mortgage

What if you're upside down in your home?

3) Rent the unit -- probably the best choice. They can rent until the sales market improves. Hopefully, they will have enough cash to put down on a new house and can qualify for a second mortgage. This would help them achieve their goals and take advantage of today's much more reasonable prices to buy.

(Editor's note: This is not an option for John and Sandy because of homeowners' association restrictions.)

I agree with John -- it would not be a good idea to buy a second condo. This does nothing to get them closer to their goals, and condos are the weakest link in the chain.

They should sit down and review the terms of their adjustable mortgage right away. When I ask clients what exactly their mortgage terms are, few know. You cannot make good decisions without knowing this info cold. When does it adjust, how much can it adjust, what is the benchmark, where do I find that info, and how much would it be if it adjusted today?

The bad news is: The real estate situation is very tough for many people. The good news is: There are huge opportunities out there if you have some financial flexibility and good credit. Let's hope John and Sandy can take advantage of today's prices to buy the house they now need!

Feedback from Leslie T. Corcoran, CFP

Family First Financial Planning
Stuart, Fla.

My first thought is to get a professional organizer and see if they can't make do with the space. I have used one quite a bit and she really has made me see that my house can really hold our family of six and all their belongings once you pare down all that extra junk!

They could buy a new home and try to rent the condo, but they would have to recognize what their rental income would be versus the cost/hassle of renting. (It could result in a negative cash flow for a period of time.)

(Editor's note: This is not an option for John and Sandy because of homeowners' association restrictions.)

They could sell the home and accept the loss and hope that they make it up in the long run on their new home. They should ask themselves: What are the benefits financially as well as emotionally of doing so?

Note that a larger home not only costs more to buy but also costs more to run and manage. Have they considered what the additional monthly expenses will be with a larger home? Add yard work, pool maintenance, etc.  Plus a new home means new furniture, new decorating, etc.

I would rather keep my overhead low and wait for the market to correct itself. A family of three can live in a two-bedroom condo just fine. Plus they can use the extra money to save more for retirement, college, family vacations, etc. They can just walk away from the condo for a long trip without those worries about grass cutting, home maintenance, etc.

It comes down to wants versus needs to me. The most successful people are the ones who keep overhead to a minimum. Debt enslaves the borrower. If they stay put, they can pay off their debt quicker, save more, and then in that situation have more choices in life later on. I have seen too many people feel they must have that bigger house and then get way too deep in debt. Plus housework, yard work, cleaning, etc., takes time away from family.

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