Looking for some thoughts on my situation

Ok guys, take it a little easy on me because this is my first post of a topic in this section. I am looking for some opinions. Ok, to start off, we have been sort of looking at upgrading houses over the past few weeks because ours is a little small for us so that is what started this all. Right now is a really good time to buy, but also at the same time it doesn’t seem too bad for us to sell either. Now we don’t have a huge down payment so I would most likely go the FHA route. We have been semi-working with an agent and she stopped by our house yesterday to give us her market analysis and it turned out much better than I thought. Right now she thinks that we could list the house for “x” which if sold at that price would net me about $40-50K.

Now on to the tricky situation. We have quite a bit of credit card and student loan debt so that really hurts our debt to income ratio, BUT we have no problems making more than the minimum payments so that is not an issue. Plus, all of the large balance credit card debt is on 0% offers so its not costing us any money really, it is just taking a while to get it down. I have started thinking of a few options for us and wanted to get some thoughts. First, we have not sat down with the bank yet so I am not sure what the impact of our debt to income ratio is, we plan to sit down with someone shortly. That being said, any profit that we make on the house will go towards bills to help us improve our debt to income ratio. I know some people may not agree with this, but I would rather have the debt in the house rather than revolving debt, ESPECIALLY in my area where we were not affected by the housing crisis for the most part and our home values will only go up.

So a few things I have been thinking about is first, I could sell the house and start looking to buy a house contingent on our home selling and then use the profit to cover closing costs and the rest to pay down debt. The second option is to look in to a HEL or HELOC for the short term to pay down the credit cards and help our situation and then when the house sells we should still come out in the positive. And then my last option is to try and pay credit cards down as much as possible and then look in to buying a house. This is my least favorite option because with the market the way it is in our area and the number of houses out there, now is the perfect time to buy for many reasons.

Bt the way our HHI is about $110,000 and next year it could go up by as around $25k if my wife gets converted to a full time teacher versus the 0.6 she is at now.

For starters, what is your total debt (broken down by student loan, CC debt, car loan etc.) and what is your total non-retirement savings (excl. the house equity). Do you have an emergency fund (6-12 months living expenses)?

You say "any profit that we make on the house will go towards bills to help us improve our debt to income ratio." Does that mean you won't have a decent down payment for the new house since the net proceeds will be used to pay debt.

Till your debts (at least all except student loans) are fully paid off (or you have the liquid cash to pay off 0% bal.), and you have a good emergency cash reserve, incl. the anticipated mortgage payment for the prospective house), don't contemplate on a new house purchase. With a 110k HHI (possibly 135k in future), you should be able to achieve this and save a 20% down payment in no time.

uutxs said: For starters, what is your total debt (broken down by student loan, CC debt, car loan etc.) and what is your total non-retirement savings (excl. the house equity). Do you have an emergency fund (6-12 months living expenses)?

You say "any profit that we make on the house will go towards bills to help us improve our debt to income ratio." Does that mean you won't have a decent down payment for the new house since the net proceeds will be used to pay debt.

Till your debts (at least all except student loans) are fully paid off (or you have the liquid cash to pay off 0% bal.), and you have a good emergency cash reserve, incl. the anticipated mortgage payment for the prospective house), don't contemplate on a new house purchase. With a 110k HHI (possibly 135k in future), you should be able to achieve this and save a 20% down payment in no time.

Most the forums I read here basically suggest being debt free, large emergency fund and 20% down. While I agree this would be nice, I don't think it is all that realistic for most people. Based on the previous post it would seem you would need ~120K+ in the bank to afford a 300K house, plus all debt (at least all except student loans) paid off.

300K house w/20% down = 60,000
6-12 months emergency fund on 110K HHI = 55,000 - 110,000

Plus pay off credit cards, car loans, etc..

What I see most people doing that seems to work ok is 3-5% down on a new house, with a few months emergency fund. Personally I wouldn't put 20% down on a house in this environment.

