I don't want to be buried in my own backyard

February 9, 2012 2:53 PM

Underwater mortgage + growing family in small house = terror. How can we plan to get out of this situation in three years?

Please help me take a deep breath and make a plan so I can stop fearing that my home is a decaying albatross.

Background: We purchased our house in the Twin Cities in 2009 as first time home buyers for $235k. At the time I was pregnant with our first child. The house, built in 1929, is a two bedroom, one bath with an office that attaches to the master bedroom. It has lots of charm, is in a decent neighborhood, but is small, 1100 sq. ft. Six weeks ago, we welcomed our second child who was supposed to come in a few more years but...oops. Now we have two young children in a small house, which could be feasible save for the fact that our mortgage is underwater. This point was driven home when our neighbor listed her house (roughly equivalent in size and interior quality) yesterday at $179k. Not sure if this is relevant, but there is another really crappy house one block down the street that just went on the marked for $59k--ugh.

We won't be having any more kids, and they will be sharing a bedroom for the foreseeable future but they are of opposite genders so at some point in time, this will become an issue. We investigated having the basement finished but several quotes from reliable contractors came in between $35k and $50k, the house does not seem to merit this kind of investment.

I´d like to hear from others about how dire this situation is (and please be kind--I'm in the depths of postpartum sleep deprivation)--maybe it isn't that dire--but if so, how we can start to work on getting out of it and ultimately into another house that we can afford in the next three to five years which will allow our kids to have their own rooms.

Final point of panic: our mortgage, taxes and fees total $1580/month. We owe $215k on the house. I'm concerned about our monthly housing/insurance/tax costs and I'm not sure if there is anything we can do to ameliorate it. I tried to research a refinancing package from a local credit union but they said we wouldn't qualify--I assume this is due to underwater value of the home relative to the amount owed on the mortgage? We have some savings but now with two children in daycare, saving money will be highly unlikely in the next four to five years.

Sleep is so precious these days, I don't want to spend any more time awake worrying about this when I could be catching up on it instead. Thanks, MeFi.

posted by anonymous to work & money (29 answers total)

It is totally worth it to get a financial adviser. Money up front on this sort of thing is worth a lot more down the road.
posted by Ironmouth at 2:55 PM on February 9 [1 favorite]

Just to address one part of the panic, my little brother and little sister shared a bedroom in a sub-1100 foot apartment until they were, maybe, 12 and 7 (maybe 11/6 or 10/5, I don't remember). This doesn't address your valuation problem, but I am certainly expecting/counting on/hoping for some vitality in the housing market in the next nine seven years.
posted by Admiral Haddock at 2:59 PM on February 9 [2 favorites]

Just chiming in to say, a little house and sharing a bedroom are A-okay for kids. I grew up sharing a bedroom with my sibling in a little house until the older kid was about 12, and it was totally normal. We fought sometimes, but we also had partnership-style mischief, and we're also very close as adults.
posted by LobsterMitten at 3:07 PM on February 9 [5 favorites]

When we needed to get out of our very underwater house, we moved somewhere with a much lower housing payment (using ALL of our savings up in the process) and rented out our house. The rent we're getting does not cover the mortgage payment, but it covers about 2/3 of it, so overall we're paying about the same as we were before. We hope to be able to sell when the market recovers. Not sure if this would work for you, but it's been a solution that has been good for us.
posted by rabbitrabbit at 3:08 PM on February 9

Deep breaths! You're in a charming house that is larger than many, many homes that other first-world residents raise families in. Don't let this keep you awake during a time when you desperately need sleep.

If it soothes you, look at books and blogs like The Not So Big House. Congratulations on the new addition to your family!
posted by cyndigo at 3:08 PM on February 9 [7 favorites]

My (opposite gender) kids shared a room in a <1100 sq. ft. townhouse until last year when my son went to college. Sharing a room doesn't have to become an issue.
posted by doctord at 3:11 PM on February 9 [2 favorites]

anonymous posted">> We won't be having any more kids, and they will be sharing a bedroom for the foreseeable future but they are of opposite genders so at some point in time, this will become an issue

If it helps any: my opposite-gender kids share a room at ages nine and five, and it isn't a problem yet. They change in the bathroom when they're feeling modest.
posted by The corpse in the library at 3:11 PM on February 9 [1 favorite]

This is more about the kids sharing a bedroom. In big cities it's really, really, really common. Most of my friends from new york shared a bedroom with all their brothers and sisters- all the way through high school... and they are totally fine.

Heck- one of my buddies lived on the top bunk, her brother on the bottom- in the middle room of a railroad until she was 21.

Really, talk to an advisor who understands the Twin Cities and can help you figure out what's the best course of action.
posted by Blisterlips at 3:12 PM on February 9 [1 favorite]

You're going to want to look at this, About the new mortgage settlement, after you get some sleep.
posted by The corpse in the library at 3:16 PM on February 9

Nthing this doesn't sound so terrible.

