Selling house, probably underwater

[Anonymous]

Ok, I know that most posters looking for 750k houses, how to upgrade viking stoves or granite counters, can't relate, but let me ask anyway

We bought a SS townhouse in 2005 and expected to be out before DC started K, but that's happening next fall with no sign of market improvement eminent . So we can either try to sell and move to a neighborhood with better schools, or pay private school tuition (equivalent cost to child care so no real impact on monthly expenses). Renting is also an option, though not ideal since it is a buyers market!

Our mortgage is not held by Freddie or Fanny, we are current on our mortgage and have no circumstances which qualify us for a loan modification (per our mortgage company).

Here are the financials:

1. We owe $250k. There are 2 similar houses in our neighborhood on sale/sold for $200k, ours is slightly nicer but probably not $50k better.

2. We only have $20k for a down payment.

3. 7 years ago we were approved for a loan of $425k, and have gotten raises since then with no consumer debt.

4. We’d be happy with an equivalent townhouse in our preferred neighborhood, which are going for $200k-$275k

Suggestions!? Thanks!

[Anonymous]

PS: I feel the need to say that we paid $360k when we bought it..... not sure why, perhaps a sympathy appeal?

[Anonymous]

how bad are the schools at your current home? sometimes Title 1 schools are actually ok/ pretty good for lower grades, a lower socioecon mix, but smaller classes and more funds into the school.

if at all possible, I'd suggest using public K, saving the tuition/childcare, so that you can bring cash to settlement when you sell.

Can you rent your current home, and cover the cash flow -- mortgage, etc? If yes, consider renting the home you own, and renting a home to live in, in the more desirable location

[Anonymous]

The schools aren't terrible, but not where I want DC to attend. I toured twice last year, and will again this year just to be sure, but I didn't get a vibe I was happy with when walking around and meeting the teachers.

I don't feel comfortable renting; seems like a risk - if the renter bailed we'd be left with two monthly payments & wouldnt be able to cover that for very long. Also seems risky in terms of caring for the home.

Thanks! Keep the questions/suggestions coming!! ( I promise not to be a negative-nancy and shoot them all down )

[Anonymous]

OP, you aren't in a position to buy anything else right now, even if you could sell your house at a price that would cover your debt, which you can't. In addition, you aren't in a position to sell, because you won't be able to cover the expected shortfall (and the closing costs), and as long as you make the payments, your lender isn't going to let you do a short sale. You can't just walk away from the house, because Maryland is a recourse state. So, it looks like your options are to (i) stay, or (ii) rent it out and rent another (much cheaper) place.

By far the most financially beneficial option is to stay in the house for the time being, send yout kid to public school for a year or two, and save the money you spend on child care aggressively to put you in the black. It may take 2-3 years, but you can get there. Next best option is to rent your place out and rent a very cheap place in a more desirable school district. I understand renting make you uncomfortable, but you really aren't in a position to let uncomfortable feelings dictate your course of action. Of course private school is an option, but you're not going to make much headway paying down your mortgage or saving for a down-payment that way. You'll have to resign yourself to being in the house for a long time - it's unlikely that values will rebound by 25% in areas where thay have already dropped by more than 30%.

It's a tough situation, and I wish you the best of luck.

[Anonymous]

Anonymous wrote: Of course private school is an option, but you're not going to make much headway paying down your mortgage or saving for a down-payment that way.

We paid down $110k in 6 years, and I don't see the rate at which we pay down our mortgage changing in the next several years (if anything it'll go up, as we get raises we put more towards the mortgage).

I hear what you're saying, that we're not in a position to get out of our current house, but prioritize DC's education over moving. If we have to stay in this house even longer, I think that's a better option than going to public school where DC's education may be at risk.

Since the only reason we want to move is for schools, if we can't move into a better school, is there a reason not to just replace the child care costs with private tution costs and continue to ride out the market?

[Anonymous]

Since the only reason we want to move is for schools, if we can't move into a better school, is there a reason not to just replace the child care costs with private tution costs and continue to ride out the market?

I'm a np. I was going to vote for this option. This option is contingent on you liking your neighborhood well enough and feeling safe there. Is it convenient, clean, etc?

If so, consider shopping for a good education that offers things MoCo schools just cannot in the early years. That way, you'll feel like it's a totally affirmative decision and not just that you're "stuck." That something could be anything from religious instruction to language immersion to actually having an arts curriculum or tiny class sizes.