That said I wouldn't roll cc debt into a mortgage, I think you should definately save and pay that down first.

So.... You have all sorts of CC balances and car loans. I'm betting at this point negative net worth.... yet your house is too small, and you need a bigger house, bigger mortgage, bigger utility bill, etc. For once, try to learn to spend less, not more.

Let me clarify some things. The current house I am in we paid $72,500 for, and for a new house we would not go above $165K. This area has a very low cost of living. The reason for last CC balances is because we had made a few large purchases for the current house to make some improvements and a while back my wife funded most of her grad school on 0% offers. So its not really poor spending habits, its just a few larger purchases.

So with the new house, I don't plan our total mortgage payment with taxes and insurance costing more than an additional $400-500 more a month at most. So its not like I am looking into jumping into a $300K house. I know many people who have $300K homes and their combined income is less than just my income alone.

I see no reason to have a large down payment on a house in my situation because our area was not affected by the housing market mess and it will only get better over the next few years so I will get 20% equity pretty quick. For example, I paid $72,500 for my current house less than 4 years ago and the agent thinks we can list for $115-125K. That's over a 50% increase in value in 4 years.

A rough breakdown of our debts(wife and I combined):
Student Loans: ~55k @ 3.25%, ~43k @ 1.625%, ~20K @3.17% and ~16k @ 5%
Credit Cards: ~30k, like I said though most of it is 0% so we pay very little interest

The reason I want to be in a house because I can have a house for the same price, or sometimes less, than what people charge for rent for homes.

xceebeex said: angeezee said: xceebeex said: ESPECIALLY in my area where we were not affected by the housing crisis for the most part and our home values will only go up.

It is unwise to think that your "home values will only go up." There are no guarantees.

Of course there isn't, but take a look at my post right below yours.

In summary, I bought a house for $72,500 about 3.5 years ago and according to a market analysis from yesterday I could list today for ~$115-125K. That's a significant increase, and on top of that it happened when everyone else is having quite the opposite happen to them. So again, my situation is much different.

Past sucess does not mean future success in the real estate market. Where is this magical real estate market that is incapable of collapsing anyway?

xceebeex said: angeezee said: xceebeex said: ESPECIALLY in my area where we were not affected by the housing crisis for the most part and our home values will only go up.

It is unwise to think that your "home values will only go up." There are no guarantees.

Of course there isn't, but take a look at my post right below yours.

In summary, I bought a house for $72,500 about 3.5 years ago and according to a market analysis from yesterday I could list today for ~$115-125K. That's a significant increase, and on top of that it happened when everyone else is having quite the opposite happen to them. So again, my situation is much different.

Real estate is local. Just because your housing value went up when most of the country went down doesn't mean that your area is superior to all others and will only go up. However, in the same manner, real estate is local and I don't know what is going on in your particular market, which very well may be on the cusp of something great. Has someone other than a real estate professional told you that now is a great time to buy in your area?

xceebeex said: Right now is a really good time to buy,
It's always a good time to buy!!!
xceebeex said: We have been semi-working with an agent and she stopped by our house yesterday to give us her market analysis and it turned out much better than I thought.
There's a shocker...
xceebeex said: Right now she thinks that we could list the house for “x”
Sounds like she's telling you what you want to hear. What could possibly go wrong?
xceebeex said: which if sold at that price would net me about $40-50K.
Big if.
xceebeex said: In summary, I bought a house for $72,500 about 3.5 years ago and according to a market analysis from yesterday I could list today for ~$115-125K.
I admit I am commenting without any specific knowledge of the Binghampton real estate market, but I do not believe that the market is up ~60-70% from 3.5 years ago. Tell her to provide recent comparable sales to support her values.

jennth3 said: xceebeex said: angeezee said: xceebeex said: ESPECIALLY in my area where we were not affected by the housing crisis for the most part and our home values will only go up.

It is unwise to think that your "home values will only go up." There are no guarantees.

Of course there isn't, but take a look at my post right below yours.