I kind of think you have time to deal with the second bedroom, thinking about redoing the basement (maybe the basement ultimately becomes the office and the office becomes bedroom #3)?

But if you can put together even a shoddy second bathroom, I think it's a really, really good idea. The one day that everyone in the house happens to have stomach flu would make a cold, unattractively-tiled fluorescent-lit bathroom in the basement into your personal palace. I think that's your biggest priority, and the other stuff you can worry about later and isn't that big a deal. We live in a small place and there are a lot of nice things about it.
posted by A Terrible Llama at 3:20 PM on February 9 [3 favorites]

Another vote for room sharing! It's far FAR from a bad thing. My brother and I (a girl) shared a room until we were 10 and 12, respectively. It was a non-issue due to necessity. We're very close now as adults. My 5- and 3-year old daughters share a room, and we're probably going to give up the master bedroom (of our 3 bedroom, <1500 sq ft house) so that they can share it with their currently 1-year old sister because we WANT them to share a room. They are all girls, but we would do the same if we had a mix of genders.
posted by ellenaim at 3:21 PM on February 9

My daughter is 12 and my son is 9 and they share a room. What are you going to do, sometimes you can't afford more. And you know what, if we were able to get a 3 bedroom place, I'm not sure they'd want to break it up right now. So anyway, you have time, for sure.
posted by visual mechanic at 3:23 PM on February 9

My vote is to just try not to think about or look at the values of other houses in your neighbourhood. You didn't buy this place as an investment, right? You bought it because you wanted to live in it. You were willing to pay this amount to live in it. NOTHING HAS CHANGED in terms of the house's actual charm, liveability or features.

As others have said, your kids can keep sharing a bedroom for a long long time. If you can afford to renovate the basement one day, you can do that. Don't think about it as "throwing money away" even if you will never recoup that expenditure. Think of it as paying a certain amount of money for more space for your family to improve your everyday life.

Houses are only worth a given value when you sell them. So don't sell. Not for a long time.
posted by lollusc at 3:26 PM on February 9 [14 favorites]

Look into refinancing again. The rules have changed and there are new rules in place as of this week. Under the HARP program right now, you can refinance with no cap on LTV which means you can be deeply underwater and still refinance. But, it's worth looking at this even if you don't qualify for HARP -- two major stipulations are when you bought your house and whether it is held by Fannie Mae or Freddie Mac (and you may need to deal with your loan holder directly). If you can refinance and get your mortgage in line with rental rates in your area then you have more flexibility in regards to what you do with your house in the long run. If your payment is already in line with local rental rates then you should not worry so much.

Also, refinished basements will increase the value of your home and make it more attractive to buyers. I won't put that as a "down the drain" expense especially if it makes the house just the right kind of home for you without having to move.

I totally understand your panic, we're right there with you. It's astonishing to see what's happened to home prices and some of that is a direct result of banks not working with homeowners and forcing a foreclosure or short sale situation. When other homeowners see what has happened to the market, it's tempting to stop paying mortgage, save up your money and then leave the keys behind when you get kicked out. Way to go, banks!

If you can ignore the market, are you still happy in your home? If so, try to focus on that. Deep breaths. You don't really want to look for a home, sell yours and move right now anyway, right? Look into whether you can get more favorable terms. You may be surprised and it may make you feel better about the whole thing.
posted by amanda at 3:28 PM on February 9

Take a deep breath, we went through this last year and understand where you are - new kid, no sleep, small house, value gone entirely out of it and a recognition that in a few years we were going to need to move and were living in a house whose current market value was 25-30% of what we paid for it.

You don't need to make a decision now, and almost nothing up until you are through a foreclosure process, if that is where you end up, is final.

There are a ton of options for you, but I'd start with the very basics. Lay out your lenders, interest rates, whether they are purchase money loans or have been refinanced. Then start some basic research about whether you are in a recourse or non recourse state. This is basic easy to find stuff.

After you have done the basic information gathering, call a few financial planners or real estate attorneys who have worked situations like this before and ask for some of their advice after phone interviewing them. It's worth a hundred dollars to speak with someone who is an expert in your states laws and who can lay out your options for you. there are a ton of people around these days familiar with situations just like yours who can provide accurate guidance based on what your situation is.

