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  #1  
December 30th, 2006, 12:28 PM
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Join Date: Jun 2006
Location: Nova Scotia, Canada
Posts: 336
Here's the nutshell version. We have a house. We paid 84,500 for it, right now we owe 79,000. It just appraised at 100,000, and the bank will finance a maximum of 90% of that. There is an apartment attached which is rented, DH works full-time, and I work at home. Currently our debtload is way too high and our on-paper budget comes to within 10.00 each month but doesn't allow for savings or significant debt reduction.

Plan A : refinance for 112,000 and consolidate all our existing debt. Unfortunately the appraisal came in too low.

Plan B : sell the house for 120,000, pay off all our debt, and then buy another house for 110,000.

Plan C : sell the house quickly for 110,000, pay off as much as we could, and then rent for a while or buy a cheaper house that we could flip in a few years.

Plan D : keep the house, refinance for whatever the bank is willing to do, rent the apartment AND the main house (total of 1000), and rent another place ourselves while we wait til we can buy another house.

Plan E : stay essentially status quo for another year, refinance for whatever the bank will do, keep treading water until the market improves, and try to find ways to increase income.


I should mention that our long-term plans are to own and manage several rental properties, and we bought this one planning for that to be its future.


Thoughts?


Karen
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  #2  
December 30th, 2006, 12:49 PM
3Xblessed's Avatar Platinum Supermommy
Join Date: Dec 2004
Location: Southern California
Posts: 2,745
If it appraised for $100K you will be hard pressed to have an escrow go through above that amount (unless another appraisor would come in that much higher). I also wouldn't refinance for the higher amount - you don't want to owe more than its worth! The housing market is correcting itself so there are not great gains to be had.

Is there anyway to cut more corners on your budget and stay where you are for awhile longer?
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  #3  
December 30th, 2006, 02:04 PM
~Jess~'s Avatar Platinum Supermommy
Join Date: Oct 2005
Location: Central California
Posts: 16,959
Quote:
Plan A : refinance for 112,000 and consolidate all our existing debt. Unfortunately the appraisal came in too low.[/b]
Would be a good option, but it's not available if the appraisal came in too low.

Quote:
Plan B : sell the house for 120,000, pay off all our debt, and then buy another house for 110,000.[/b]
I think we need a little bit more info.

1. I'm very curious as to why you think you could sell your home for $120,000 if it appraised for $100,000. If you could find a buyer willing to pay $120k, then you should be able to find an appraiser who would appraise it for that amount. I do have to say that it is a buyers market right now. Home prices have been dropping and I wouldn't encourage someone to sell right now. But I'll help to break down the different options for ya

2. Plan B makes very little sense because:
~Say you are able to sell for $120k, you pay $7200 in realtor fees in order to sell.
~You then turn around and buy another home and pay $5000-$10000 in closing costs to buy a new house.

End result:
~You just paid $12000-17000 just to be able to pay off $23000 in debt (leaving around $9500 left over) and may end up living in a house that is not as nice as the one you have now.

*I would reject this scenario*

Quote:
Plan C : sell the house quickly for 110,000, pay off as much as we could, and then rent for a while or buy a cheaper house that we could flip in a few years.[/b]
Again, not sure why you think you could sell it for $110k, let alone sell it quickly for that.
The breakdown on this one is:
~Pay $6600 in realtor fees, which leaves $24400.
~You would either pay off $24000 of your debt (leaving around $9000 left over) & rent.
OR
~Pay $5000-$10000 in closing costs on a different home, and pay off $14000-$19000 in debt, leaving around $14,000-$19000 left in debt and living in a house that is not as nice as the one you have now.

*I would reject this scenario*

Quote:
Plan D : keep the house, refinance for whatever the bank is willing to do, rent the apartment AND the main house (total of 1000), and rent another place ourselves while we wait til we can buy another house.[/b]
Refi would get you approx $10000 assuming that you pay $1000 in total fees.

~pay off $10000 of debt, which leaves $23000 of debt. I'm not sure this would even save you much money on a monthly basis. Bonus is that you still own a home, downside is you're not living in it.

*I'm not a fan of this scenario bu it makes more sense than the others depending on how much rent would end up costing you. *

Quote:
Plan E : stay essentially status quo for another year, refinance for whatever the bank will do, keep treading water until the market improves, and try to find ways to increase income.[/b]
Refi would get you approx $10000 assuming that you pay $1000 in total fees.

~Pay off $10000 of debt, which leaves $23000 of debt. Again, I'm not sure this would save you much money on a monthly basis. But you don't have to pay a ton of fees to sell, buy, and move.