In summary, I bought a house for $72,500 about 3.5 years ago and according to a market analysis from yesterday I could list today for ~$115-125K. That's a significant increase, and on top of that it happened when everyone else is having quite the opposite happen to them. So again, my situation is much different.

Real estate is local. Just because your housing value went up when most of the country went down doesn't mean that your area is superior to all others and will only go up. However, in the same manner, real estate is local and I don't know what is going on in your particular market, which very well may be on the cusp of something great. Has someone other than a real estate professional told you that now is a great time to buy in your area?

Just because a real estate agent tells you to list for $115K to $125k does not mean it will sell for that price. They want your listing, even if it means that in a couple of weeks they get you to reduce the price. Have you compared sales around your area? Also, it seems that you already have over 150K on student loans..ouch ! You are also consideing only the increase on mortgage. How about the increase in taxes, utilities, and the cost of moving?

It seems to me that your mind is made up. Not sure what kind of advice you are searching for here.

Mcringring said: xceebeex said: Right now is a really good time to buy,
It's always a good time to buy!!!
xceebeex said: We have been semi-working with an agent and she stopped by our house yesterday to give us her market analysis and it turned out much better than I thought.
There's a shocker...
xceebeex said: Right now she thinks that we could list the house for “x”
Sounds like she's telling you what you want to hear. What could possibly go wrong?
xceebeex said: which if sold at that price would net me about $40-50K.
Big if.
xceebeex said: In summary, I bought a house for $72,500 about 3.5 years ago and according to a market analysis from yesterday I could list today for ~$115-125K.
I admit I am commenting without any specific knowledge of the Binghampton real estate market, but I do not believe that the market is up ~60-70% from 3.5 years ago. Tell her to provide recent comparable sales to support her values.

The whole area is not that way. We lucked out with our purchase. We were able to do the right updates to make the house more appealing and it is unique because not many ranches in this area have two full baths or a two car garage.

I understand that the credit card debt is obviously not good, but like I mentioned some of it was from before we made this money. I just graduated with my Masters in Dec of 2004. But like I mentioned in my last post, I have a hard time seeing the difference between where I am and where someone with a $300k mortgage is without including any credit card debt, student loans or vehicles. And many of those people make less money that we do.

xceebeex said: A rough breakdown of our debts(wife and I combined):
Student Loans: ~55k @ 3.25%, ~43k @ 1.625%, ~20K @3.17% and ~16k @ 5%
Credit Cards: ~30k, like I said though most of it is 0% so we pay very little interest

The reason I want to be in a house because I can have a house for the same price, or sometimes less, than what people charge for rent for homes.

You have 164K in debt not including the house. You make 110k and don't have any savings (I am assuming this because you don't have any $$ for the down pmt on the BIGGER house). Stay in your current house and build up some funds.

Oops OP, you started a new thread when we already have a thread dedicated for people like you. I believe this is the thread you were looking for.

People come on... OP did not come here for common sense. He wants validation so that when he is getting foreclosed on in a few years he will be able to say that everyone else told him it was a great idea.

So OP go ahead buy the house. Nothing we say here is going to make a bit of difference given you've already made up your mind and just want everyone to whitewash the decision you've already made.

CrazierRus said:

You graduated 5 years ago. Your students loans should be paid off by now (or you should have a sizeable savings). You accomplished nothing

Sure, OK because you know so much about me. I went to a private engineering school that was ridiculously expensive and I had absolutely zero help from anyone to pay my way, not even for books. Sure there was some poor decisions while I was in school financially, but they were not poor enough decisions to drastically change my position.

I went to that expensive school for 5.5 years to get my Masters and it was all out of my pocket with the exception of a scholarship or two. Some of those loans were unsubsidized so they kept accruing interest so by the time I started paying them I had to catch up before principle started to get paid.

I have since paid more than $20k off the principle and it is going down much faster now. I got a Systems Engineering position at Lockheed Martin (the number one defense contractor) right out of college and have moved up rather quickly. Within the next couple of years I will most likely be making six figures.

