payment saved in a reasonable amount of time.

 

You know what? I think I'd call DR and see what he says. If your living situation isn't safe, I can't imagine he'd discount that. Maybe he'd have some advice about the snowball/down payment issue.

[Moxie]

I think DR is very grounded in reality. The reality of your situation is that you don't feel your children are safe in that neighborhood. To me, that means you need to move. If you can keep your mortgage to 15 years and the payments within 25% of your income, great. About the "nothing down" ... is there anything you could sell to jump-start the "down payment" savings fund? I might consider dropping back down to the minimum payments too, if it would be a significant enough amount of money that you could actually get a down payment saved in a reasonable amount of time.

 

You know what? I think I'd call DR and see what he says. If your living situation isn't safe, I can't imagine he'd discount that. Maybe he'd have some advice about the snowball/down payment issue.

 

I've thought about calling but I'm a big chicken. I'm 99% sure that he would tell us to sell and rent until we have 1) debts paid off 2) fully funded emergency fund 3) large down payment.

[tammyw]

ETA: I forgot to add to the post above - I would probably rent for a while in your situation. I really believe the housing market is going to continue going down for a while. So much uncertainty would not let me buy at a time like this. Plus you'll have more freedom to make a decision, rather than be forced to do something quickly, even if you have to pay more in rent for a while - the freedom you'll have will be worth it -- at least it would be for me.

[In The Great White North]

We could buy a smaller house but then we're slowing down the plan and the only benefit would be living in a better area and our family is about to expand.

 

That's not the only benefit. By selling now, you could be saving your investment. Your equity in a house in a meth neighborhood could go to zero. (One of my relatives died and left a house that HUD even wouldn't take as a donation. The executor of his estate eventually sold it for $500.) If you feel the neighborhood is headed in that direction, you need to get out while you still can.

 

Your mortgage would still need to be paid off. You would still need to move for safety reasons.

[Scuff]

How cheap is your current house? How painful will it be for it to be worthless? I joke with DH that if our house were a car, it'd be totaled. The current value is far less than what it will cost to repair everything it needs. And in this market it is SO tempting to buy something else. But it's hard to justify. Yes, this neighborhood is in serious decline. But our house is only work $25K. How much worse can it get? I suppose we could loose another $25K, but saying "we need to get out before it hits bottom" seems a little silly. We're a bit late for that. At this point it's just 'cause we'd really like to move, if we're being honest.

[livingnlearning]

Only?? The health, well-being and safety of your family is way at the top of the list, IMO. And I've listened to enough DR to know he doesn't discount that either. But be honest with yourself, do you just not LIKE it there or is there a genuine risk and detriment?

 

I'm in a lot the same boat-I don't like where we're living much but our loan is the really bad part. We are looking at several options and I have to keep forcing myself to be honest that I want to move in part b/c I prefer not to live where we are... it's perfectly acceptable, not dangerous and nothing wrong with it. I just don't like it. So be honest.

 

Maybe email DR or bring it up on the boards on his website?

[Moxie]

Maybe email DR or bring it up on the boards on his website?

 

 

I've talked about it on the DR board before. But, honestly? The people over there really lack balance, IMHO. They are more Dave Ramsey then Dave Ramsey himself!! Sometimes the advice over there is so militant, I just scratch my head and wonder if they really live like that or if they are just preaching the DR gospel. It makes it hard to ask questions, I think.

[livingnlearning]

Gotcha-it's easy for them to make major financial judgements when it isn't their life and family. Me, I think the quality of life and family are at least as important as the financial end of things. There is a balance point where decisions should be made!

[Moxie]

Gotcha-it's easy for them to make major financial judgements when it isn't their life and family. Me, I think the quality of life and family are at least as important as the financial end of things. There is a balance point where decisions should be made!

 

 

Yep, and finding that balance can be quite tricky!

[lauraeden]

I think it would be most important to live in a safe neighborhood - however you can swing it.

[TravelingChris]

I think safety has to be paramount. Meth labs around and houses burning down from the exploding is not a safe environment. It doesn't bode well for increased value on that home, but rather the opposite. I am with the other posters who advice selling and trying to put some down payment. I believe you said renting would be much more expensive- what about having a 15 year mortgage (fixed)? Is that still cheaper? If so, I would go for that. Or maybe you can find a 30 year with no prepayment penalties. That way you can pay less as you pay down the higher rate student loans but when that was paid off, you could continue paying off the mortgage faster.

[DawnM]

Have you tried the LivingLikeNoOneElse.com forums? They are DR but are free.

 

I am on there.

 

Dawn

 

I've talked about it on the DR board before. But, honestly? The people over there really lack balance, IMHO. They are more Dave Ramsey then Dave Ramsey himself!! Sometimes the advice over there is so militant, I just scratch my head and wonder if they really live like that or if they are just preaching the DR gospel. It makes it hard to ask questions, I think.

[Moxie]

Have you tried the LivingLikeNoOneElse.com forums? They are DR but are free.

 

I am on there.

 

Dawn

 

No, I haven't tried that one. The only reason I'm on the DR forum is because I want the commercial-free podcasts so I can listen to DR when I work out.

[QueenCat]

For my family, a safe environment is more important than how quickly debt is reduced. We've reduced our debt significantly over the past 5 years, but a slower pace than DR recommends because where we live is important to us, along with living in the now while preparing for the future. Whereas, DR seems to focus much more on the future, and very little on the now.

[abacus2]

You really have two questions here:

Should you sell? Yes.

Should you immediately rebuy with an 80/20 loan? Probably not. There is no guarantee that the new neighborhood wouldn't start to have problems and then you'd be in the same situation only with less money. Don't just compare mortgage to rent; consider the typical cost of home repairs, utilities, whether the rental avoids yardcare costs, whether you could save on transportation costs, whether you could make do with a smaller rental.

[Rebecca VA]

I'd sell the house. With the declining economy, I imagine there'll be people wanting to sell their (more expensive) houses at a good price. Inflation is going to rise quickly, I think, and you'll want to be locked into a good mortgage before then.

 

The important thing is for you to get out of the unsafe neighborhood soon.

[WishboneDawn]

It just feels unwise to me but I'm a pretty hardcore Dave follower (maybe too much so?).

 

Honestly? He's just a guy. Really. He gives out advice but he doesn't have to live the lives of anyone following his advice. He doesn't have to watch their kids spend their childhood in a neighbourhood liekthe one you've described.

 

Take what advice of his works and scrap the rest. Don't substitute his advice for your own good sense, reason and dreams.