[Anonymous]

If you have the extra income to pay off $110,000 in 6 years (which I assume is a significant overpayment each month), and you know you ultimately want to go to public school, I would definitely reconsider renting your place out. Make the minimum payment on the mortgage. You'll most likely be able to cover the mortgage with the rent, or close enough to it that your monthly nut on that house will go down. (Once you get into the black, you may even be able to refinance and take advantage of the lower interest rates, dropping your payment even more.) Then rent a place in your school district of choice. Of course, if you want to do private anyway, that's your best choice.

[Anonymous]

We got out of our place but took it in the rear financially. We came out even on the sale price but needed funds to pay the realtor fees so we took out a loan on that. For us it was easier to just get out then becoming landlords. Not ideal but we are in a rental now in a good school district and will be here for the next few years while we save for a down payment -- again.

Regardless, start looking at rental options. A lot of people are renting now since they can't get out/afford down payment so it can be really hard to find something acceptable.

Good luck!

[Anonymous]

I just wanted to say that we're in a very similar situation, except in DC. I put together Excel spreadsheets on the costs of different options, but we still don't know what the best option would be once with the intangibles like financial risk, hassle of being landlords, and quality of education. Best of luck!

[Anonymous]

Remember with brokerage fees (6%) and closing costs, you'll be even more underwater than you are now.

Here's what I would recommend: Rent out your current house and pay only the minimum monthly mortage payment. It's now an income property (for tax purposes - Schedule E) if you rent it out. Then go rent in another neighborhood with better schools. Even if you "lose" a bit a month on the overall equation, it sounds like school is priority #1 so that's OK.

Don't be worried about having the house sit empty for a month or two -- you mentioned you have $20k saved up for a down payment so keep that aside to cover the rental house if necessary.

I own a rental house in the Whitman school district in Bethesda, and a number of the families who came to look at it this summer already owned a house but not in the school district they wanted.

[Anonymous]

NP. I also have a house I can't afford to sell, am currently renting it out. Which isn't so bad thus far. What I did before I made the decision to rent it was this:

1) Go on realtor.com, look up my neighborhood, and take note of both a realtor AND a property manager who specialize in my neighborhood.

2) Have both of them come to my house independently and give me their professional opinion re: how much I could make renting vs selling, etc.

Then we made a decision based on facts from professionals, vs our own amateur speculation.

[Anonymous]

It sounds like you really want to send your kid to private school, and do not want to use public schools. If that is the case, then you should stay in your current home, and send them to private school.

Private school is a very different experience than public. Regardless of which public school. No reason to own a pricier home if you are going to pay tuition anyway.

[Anonymous]

OP again, thanks for the responses!

I understand that renting out our house (I think we’d be able to cover our mortgage and HOA fees with a renter) and renting a place in our desired school area may be the best option. What I don’t see is how secure that is. If this real estate crash has taught me nothing else, it’s that you can’t be certain of anything! If we lost our renter and wouldn’t be able to get a new one, we’d be stuck; either have to break our lease and move back home (expensive & may have an impact on school) or eat into our savings


What I didn’t mention was that the 20k of our savings is the majority of our 35k emergency fund. Obviously we’ve been putting our extra cash each month towards paying down our mortgage rather than into savings. That’s another reason I’m not comfortable with taking a risk by renting out our house – we’ve lost so much in that house already, if I had to use a big chunk of change because it was empty I’d really be bitter. Also, with the houses being so cheap in our neighborhood, I’m not confident in the strength of the rental market; but that is something I could research I guess.


I really would prefer DC to attend public school (am considering applying for a hardship transfer based on child care, but that’s another post for another day!!), but the certainty of private school – especially given the tutition = current child care costs, is all that’s keeping me from freaking out completely about this….my safety net if you will
I do like our neighborhood, we chose wisely for when we were kid free, the real only downside is the school……

[Anonymous]

Anonymous wrote:We got out of our place but took it in the rear financially. We came out even on the sale price but needed funds to pay the realtor fees so we took out a loan on that. For us it was easier to just get out then becoming landlords. Not ideal but we are in a rental now in a good school district and will be here for the next few years while we save for a down payment -- again.

You got a loan to get out or your mortgage, pay closing costs etc? What kind of loan was that?