As far as the comment about foreclosure, I am not sure where that came from. I know how much I can afford. Just because I don't have a huge savings account, doesn't mean much IMO. Sure, I don't have an emergency fund, but emergencies don't come that often and in the meantime I get to enjoy things while I am young.

I had a feeling this were going to be the responses since everyone on the internet has a huge bank account and no debt, but I figured I would see if anyone had anything different to say.

fw9999 said: OP said earlier "Well the reason now is a good time to buy is because there are a ton of houses on the market all at once because this area just had a bunch of layoffs so many people are leaving the area, therefore selling their homes. This is also why I think the market will continue its slow but steady growth because we are at a low point for this area."

1) OP, you are in upstate or "midstate" New York. Is your area's economy somewhat like Buffalo's, where the automakers and auto suppliers have continued to do layoffs? If so, do you thinks those layoffs are over yet? That might be an area of concern.

2) If the layoffs "just" occurred as you stated, there might well be many houses on the market right now but their prices might not yet have lowered to reflect the high supply/low demand; i.e., sellers are still "hoping against hope". Expect equilibration to occur.

It is not quite like Buffalo, the problem is the Lockheed site that I work for lost a couple big contracts that the President decided to cancel so we had to lay off about 750 people out of approximately 4000. Another defense contractor in the area laid off about 200 people, but that was really it. Its just that Lockheed is a big employer in this area. There is obviously no guarantee the layoffs are done, but unless a few more bad things happen I think they are done for us. I feel pretty safe either way because like I mentioned earlier, I have moved up the chain rather quickly and have accomplished quite a bit in my short career so I am not overly worried.

Worst case, if I did get laid off, with the combination of my education and experience I could easily find a job. Over 75% of the people laid off found jobs rather quickly. The ones that didn't were ones that wanted to try and stay in the area.

xceebeex said: fw9999 said: OP said earlier "Well the reason now is a good time to buy is because there are a ton of houses on the market all at once because this area just had a bunch of layoffs so many people are leaving the area, therefore selling their homes. This is also why I think the market will continue its slow but steady growth because we are at a low point for this area."

1) OP, you are in upstate or "midstate" New York. Is your area's economy somewhat like Buffalo's, where the automakers and auto suppliers have continued to do layoffs? If so, do you thinks those layoffs are over yet? That might be an area of concern.

2) If the layoffs "just" occurred as you stated, there might well be many houses on the market right now but their prices might not yet have lowered to reflect the high supply/low demand; i.e., sellers are still "hoping against hope". Expect equilibration to occur.

It is not quite like Buffalo, the problem is the Lockheed site that I work for lost a couple big contracts that the President decided to cancel so we had to lay off about 750 people out of approximately 4000. Another defense contractor in the area laid off about 200 people, but that was really it. Its just that Lockheed is a big employer in this area. There is obviously no guarantee the layoffs are done, but unless a few more bad things happen I think they are done for us. I feel pretty safe either way because like I mentioned earlier, I have moved up the chain rather quickly and have accomplished quite a bit in my short career so I am not overly worried.

Worst case, if I did get laid off, with the combination of my education and experience I could easily find a job. Over 75% of the people laid off found jobs rather quickly. The ones that didn't were ones that wanted to try and stay in the area.OK, I was thinking auto-related layoffs earlier in which case there might be no end for your local economy for that kind of mess - if they're aero. or Military -aero-related, maybe things are better..

Credit card debt is extremely dangerous. Sure, you might have temporary 0% balance transfers but that's going to end and you will be paying exorbitant interest rates which could bankrupt you.

I did the same thing, moving credit card balances around to zero-interest offers and then moving to another whenever they expired. At one time I had over $100,000 credit card debt at 0%. Guess what? They all stopped offering the zero rates on balance transfers and interest rates jumped immediately to mostly well over 10%.

It is a big error not to have a savings account.

