What should I do?

memeeJanuary 11, 2008

After renting for umpteen years, my youngest son moved out 1 year ago. I have 3 bedrms. Do I move to a cheaper single/1 bedroom apt and pay off c.c. bills ($20,000.) or try to purchase a condo now? Difference will be about $500. saved per month to downsize (rent). No significant savings (ugh). TIA


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Without significant savings (and with cc debt that high), I doubt that you could purchase a condo. If you downsized, you'll still have approximately the same utility costs. Have you considered taking in roommates? The combination of rental income from those two bedrooms and the division of utility costs three ways might add up to considerably more than $500 (depending on where you live).

    Bookmark   January 11, 2008 at 6:09PM
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I don't see how anyone could get a loan with $20,000 in CC debts, unless you have a very large income or savings. I think the CC debt would be a red flag to the loan company.

    Bookmark   January 11, 2008 at 8:47PM
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I'd say move to a small, inexpensive place and get your finances in order. I have a single friend age 50 who has never lived in anything other than a one bedroom apartment. She could afford to purchase something now but she prefers the flexibility of not owning (she has relocated for jobs a few times) and the security of accumulating alot of cash/retirement savings and not having any debt.

    Bookmark   January 11, 2008 at 9:00PM
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Hello memeee,

If you haven't been able to build any savings, and in addition have got yourself into a substantial debt, where do you figure that you may be able to find the income to cover extra costs associated with home ownership?

Not just in getting it established ... but to cover the ongoing costs?

Plus - if you add current credit card debt to a mortgage, you change a debt that many of us plan to pay off within a year or two (usually five, at most) into one that's going to take 15 - 20 - 25 (in recent years, even 30) years to pay off completely.

If you do that ... think of all of the extra interest that you'll need to pay as a result of turning what's usually short-term into long-term debt.

I think that, if you choose this route, unless you find a means of increasing your income substantially, or are lucky enough to have a relative die and leave you some money, you may well be sorry in five years (or less) that you chose such a path.

Plus - though I have no idea of the housing situation in your area, it seems to me that the housing crunch in a number of (maybe most) parts of the U.S. haven't played themselves out yet.

My daughter was recently negotiating to buy a housing unit in Phoenix, there was $5,000. difference between bid and asking price ... and she walked away.

Within a few months ... she found that a re-evaluation of the house/condo in question ... came in $20,000.00 lower.

So - she's in no hurry to buy.

In many U.S. housing markets ... there may be (quite a lot more) (four-letter word for barnyard by-product - a synonym for "manure") yet to hit the fan.

I suggest that you go to bare-bones spending for a couple of years, pay off much, at least, (most?) (all??) of your credit card debt, then consider taking on a major debt like a mortgage under a much improved personal credit/debt situation.

If you buy under the present situation ...

... in three - five years (possibly sooner) I think that you may well be a sorry person.

How would you like to buy a house for $170,000.00, with $10,000.00 closing/financing/inspection/lawyer/insurance/fuel on hand/unpaid taxes/++ costs, adding your $20,000.00 "Credit" (really "Debt") Card debt, for a total of $200,000.00 mortgage ...

... only to find that, in a couple of years ...

... you still owe $195,000.00 (most of your payments were paying interest owing) ...

... and your house could be sold for $150,000.00?

Which, should you find yourself unable to pay all of your expenses, including the mortgage cost, would force you (or the bank, under foreclosure) to sell your house, leaving credit after costs of maybe $135,000. ...

... and the bank suing you for ...

... $60,000.00???

Hypothetical, yes - but worthy of serious consideration.

I must confess a certain bias in this matter ...

...for I, a Canadian, own shares in a Canadian bank ...

... which has been involved heavily not only in those funny bunny mortgages that have been rampant in the U.S. for several years, and are now causing huge problems, with many recent purchasers, unable to meet increased mortgage costs, walking away from those homes ...

... but my bank has backed a mortgage insurance company that was backing those mortgages, and may now go bankrupt ...

... and I have seen the value of those shares drop from a high of $107.00 each, about 6 months ago ...

... to $68.00 each, a couple of weeks ago, now just over $70.00 (with maybe some more nasty surprises to come).

Just some ideas that you may find useful - what you do about the situation is your choice.

ole joyful (well, not quite so joyful, recently)

    Bookmark   January 14, 2008 at 2:44AM
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I don't understand. You said, "After renting for umpteen years, my youngest son moved out 1 year ago." Has your son been renting from YOU? Or does this mean that YOU are renting a place? You say you have 3 bedrooms - is this an apartment or a house? Do you own it outright, or do you owe on a mortgage?

And what does this mean: "Difference will be about $500. saved per month to downsize (rent)." Does this mean you rent your 3-bedroom place and if you move to a 1-bedroom place you expect to save about $500/per month on rent costs?

I'm with everybody else -- if you have $20,000 in credit card debt and no savings, you are in no position to buy a condo, unless you own your current place and have significant equity in it that you could cash in by selling it.

    Bookmark   January 14, 2008 at 10:01PM
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Thank you all for your comments. Now I know I need to get my finances in order first...kinda what I thought. Thanks for your candid advice.

    Bookmark   January 15, 2008 at 2:38PM
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One point to consider. You say your son moved out about a year ago. How old is he? Why did he move out? You need to be forewarned that young people today are considered the 'boomerang' generation. Most seem to bounce back to live with their parents at least once or twice before age 30. Sometimes because they've finished college and are getting their career started and need a reasonable place to live before they start making the 'big' bucks. Some because they have financial reverses. Some because the relationship they expected to last 'forever' failed after a few years. And sometimes, when they return, they've got kids (or even a spouse) in tow.

My point is that you may want to take this into consideration. If your son hit hard times, and truly needed a place to go, would you have room for him? Would you be okay with turning him away? Could you sit back and watch your granchildren (if any) living on the street or out of a car?

No matter where I move in the future, I will always make sure that there will be space for DD if at any point in her life she needs it.

    Bookmark   February 10, 2008 at 12:43PM
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