The good news is the settlements mentioned above may give you some relief broadening your options. Take your time, gather data and get some sleep. No matter what these processes aren't quick, so don't feel like it's all piled on to of you at once, especially if you're current on your notes.
posted by iamabot at 3:32 PM on February 9 [1 favorite]

They are still young, you have time. I have a smaller house (still two bedroom, one bathroom) and THREE children. Now my eldest is a teenager we have converted the dining room to her bedroom, it sounds like you could maybe do the same to the office? Or YOU move into their bedroom and they have the master/office suite.
posted by saucysault at 4:08 PM on February 9 [1 favorite]

As a mom with the stomach flu right now I am soooooo grateful that our small home has 2 bathrooms. Maybe look into installing a barebones 2nd bathroom in the basement down the road cause when you need it, you really need it. You could always plan the basement finishing and work and start saving now rather than putting that money towards a short sale or something.
posted by saradarlin at 4:15 PM on February 9 [1 favorite]

You are in the exact same situation we are. The settlement today *appears* to be good news, but I'm not holding my breath.

Look into refinancing again. The rules have changed and there are new rules in place as of this week. Under the HARP program right now, you can refinance with no cap on LTV which means you can be deeply underwater and still refinance. But, it's worth looking at this even if you don't qualify for HARP -- two major stipulations are when you bought your house and whether it is held by Fannie Mae or Freddie Mac (and you may need to deal with your loan holder directly). If you can refinance and get your mortgage in line with rental rates in your area then you have more flexibility in regards to what you do with your house in the long run. If your payment is already in line with local rental rates then you should not worry so much.

Not exactly. The LTV is still a problem, but I am being told that the 125% limit is supposed to go away mid-march, BUT I think your loan still needs to be owned (originated) through Freddie/Fannie. They have simple lookup tools on their websites to see if they own them. Don't assume one way or another. For example our loan is serviced by a large well known national bank, but it is a Freddie loan. Even if you qualify it is still just a refinance. You will owe that $235 (plus any new servicing fees :().

From what I'm reading today there MIGHT be a chance that we could qualify for a principal reduction, but a realtor in my family has told me that although the program is out there, everytime he has mentioned to a servicer they have laughed in his face, and he has yet to meet anyone who has gotten one. YMMV.

As panicky as this all feels, the rental market in my area is on fire right now, and therefore it actually is cheaper for us to keep paying for a mortgage that we will never get back.
posted by Big_B at 4:15 PM on February 9

Not exactly. The LTV is still a problem, but I am being told that the 125% limit is supposed to go away mid-march, BUT I think your loan still needs to be owned (originated) through Freddie/Fannie.

The only way to get the most relevant information to you is to call your loan servicer. Our loan holder is Wells Fargo. We were told that this week they were doing 150% LTV and that next week, there would be no cap. We are members of USAA and called them and they claimed no LTV right now. So. I'm sure this varies and be sure, no matter what, that when you call your lender that you ask to speak to someone who knows about HARP. The regular staff for refis do not seem to work with these types of loans.

My bigger point is, right now there are a few avenues you can explore that will make your housing situation feel better. But, you have a newborn and your house is fine. Please try not to lose sleep over this issue. One day at a time!

Best of luck!
posted by amanda at 4:49 PM on February 9

"We investigated having the basement finished but several quotes from reliable contractors came in between $35k and $50k, the house does not seem to merit this kind of investment."

Expanding on lollusc's comment: your house is your shelter; you'll always need shelter and the cost of that shelter will always be the largest share of your routine expenditures. Your residence's investment value is secondary to its utility.

People absorb the costs of repairing and upgrading other expensive things - cars and appliances and computers - for their utility, not in the hopes of some perceived increase in future value.

Do not worry about whether finishing your basement will improve your house's resale value, especially if it's plausible the local market won't allow you to move. Prioritize your finances so your residence is what you need it to be.
posted by gingerest at 4:52 PM on February 9 [5 favorites]

When I read the question, I imagined an adorable twin-cities bungalow in a cute neighborhood with a couple fun little tikes bouncing around inside. A warm, happy home. I also read that you are able to swing the mortgage payment, though it may be a bit high for you, and that you have some savings to boot. This is good. Enjoy your kiddos. Savor those young family moments. So what they have to share a room for awhile. They'll be fine. They have loving, responsible parents who look out for them. They'll be fine.

Your best option is likely to just keep paying that mortgage. Try not to think of your month-to-month position. Slowly, slowly, your principal will go down and the market value of your house will rise. Your payment will stay the same but your incomes will rise. Underwater is just a position until you're forced to sell and realize the loss, which isn't the case here. You'll be fine.

A warm home, good marriage, healthy family, a bit of savings. You're doing it right.
posted by everythings_interrelated at 5:04 PM on February 9 [25 favorites]

lollusc is right. Quit thinking of your home as an investment, but rather as a tool that does a job.

For a brief time (two years, cough), I shared a room with two brothers and a sister. It wasn't pretty, but it worked. At least I got the top bunk. My poor brothers had to sleep head-to-toe.

So, in five or ten years when it starts to seem like a good idea to get separate rooms for the kids, *that's* when you look into moving or renovating. Lots of things can change in that time, and probably for the better. Even if you still can't afford buying a different place, maybe that's when you and your husband learn about the delights of home remodeling and build the room yourself.