Argyll said: Credit card debt is extremely dangerous. Sure, you might have temporary 0% balance transfers but that's going to end and you will be paying exorbitant interest rates which could bankrupt you.

I did the same thing, moving credit card balances around to zero-interest offers and then moving to another whenever they expired. At one time I had over $100,000 credit card debt at 0%. Guess what? They all stopped offering the zero rates on balance transfers and interest rates jumped immediately to mostly well over 10%.

It is a big error not to have a savings account.

Trust me, I understand that and we are paying them down much faster than racking them up. The issue was we had a few large purchases so its taking longer than we want to pay it off. Luckily we both have good credit so we usually get 0% offers, but you are right, the offers could certainly end. Right now we have no problem paying more than the minimum payments on all bills all the way from the mortgage and student loans to the car and credit cards.

Anyway, that being said, I am not 100% set on getting a new house, but there are time that I would like to upgrade a bit. With the house I am in now, we are in a flood zone so we have to carry flood insurance and to me that feels like a waste of money. We had a HUGE flood back in 2006 and we didn't have a drop of water in the house and our back yard was flooded!

I really do appreciate all of the input. I kinda expected the responses to go this way, but I figured I would throw it out there anyway.

mliss74 said: There are way too many assumptions. That you will always keep your job. That Lockhead will not do any layoffs again. That you will be climbing upstairs. That your wife will get a full time job (what if she'll get pregnant?). That your area will start to grow (there is a very good reason why there are so many houses on the market right now and why real estate never got inflated there, isn't it?). That your good credit score will always get you a nice transfer promotion. Etc. etc. etc.

That is true, but life is all about assumptions and risks. Some people are more risky than others. I tend to be more on the risky side because the chances of lots of bad things to go wrong are much smaller.

xceebeex said: That is true, but life is all about assumptions and risks. Some people are more risky than others. I tend to be more on the risky side because the chances of lots of bad things to go wrong are much smaller.Just one small thing (i.e. be without a job for 6 months or your wife getting pregnant and staying home) will be sufficient enough to send you down the road.

Then there is no point of asking someone's advise or opinion, isn't it? It's not about pros and cons, it's about your feeling. If you like to gamble and aware that you can loose (and loose big), just go ahead and make your bet.

xceebeex said: Thanks guys, I do appreciate all of the constructive inputs. I talked some of this over with my wife and we are going to do what we can to get the CC debt paid down. We already decided to call both of our families and let them know we are only going to do Christmas for the kids this year (nieces, nephews and our own child). I have also started to look in to if its worth it for me to sell my motorcycle and maybe downsize my current vehicle, which is a 2004 Avalanche. The one downside to downsizing is my wife's car is small and it makes it really hard to travel with her car if we go away for more than a couple days.

I think someone asked about life/disability insurance. We do have life insurance. I have a $500k term policy and my wife has a $375k policy. We also have a WL policy that I am debating if I want to cancel that since we are both young and the term plolicy plus what I get at work would easily get my wife through a few years. Right now we have had the WL policy for 4 years (@$150 a month) and it has a cash value of about $4500. We do not have any additional disability insurance other than what I get through work for myself.

I am going to continue to look around the house to see if there is some stuff that we could sell to make a littl extra money as well. I want to try and be aggressive and have all of the CC debt paid off by early 2011, maybe even late 2010.

Sell the motorcycle!!!???!!! My God, times are tough. Sell the wife first.

But seriously, if you can replace it with a bicycle that's a good deal.

I met a guy with a SmartCar in a parking lot. He didn't look like the SmartCar type of guy but he told me he and his wife usually rode motorcycles everywhere and it wasn't a big deal for them to have a small vehicle without a lot of storage space. He said it held the road perfectly well and he got an actual 40 miles to the gallon, and there's room for two people and grocery bags or a couple suitcases, and they don't get wet.

PS I know the credit cards at 0% with the balance transfers look mighty good but believe me they are much more dangerous than the other loans on which you are paying interest.