*Again, not really a fan of this scenario either, but this one or the previous option are the 2 that make the most sense depending on how much the refi would end up saving you.

Do you have any expenses that you could cut back on or anywhere that you could dig up extra income to help pay down your debt?

If you'd like us to take a look at your budget, we'd be happy to. Sometimes an outside perspective helps a lot.

Chrystal is amazing at creating debt payoff plans for ppl, so if you could find any extra wiggle room in your budget at all, she can keep you in your house and help you start getting out of debt as well. We'd love to help you out in any way we can.
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  #4  
December 30th, 2006, 03:17 PM
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I would think that Plan E is the best. It's always a bad idea to put unsecured debt onto your mortgage (Plan A). Plans B and C don't really seem feasible right now--it is DEFINITELY a buyer's market and most houses aren't selling at all. Plan D contains way too many headaches for me.

Definitely try to increase income and cut spending. It's tough but that's about the only option I see right now, IMO anyway.
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  #5  
December 31st, 2006, 06:17 AM
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Join Date: Jun 2006
Location: Nova Scotia, Canada
Posts: 336
Thanks all Waiting it out is what DH wants to do, too... so that's probably the way we're going to go at least for now.

Reading your responses I realized I left out some details. The appraisal came in $15-20,000 lower than the market analysis - we think the appraiser was a quack but that's another story. Right here in our town, good properties are selling pretty quickly, and for quite a bit above their tax assessment (ours is 99,900) - so that's why we felt the appraisal was too low. But we can't do much about it, unfortunately.

Our mortgage is at 5.85% until July 2009. The refinance would be at 5.1% through a broker (lots more fees) or 6.4% through our bank (no fees). The debt I most want to merge into the mortgage is 10,300 at 29%, with a payment of $360/month. The net result in our budget would be about $150 freed up each month.

This afternoon when we get home from church I'll post my budget and see if y'all can offer me some tips - I've pretty much exhausted myself trying to find ways to shave it any tighter.
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  #6  
December 31st, 2006, 06:24 AM
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Join Date: Jun 2006
Location: Nova Scotia, Canada
Posts: 336
Income
Your income: 1040.00 + random income from web design
Baby Cheque: 279.95
Dh/SO's income: 960.00
Other income: 475.00 rental income

Total: 2754.95

Living expenses
~Rent/Mort pymt: 617.00
~Electric: 495.00
~Satellite: 59.04 (for us and for our tenants)
~Phone/Internet: 110.00 includes local phone/long distance package
~Groceries: 200.00
~Car insurance: 48.92
~Other insurance: 92.27 house insurance
~Child care: 64.00
~Diapers, etc: 50.00
~RESP Contribution: 25.00
~Eating out: 50.00
~Misc spending: 50.00
~Bank Fees: 20.00

Debts-Please list minimum payment, amt you usually pay, balance, interest rate. If you are past due or have special financing (0% interest), please indicate that as well.
~Car payment #1: 249.09, balance remaining 4700
~Credit card #1: minimum 32.00, I pay 40.00 (balance 1600), interest rate 18.3
~Credit card #2: minimum 10.00, I pay 40.00 (balance 500), interest rate 10.5
~Line of Credit: minimum 250.00-ish, I pay $300 then take back $150 (balance 7700), interest rate 17%
~Wells Fargo: 360.00, balance 10300, interest rate 29%

Total: 2720.32

Goals: (examples: new car, baby, to be a SAHM, vacation, retirement, etc)
I want to save for:
1. pay off debt
2. buy a second (rental) property
3. build an "unexpected expenses" account
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  #7  
December 31st, 2006, 07:34 AM
~Jess~'s Avatar Platinum Supermommy
Join Date: Oct 2005
Location: Central California
Posts: 16,959
Quick questions...
~are these Canadian dollars?
~How many children do you have?
~Are you & dh separated-I ask because you put "960 that he gives me" under dh's income and I'm not quite sure why his entire paycheck wouldn't be going into your budget unless you're separated.
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  #8  
December 31st, 2006, 09:53 AM
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Location: Nova Scotia, Canada
Posts: 336
Okay, all done.

Yes, it's Canadian dollars. We have one child, she'll be two years old in a couple of weeks, and no plans for more any time real soon. And no, we're not separated, I just have no idea what his gross income is. I guess I worded that strangely. He gives me $240 a week and keeps $70 himself for things like gas, "honey pick this up on your way home" shopping trips, his karate lessons, etc.