(You could also do what my grandfather did in his "Brady Bunch" years. He had a matrix of bamboo blinds kinds of things hung from the ceiling of the basement that he used to separate out rooms in the basement for the various children as they came and went. Or set up "offices" in the basement for the kids to do their homework or just chill, and the bedroom is just for sleeping.)
posted by gjc at 5:46 PM on February 9 [1 favorite]

I bought my first home in 2009 and even though I don't feel like I overpaid, understand the panicky feeling you have right now. You only bought the home 3 or so years ago. Its not shocking that you'd technically be underwater for a few years. Your kids will probably love sharing a room. By the time they aren't, you will probably have paid off enough that you are at a point where you could think about selling the home.
posted by missmerrymack at 7:01 PM on February 9

Look at whether you can refinance. Just getting a lower interest rate can save you a few hundred each month.

I (female) shared a bunk-bed with my brother until we were ages 10 and 8. When you grow up that way, it just doesn't feel weird.
posted by slidell at 10:20 PM on February 9 [1 favorite]

Please don't panic. It sounds like you are OK for now. Tell yourself that you will revisit this issue one year from today. Put it on your calendar if you have to, but get it out of your head. You have too many other things to think about so give yourself permission to let this one go for now. In a year, your children will still be very very young and housing prices/values may very likely have gone up.

Even if you're on a three-year plan (the low end of your estimate) then one year will not make a difference. In a year you will have had a lot more sleep, you'll know the personality of your new behbeh that much more... seriously, you will be so much more equipped to deal with this. There is nothing you can do about it now, just put it on hold.
posted by bendy at 10:46 PM on February 9

Wow. It sounds like you have a great life. You have a beautiful home that you clearly love. You have 2 kids that you clearly love and presumably a spouse that you also love. And you have the income sufficient to pay all of your bills and save a little money at the same time. Don't mess with success. Your kids can share a room. For the first 8 years of my life I shared a room with 2 other siblings. And we loved it. Don't buy into the old paradigm that you must have a bigger and better house! You don't. It actually makes me sad that you see your situation as so dire. It sounds quite the opposite. Who cares what your house is worth? It is just a number on a piece of paper. Enjoy your home and family. Be grateful for what you have and live a happy life. And in 10 years when your kids are older and maybe you need another room, I am sure other options will be available.
posted by Seymour Zamboni at 5:12 AM on February 10 [2 favorites]

It sounds like you qualified for the first time homebuyer credit. Subtract that from what you paid for the house and maybe you will feel a bit better about it. Cheers!
posted by missmerrymack at 5:34 AM on February 10

Same situation here - same size house, same time we bought the house, same ages of different gender kids (my newborn is ten weeks - gah! No sleep! I hear you!)...

You didn't say in your post, but is there any way the office space could ever be converted into a little bedroom for one of the kids down the road? I know it's attached to the master, but sometimes in situations like this, you could swap rooms with the kids (so that they have the master and the office, you stay in their old room?), or just move office space to someplace more central.

Also anecdotally - I grew up the eldest of 6 kids and until I was 17, I shared a room with four of them. We grew up in a two bedroom house and right about when my parents finally had the money to convert our drafty 4 season porch into another bedroom, they had to take in my grandmother who was suffering from Alzheimer's into our renovated porch. It was somewhat comical, because our bedroom was tiny and for the last few years we shared a room, we all just slept on sleeping bags on the floor because there wasn't room for enough beds. There were minor territorial wars over floor space when other siblings' stuff encroached into someone's sleeping turf, but other than that, we all emerged from our childhood roommate era unscathed, college educated, and really good friends. One of the ways my parents circumvented any stress of all of us sharing a room was to treat the bedroom as strictly a place to sleep. We didn't have much in our room other than our clothes and a few special things. We didnt hang out in our room, we hung out mostly in the living room together. I think it was more of a cramped feeling for my mom, who was home with a houseful of kids hanging around in her living room, than it ever was for us kids. Like I said, we grew up close and undamaged by having to share a smaller space.

I have to remind myself of my own upbringing sometimes when I look at my small "cozy" house with lots of "charm" and my living room with toys all over the floor. It keeps me from getting discouraged, because whatever value we could or couldn't have gotten for our house will not really matter to my kids as long as I am able to keep a roof over their heads and make my home warm and loving so that they feel safe and happy that we are all together.
posted by takoukla at 6:59 AM on February 10 [3 favorites]

P.S. Thinking this much about anything other than the very essentials of life should be illegal when you have a 6 week old in your house. Please don't stress about this until at least a few months from now. It's very difficult to be objective and rational about anything at this particular stage in time, with no sleep. :)
posted by takoukla at 7:01 AM on February 10 [3 favorites]