I received an email recently from a reader with questions about her housing situation. She offered to lend her story to the blog in exchange for a few answers from other readers. If you have some insight on what she should do, I encourage you to leave your response in the comments below…
We bought our condo in August of 2007, when we thought the market had gone down basically as low as it was going to to. Our original limit was about 300k but after looking at a million condos 300k wasn’t going to get us what we wanted. We ended up finding our place, one of the best we had seen, and it was $360k. So, we jumped in – feet first (probably would have been better to jump in head first, might not be stuck now. 🙂 )
So, now, almost 3 years later our tax assessor has decided our property is now only worth $195k. That’s insane! There are some other condos selling in our complex for $200-$225k but still, really low compared to what we paid for ours.
We have 2 loans – a fixed at 6.5% that’s around 300k, and then the 2nd is at 10%!! and that’s a 15/1 arm.
We’ve made some improvements – painting, crown molding, recessed lighting, ceiling fans, etc, but nothing that’s going to make up the difference. It’s a 3 bedroom 2.5 bath, 1300 sq foot, 2 story condo in a complex with 3 pools, tennis courts, and a million trees (in case that’s important). On top of our mortgage we pay $240/month in association fees.
The condo is fine, for a family of 3. But we’re about to be a family of 4. Not that babies take up that much room, but baby stuff does. So, on top of the fact that we are now paying way more a month than our place is actually worth, we are cramped (or we will be in the coming months). It’s hard to swallow making the monthly payments when you know you’re basically throwing money away.
I’ve contacted our mortgage rep and he gave me three options. (Keep in mind we both have really good credit at this point so we don’t really want to take our chances of screwing that up.)
1. Refinance now that rates are lower. On the face of it, we could save ourselves $200/month if we refinanced our current mortgage. But, we would have to pay the closing costs, or roll them into the loan. If we roll them into the loan we take the savings down a little bit.
We also now, according to CA law, carry condo insurance – basically protecting the “stuff” inside since the association pays for the insurance for the building. So, that brings us down a little lower.
And finally, now because we don’t have enough equity we have to impound our taxes, which we currently don’t do because I don’t like the idea of the bank holding on to my money instead of me. So, I think refinancing to a lower mortgage rate would maybe save us $150/month, maybe.
2. Short sell and rent for the next few years. This could take any number of months, and we wouldn’t be able to buy from Wells Fargo again for 10 years or buy period for another 2-3 years. But we could rent a house, a bigger house, and not have to worry about all the home maintenance. 🙂
3. Rent our place out and rent a house for ourselves. This would give the market some time to rebound before we sell, and apparently we could buy again after having rented for a couple years, without selling this condo. So, we’d have 2 mortgages if at any point we didn’t have renters.
I’m not sure which option is best. I think I’d like to short sell but I don’t know the necessary tax or legal implications – maybe that is worse than just staying put. Problem is, I think we’d have to stay in this condo for another 3-5 years and I really just don’t see that as a comfortable situation. So, what do you think? Option 1, 2, or 3… or another option you can think of???
So what is your opinion? What should this reader do?