What to do?

[PrincessPerky]

I have to ask if it matters who's fault it was? As to how on earth someone could buy a house 41% of their income...I used to have one..my income went up, the house still costs the same.

As to what to do now...that needs more info on the rest of the expenses and the likely hood of a raise any time soon (or extra income)

While I debated moving...the cost of gas plus security from a cheaper house to my husbands job would have eaten up any possible saving while waiting for the magic raise (which we now have-not perfect, but more manageable)

I think some more important questions than who's fault it is would be....How far into the 15 years are they? what is the rest of the budget like? what caused the EF to disappear? Do they have wiggle room to save? when is the next likely hood of a raise? is there items to sell to make some extra? Is there a possibility of a part time second job (for whichever adult) Is the Emergency likely to reoccur (IE if it was a broken leg, most folk don't do that yearly) Did they underestimate expenses?

Not to mention before refinancing, they need to look at the long term cost (30 years of interest is more than 15)

And one very important item IMO, personality.. I am more likely to spend less on groceries if I have less than if I just plain think I aught to save..so for my personality it is better to have a debt than to have free cash to save. (though I do save some, I also buy more luxuries..like dried mango's..my husband is worse)

[sweeps]

I'm not a fan of Dave Ramsey either, but I'm assuming that he would not have approved of taking out an unaffordable mortgage in the first place, regardless of whether it was a 30-year or 15-year.

[Snave]

I'm not a fan of Dave Ramsey either, but I'm assuming that he would not have approved of taking out an unaffordable mortgage in the first place, regardless of whether it was a 30-year or 15-year.

The funny thing about the situation (which really isn't funny) is that you are right. Dave wouldn't have agreed. So, these people didn't listen to Dave about taking on too much house, yet lsitened to him on the 15 year loan part. I guess it was a "if I'm going to make one not-so-smart financial decision, I'll try to balance it with a smart one."

[jIM_Ohio]

The funny thing about the situation (which really isn't funny) is that you are right. Dave wouldn't have agreed. So, these people didn't listen to Dave about taking on too much house, yet lsitened to him on the 15 year loan part. I guess it was a "if I'm going to make one not-so-smart financial decision, I'll try to balance it with a smart one."

like eating 3 doughnuts with a diet coke

[Snave]

like eating 3 doughnuts with a diet coke

Exactly! Now you've got me hungry for luch. At least the donuts are fat free. I only paid for the protein and the carbohydrates. Krispy Kreme threw the fat in for free!

[getforfree]

Is it possible to increase income, at least temporary, to build up EF again? They are on one income, so I suppose, that's 40 hrs/week for both parents combined. Can any of the get temporary evening job, so they can make extra money and not spend anything on childcare? The wife could work 4-5 hrs every evening when husband gets home, or weekends. Even if she would be making minimum wage, that can add up to $400/ month after taxes and stuff. I think, it's worth the temporary sacrafise.

[Snave]

Along the lines of getforfree: my wife found a few odd jobs on craigslist in our area. In fact, for about 6 months she was working as a sleep lab tech (no major requirements) in the evenings from about 6:30 - 10:30. She made about $10/hr. There might be something on there for them to look at that could fit around a schedule.

[maat55]

What you guy's aren't taking in account is the fact that they are not making it on a 15 year note. To say they can go to 30 and free up money is wrong. They are only going to slide downhill slower. To get on a healthier financial plan, they need to be able to afford the mortgage they have 15 or 30 and still be able to save and invest.

steve,

Please tell me you were kidding about the 40 year note. 15 year notes are a tough pill to swallow. I'm a DR fan also, but I have a 20 to please my wife. I can afford more house under the I love debt plan, but I choose to sacrifice for a better financial plan. 40 year notes are financial suicide.

[disneysteve]

What you guy's aren't taking in account is the fact that they are not making it on a 15 year note. To say they can go to 30 and free up money is wrong.

steve,

Please tell me you were kidding about the 40 year note.

maat55, I agree that they probably bought a house they couldn't afford, but why wouldn't stretching out the payments be helpful? If they can free up $500 or more every month to use toward other needs, where's the problem? Yes, they will pay more interest over 30 years than they would over 15, but so what.

