Q: We have lived in our townhouse now for six years. My husband lost his job three years ago and he hasn’t found one that would replace his old salary. We have been one month behind on the mortgage now for two years, not to mention other late bills, so needless to say our credit is not perfect.

We bought the house for $208,000. The balance is $187,000 and we live about 10 miles from Washington, D.C. The house is now worth about $350,000. We want to sell -- I am tired of playing catch-up.

Should we wait to catch up on the mortgage for about a year then sell, or is it okay to sell now? How hard would it be to find someone to give us a loan? (We have never filed bankruptcy.) The debt totals about $60,000 (mostly for college loans for the kids). Consolidation is not an option. We applied for a home equity loan, but were turned down. HELP! Waiting for your answer…

A: I’ll give you an answer, but you may not like it. Many times loss of jobs, sickness, easy credit, or just plain bad money management gets us into financial dire straits. I can only give you options – don’t make a move with these ideas until you’ve talked with a financial planner, Realtor or mortgage broker (and shop around for these, as well) to determine your housing options if you’re able to sell your townhouse. Here are the facts as you have laid them out to me:

• Home Value: $350,000
• Mtg. Balance: $187,000
• School Debt: $ 60,000

This leaves you with about $103,000 before you take out the cost of selling the house.

Commissions, closing costs, etc., can vary, depending on what company you use to sell the house. You’re not professionals, or at least you didn’t say so, so don’t try to do this yourself. You’ll make mistakes that could cost you real money while you’re trying to “save” the commission.

List the house with a reputable broker. Folks who find themselves in a tight financial situation always tackle the commission first, trying to reduce it as much as possible. Regardless of your financial situation, go with a top-notch Realtor who can get the most for your house and help you get your mortgage in order for the next purchase.

You’re in serious trouble and it’s good you’ve realized it. The bank is getting its money, though it’s regularly 30 days late. After you decide what to do with your situation, I would suggest you dive in and get debt free – fortunately, you have the equity in your house to do it.

Let’s guess high and say your closing costs, commissions, etc., are $24,500 (7%). Subtract that from the proceeds of your home sale and you have $78,500. That’s a good chunk of change that you can use to move into another house – further away from where you’re located. The area you live in now is expensive. If you want to stay in the same location, then you must reduce the size of your house. In a further out area – 40 to 50 miles or so, you may be able to find a home for about half the price (about $150,000). With the down payment you have (about $70,000) your mortgage would only be about $479 (plus taxes and insurance) at 6% for a 30 year loan. With such a large down payment, the mortgage broker is going to be more lenient on the requirements and terms on your loan regardless of your credit history.

If 40 or 50 miles is too far out, then look closer in. But you need to get your living style down to your financial realities and in most major metropolitan areas like Washington, D.C., that means moving further out.

Best of luck to you and I hope you and your husband have the courage to make some life-changing decisions at this juncture or a bankruptcy/foreclosure court will do it for you.

Published: February 21, 2003

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