Is My Home Worth Keeping?

THURSDAY, JANUARY 15, 2009

Apropos to my last post, today's front page on MSN.com had a link to this article by Liz Pulliam Weston titled "Is Your Home Worth Keeping?".  In the article she discussed how even a renegotiated mortgage payment may be so high that people can only afford to make it if they don't save for retirement and struggle with financial hardship, especially if they have child care costs or other debt.  She says that no more than 25% of gross income should be spent on shelter but most loan modifications set a goal of 38%.  Even worse, the home will likely not recoup its value for several years, locking a person in to a hardship scenario for years, making present life and future retirement very difficult.  

Obviously, if I am working to pay down my mortgage instead of banking the cash I have decided that my home is worth keeping despite losing $90,000 in value.  I could walk away, stalling the foreclosure process for as long as a year and living in my house during that time without making payments, saving the money instead.  I'd have over $50,000 saved if I did that, more than enough to convince a landlord to rent to my  with my now awful credit.  Then I could save for a couple years, another $50,000 at least, and pay 20% on a $500,000 home.  My debt on my current house won't be down to $400,000 three years from now unless I win the lottery. Staying is not the best decision from a financial standpoint.

What about the other costs of foreclosure?  The hassle of dealing with threatening letters and phone calls about being behind, the time and trouble spent maneuvering to stay in the house a little longer, the knowledge that I am bringing down the value of my neighbors' homes?  That is a huge cost in emotions and stress.  Then I have to find a rental place that takes pets and bad credit, and three years from now go through the lengthy and stressful process of home shopping.  This time around I will have a foreclosure on my record so I won't be getting the best interest rate, even if rates are still low three years from now.  As an added bonus I will be paying much higher income taxes for the next three years because I won't be deducting mortgage interest.  Yikes!

There are other intangibles that make staying worth it to me.  I love putting work into my garden, and a really nice garden develops over years.  I'd be delaying that by a few more years if I left my house.  I enjoy making things but put that off because I didn't know what type of house I'd end up in.  It seemed silly to build furniture and do metalwork for my dream Tudor Revival home only to end up buying an Eichler and having to start over.  Now I have a Spanish Eclectic house and am planning a whole houseful of furniture to build.  It takes time to do that and go to work, I don't want to waste several more years.  I'm in my mid/later 30s and time flies.

Last year I spent about 42% of my gross income on shelter, including my extra principal payments.  That is way over what I "should" be spending in order to not be in hardship.  Yet I put 10% of my pay towards retirement and put several thousand dollars into savings.  How can that be?  Three things: no kids, no debt, simple living.  The biggest thing I have going for me financially is that I have no kids.  Then I'd be facing a world of hurt with my mortgage.  Kids are expensive!  Also in my favor is that I have no debt; money I would have spent servicing debt went into savings and enhanced my lifestyle instead.  Lastly, I do not spend large amounts of money on clothes, shoes, shopping, vacations, etc.  Eating out is my biggest vice, but knowing I can afford it makes me feel rich.

I'd love to hear from other people in house poor situations.  What are your options, what are you doing, and why?

POSTED BY K-MONEY AT 9:46 AM

3 COMMENTS:

An iMperfect wIfe said...
Remember that foreclosure ruins credit for 7 years. So, if it takes 1 year to even complete the foreclosure you wouldn't be house or car shopping for at least 8 more years. Foreclosure is not the answer!

Good luck, I'm enjoying your blog.
JANUARY 16, 2009 12:49 AM

Miss M said...
I think sense of obligation falls into the mix as well. Sometimes the right thing to do financially is the wrong thing to do personally, I took this debt on and I'm not going to walk away. We are similar in ways, no kids, low debt (currently - I used to be drowning), and fairly frugal. Our mortgage is 28% of my income, Mr M doesn't earn much but we're still in safe territory.
JANUARY 16, 2009 6:11 AM

K-Money said...
@iMperfect - yes, it would be a bad thing to have credit troubles for so many years. So why is this only true for individuals and not corporations?

@MissM - that pesky sense of obligation! I get something intangible for sticking with something.
JANUARY 16, 2009 11:24 PM