Keep in mind that mortgage payments are fixed. We've been in our house for nearly 14 years. The payment hasn't changed, even though our income has steadily risen, meaning the payment now consumes a much smaller percentage of our income than in did in 1994. By stretching out the loan, they ease their current financial crunch and give themselves time to "grow into" the mortgage. That's a heck of a lot better than falling behind on payments or being forced to move.

And yes, I was serious about what Jean Chatzky said. Here is the article:
Deleverage yourself - Nov. 2, 2007

[maat55]

steve

I meant do you agree with the article.

Switching to a 30 year when you are loosing ground on a 15 say's that you are putting all your eggs in one basket. They may or may not stop losing ground but even if stop losing ground, more than likely they will be living at the edge of their means.

The difference between the 15 and the 30 isn't going to free up enough to properly invest and prepare for murphy. If they were just able to afford the 15, the 30 would be more useful. Though, still a bad investment. It's like earning 40k a year and buying a 40k car. Even though you can make the payment, it's still a bad deal. The biggest killer of longterm investing is over buying house.

The difference between the 30 and 40 is pocket change.

[safari]

What you guy's aren't taking in account is the fact that they are not making it on a 15 year note. To say they can go to 30 and free up money is wrong. They are only going to slide downhill slower. To get on a healthier financial plan, they need to be able to afford the mortgage they have 15 or 30 and still be able to save and invest.

Are you saying that people shouldn't buy houses if they cannot pay off the balance in 15 years? If that were the case, only select few would be able to purchase real estate. That guy made a mistake of getting a 15-year loan when he should have gotten a 30-year loan. It doesn't make sense to make sacrifices just to be able to pay off the mortgage in 15 years. I'd rather have financial flexibility and be able to save more money every month. When saving rate is low, I'd pay extra toward the mortgage and when the saving rate is high I'd put extra money into money market and CD accounts. And in case of an emergency, I will be able to continue making my minimum monthly payments easily.

[disneysteve]

OP - Do you have any idea what wiped out their EF? Was it actually an unforeseen emergency, or did they spend it down to make ends meet?

[maat55]

safari

That's not what i'm saying. Having a 30 year note with no room to save and invest is not a good plan.

The mistake was not the 15 year note, it was the house he could not afford. When your young, getting a 30 isn't a death sentence as long as you can still save. You have to rely to much on appreciation if you intend to sell or move up in house. 30 years are horrible for building equity. Yes, you can later add to the payment and build equity a little later and thats ok, if you do it.

I personally have a 20 that I entend to payoff in less than 15. But i'm married to spendzilla. But I can afford my house and save also. There's nothing wrong with advising against 30 year notes, people need to learn to sacrifice a little for a better financial plan.

[maat55]

Creative financing has gotten this country into the mortgage mess it's in. The right answer all along, was to buy less house than you can afford.

My advise to sell and buy a less expensive house, in my oppinion, is the better advise for the poster. Unfortunatly, it will not be considered because you Einsteins have spent a lot of energy dismissing it for Creative Financing.

[safari]

safari

That's not what i'm saying. Having a 30 year note with no room to save and invest is not a good plan.

The mistake was not the 15 year note, it was the house he could not afford. When your young, getting a 30 isn't a death sentence as long as you can still save. You have to rely to much on appreciation if you intend to sell or move up in house. 30 years are horrible for building equity. Yes, you can later add to the payment and build equity a little later and thats ok, if you do it.

I personally have a 20 that I entend to payoff in less than 15. But i'm married to spendzilla. But I can afford my house and save also. There's nothing wrong with advising against 30 year notes, people need to learn to sacrifice a little for a better financial plan.

He could not afford the 15 year note, but if he took a 30 year note, it would allow him to save extra money every month. I am not sure why you're saying that he can't afford a 30 year mortgage. Right now his payment is at 41% of his income, but with a 30 year loan, it will drop a low lower. I think you and I have a different philosophy. I have a 30 year fixed loan, and even though I can refinance it for 15 years and pay it off a lot sooner, I choose not to. I am not concerned about building equity in my house; I'd much rather build up my savings because I am getting a better return on my investments, as compared to putting extra money toward my mortgage. I like my financial plan because it gives me freedom, and I am not locked into high monthly payments.