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Advice needed


desperate_in_CA
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We are in dire straits and in need of advice.

Due to past indiscretions which are now under control these are our current circumstances:

Income - $13,800 gross monthly

We owe $816,000 on a home with an $805,000 appraised value.

Current mortgage payments are almost $7,000, more than our take home pay

Property tax & insurance = $950 per month

Credit card debt = $0

Auto loans about $23,000 ($900 per month)

Student Loans about $25,000 ($225 per month)

Borrowed from 401k $50,000 (repaying at $1050 per month, pre take home)

Owe relatives about $60,000 ($530 per month)

Approximate living expenses (not including home & auto) = $3500 per month

Credit scores in mid-high 600's

We are looking at refinancing our home to the point where our payments will be around $3400 monthly, negative amortization, adjustable rate, 10 year fixed payments. Income rising at approximately 3% per year, less than inflation. To do so will require an early withdrawal from our 401k to pay the home down to 95% or appraised value. Total assets after refinance: $60,000 left in 401k, about $33,000 in stock options (has reamained relatively unchanged over the last several years), personal property valued at approximately $100,000 (retail).

Should we refinance or give up now and declare BK?

Would we lose our home if we file BK?

Thanks,

desperate_in_CA

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Don't let your home get foreclosed.

It's better to sell, even at a small loss, than deal with a foreclosure (or so I've heard on this forum).

However, if you did refi and cut your payment in HALF (WOW!) how would you be financially? Would you be able to manage the payment and live relatively comfortably?

Your house is valued at 805K. I know you're in Cali, so I'm not sure how nice of a house that really is. (here in houston, it'd be a mansion)

Is it feasible to sell and find something 'nice' for 500K or so, or is 500K the ghetto where you are?

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We are in dire straits and in need of advice.

We are looking at refinancing our home to the point where our payments will be around $3400 monthly, negative amortization, adjustable rate, 10 year fixed payments. Income rising at approximately 3% per year, less than inflation. To do so will require an early withdrawal from our 401k to pay the home down to 95% or appraised value.

Thanks,

desperate_in_CA

At 95% LTV you will not qualify for a neg. am. loan. If your scores are strong enough, maybe you can get a Interest-Only product that would provide some debt reflief.

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Thanks ybrew,

We are not in danger of foreclosure. We have no lates and really very clean credit except for one collection that I have paid after receiving a letter stating the CA will REMOVE the item from our credit reports. With it off we'll be in the mid-700's FICO-wise. The new loan payment will be very tight but I feel with some belt tightening we will be able to manage. I am just scared...

Homes are staying on the market for 6 months plus in our area. There are at least three for sale on each street in our subdivision. Also, selling price would be well under the $805,000 appraisal based upon recent activity. We cannot afford to lose between $60,000 and $100,000.

Ffico,

We are working with a lender that will do an 80% first, neg am, with another lender providing a fixed rate second for 15%. Both loans are approved and in the works.

Any more advice?

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I just wanted to say that I have been in your boat... I had an oceanfront condo that I paid $850k for. In less than 6 months, it was foreclosed on. It's a REO priced at $625k.

You do have options...however the options may not be too palatable.

1. Short sale. Sell the house for less than what is owed. The only problem is that the difference is treated as taxable income to you.

2. File BK. The unsecured debt goes away for sure. The house is an interesting situation. You'd have to call a lawyer. In my experience, as long as you can keep up payments, you keep the house. If not, the Court sells it.

3. Refi. You may have to throw cash into the deal to make up for the decline in value.

4. Do nothing.

Just some food for thought... get a hold of me if you want specifics.

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Can you not refinance the auto loan? $900/mo seems horribly high for a $23K loan. Trying to pay that car off in 2 years? I pay $560/mo for a $27K loan. That could give you some extra dough.

I don't know your situation, but $3500/mo in living expenses seems awefully high. I'm hoping you have several dozen kids. My living expenses are around $700/mo, with food and utility/other bills, and I eat REALLY well, going to movies and eating out all the time. Any way to cut down on living expenses? If you have lots of kids, get them jobs to pay their room/board.. hahaha.

Also, it looks like you have $90K in your 401K/stock options. If things get really ugly, consider the pros/cons of early withdrawal. Sure, gotta pay the penalty and taxes, but use what's left to pay off the car and part of the house, then refinance. You can always save for retirement after you're in a better position. I'd suggest contributing at least enough to get matched, but no more. A retirement nest egg won't do you any good 20 years from now if you have to live in a cardboard box for the next 20 years. Better seriously look at the numbers if you want to do an early withdrawal, though. I think the penalty is 10%. Don't worry about the taxes. It'll get taxes sooner or later, regardless. Right now, it's sitting there gaining tomorrow's interest while you're sitting there paying today's interest to the bank. You probably aren't getting ahead much having the 401k.

Just gotta ask yourself when you'll need the money in the 401k. Will you need it more now, while you owe $7K per month to pay the house, or when you retire and the house is paid for?

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You said you are working with 2 banks, doing an 80/15 loan. With these type of loans, there will be closing costs that will eat up equity.

Have you considered an MTA Option Arm (not a Libor Arm). Min credit 625 proving income / 650 going stated income, up to 90% LTV - bank closing costs rolled into loan (not eating up your equity)..... Coming up with the extra 10%? - this would be a better way to go.

Having $33k in stock options, sell (hopefully they were not "B" shares). Payoff your auto loans, which will save you $900 monthly.

If you file bankruptcy this will save your home, but it will also mess up your credit for many years.

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