Also, there are no costs on there for gas, heating oil, car repairs, etc because usually his business picks up the tab for all of that for me.
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  #9  
December 31st, 2006, 10:25 AM
~Jess~'s Avatar Platinum Supermommy
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Location: Central California
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You're added to my list I usually try to trim down budgets and Chrystal takes the #s I give her and configures a debt payoff & savings plan for ya.

Do you have Walmart in Canada? They have great generic diapers "Parent's Choice" that are 0.12-0.14 each (when broken down, they don't sell them individually ) A pack of 80 size 3 costs right around $10 US. I think there's around 72 in the size 4 pack. If you could switch, it would save you some money.

Do you have a better breakdown of what your dh does with his $280 a month? Obviously he has to pay for gas, but how much is gas and how much is other "stuff." When your budget is this tight, that kind of money would be very helpful. I mean, you're considering selling your house, that's HUGE and the extra money your dh is spending could really help you get out of this situation a lot faster. Okay, I'm getting down off of my soapbox now.
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  #10  
December 31st, 2006, 11:07 AM
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Location: Nova Scotia, Canada
Posts: 336
Thanks

Hopefully we'll be able to get the potty training going soon, and that will cut out the diapers expense Usually I buy either the Walmart brand, or the regular Huggies - there's less than $5 between them at regular price, and if one's on sale I'll buy that one over the other. Right now I've budgeted $50/month for her needs in general - be that diapers, clothes, whatever.
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  #11  
December 31st, 2006, 07:22 PM
BensMom's Avatar Ephesians 4:29
Join Date: Apr 2005
Location: The Lonestar State
Posts: 50,214
Sorry... I've been gone all week and just saw this thread. What's the % on your car?
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  #12  
January 1st, 2007, 11:59 AM
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Location: Nova Scotia, Canada
Posts: 336
10.75%
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  #13  
January 1st, 2007, 10:32 PM
~Jess~'s Avatar Platinum Supermommy
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Location: Central California
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If you refi and pay off the Wells Fargo, what will your new house payment be? How soon will that refi be happening? BTW, if you really feel strongly that your home is worth more than $100k (I'm assuming you've seen comps) then I suggest you offer to pay a different appraiser to appraise the house so that you can possibly qualify for the full refi amount. The bank should have a list of several different approved appraisers.

Are you planning to raise your tenant's rent soon? I remember when I used to rent, each year the rent went up by at least $15 or so, usually more. If not, can you have them start paying for their own satellite tv?

Is there any way to lower your electricity bill?

What is up with the bank fees? Can you switch to a bank that doesn't charge fees? That is outrageous!

Oh, and I'm still wondering about the $280 a month that your dh gets. How much goes to gas and how much to other "stuff?"
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  #14  
January 2nd, 2007, 08:15 AM
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If you refi and pay off the Wells Fargo, what will your new house payment be? How soon will that refi be happening? BTW, if you really feel strongly that your home is worth more than $100k (I'm assuming you've seen comps) then I suggest you offer to pay a different appraiser to appraise the house so that you can possibly qualify for the full refi amount. The bank should have a list of several different approved appraisers.

We're working on a new refinance right now, another option has opened up that might let us take care of some things and lower our payment as well as our interest rate. We'll see how that goes though. As for the appraiser, they unfortunately don't give us a choice. We can pay for our own and they'll look at it, but they said they may or may not consider it.


Are you planning to raise your tenant's rent soon? I remember when I used to rent, each year the rent went up by at least $15 or so, usually more. If not, can you have them start paying for their own satellite tv?

We have to give them 4 months' notice so yes, it's going up by $50, but not until spring. The satellite is a second receiver on our own account so it doesn't cost us any extra, and it's cheaper even than basic cable anyway.


Is there any way to lower your electricity bill?

Unfortunately no - we're on the budget billing already. It changes once a year in January - which is why it's so high... our bill used to be $290 a month, now it's $495. Insane.


What is up with the bank fees? Can you switch to a bank that doesn't charge fees? That is outrageous!

If the refinance works out then we're leaving that bank asap. Right now we have to have an account there because we have our mortgage there. Kind of a catch-22.


Oh, and I'm still wondering about the $280 a month that your dh gets. How much goes to gas and how much to other "stuff?"

We talked about that and he's going to start keeping a record like I do of where his money goes. And I'm going to stop spending it by asking him to pick up things on his way home from work.
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  #15  
January 2nd, 2007, 09:39 PM
~Jess~'s Avatar Platinum Supermommy
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Do you have an estimate on what the new house payment will be?

Also, I just noticed that you have house insurance listed. Does that mean that your taxes and insurance aren't included in your house payment? If that's the case, do you save monthly for your taxes?
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  #16  
January 3rd, 2007, 04:53 AM
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Location: Nova Scotia, Canada
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Our taxes are in our mortgage right now - if we refinance they won't be so I've budgeted $85/month to go into a savings account. The new payment would be roughly $140/week in my perfect scenario where we can refinance and pay out everything, with the option to increase our payments at any time and to prepay up to 20% per year.

On a positive note, we're going to start advertising my web design business at DH's store - and I've already picked up one potential client
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  #17  
January 3rd, 2007, 11:16 AM
~Jess~'s Avatar Platinum Supermommy
Join Date: Oct 2005
Location: Central California
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Okay, there isn't really much to cut on your budget. Since satellite service is included in your tenants rent, you can't cancel that and that is one of the luxuries that I would have encouraged you to get rid of

~Mort: $560
~Property taxes: $85
~Homeowners Insurance: $93
~Electric: $495
~Satellite: $59
~Phone/internet: <strike>$110</strike> $80 Drop extra services
~Groceries: $250 (since you won't be giving dh money to "pick stuff up" for you)
~Car insurance: $49
~Child care: $64 (is this for the whole month?!)
~Diapers & general needs: $50
~RESP contribution: $25
~Bank fees: $20 (it'll be nice to get rid of these)
~Dh gas money: $100 (I'm estimating that out of the $280 he normally spends this much on gas, I can edit if this is off)
~Family entertainment/eating out: $80 ($20/wk)
~Spending "fun" money: $120 ($15/wk each)
~Misc spending: $100 (for those unexpected expenses-home repairs, service calls, car registration, etc-NOT for eating out or buying "stuff.")
Total: $2230
Income: $3034 (including the $280 your dh usually spends)
Left over for debt payoff and savings plan: $804


With the refi, you are already sure that you won't have the Wells Fargo acct and when Chrystal starts working on your payoff plan, hopefully you'll know more about the refi and be able to clarify which debts you will still have left over.

If you haven't already read our post on budgeting methods, please take a look HERE I use the envelope method to keep us on track. Obviously, you need a little emergency money set aside so that you won't have to use your credit cards anymore. Just having a misc expense set aside each month will help with that too, so that when something pops up, you have the money to deal with it without going in debt or throwing your entire budget out of whack.
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  #18  
January 3rd, 2007, 11:25 AM
~Jess~'s Avatar Platinum Supermommy
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Posts: 16,959
Oh, forgot to ask. Since you'll be at 90% ltv, will you have to may mortgage insurance? That will probably run around $100 a month.
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  #19  
January 5th, 2007, 06:30 AM
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Location: Nova Scotia, Canada
Posts: 336
Well, the refinance is a flop. They can't do what I want them to, and what they can do isn't going to really help after all. So for now we're stuck at status quo. Thanks for your help though Everything is getting paid, and we're not going further into debt, it's just that we're not making any progress. What's scary is how much money goes to interest. I added up all our expenses for the year 2006 last night. Cara cost us less than $1500, food cost us about $3000 - but the banks cost us thousands between fees and interest. Seems wrong, somehow.

So plan B is - make more money. I've started emailing and writing letters to all my free advertisers with a limited-time ad sale, to try to generate some bonus money to pay something down with. And we've put out some new brochures for my web design company. I've got a couple of new clients recently, and a couple of new potentials... so that's encouraging!
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  #20  
January 12th, 2007, 01:53 PM
BensMom's Avatar Ephesians 4:29
Join Date: Apr 2005
Location: The Lonestar State
Posts: 50,214
I'm working on this right now. Got a question for you though... what does this mean?

~Line of Credit: minimum 250.00-ish, I pay $300 then take back $150 (balance 7700), interest rate 17%

Does that mean you're "really" only paying $150? What do you mean that you "take back" something. Is it a payday loan, a bank loan, or what?

--------------------------

EDIT... here's a preliminary look at what I'm working on. Right now, you're JUST breaking even if you pay the minimums on everything and if you're "actually" paying $150 on that one (if not, you're in the red!). If you can come up with an extra $100/mo, I would cut your payoff time down from 7.5 years to 3 years and your interest from $14k to $9k. If you could come up with $200/mo, it would drop to 2.5 years and $7k. There's not a big difference in your payoff from $100/mo to $200/mo as you can see, but there IS a big jump from what you're doing now to $100/mo. I would suggest figuring out a way to come up with $200/mo. I'll put $100/mo into your debt plan and you can put the other $100/mo into savings for emergencies. Give me your thoughts on all this, and I'll keep working on it.
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