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Old 01-06-2013, 07:52 PM
haligan78 haligan78 is offline
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Default Plan to get rightside up on house loan.



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So, the wife and I bought our house in 2006 when the market was at the highest point. The basement is unfinished. After the market crashed in 08/09 we had our house reappraised to refinance with a lower interest rate and found out that after the market crash we suddenly owed 30K more on our house than it is worth. Whatever...we have continued to work making good money concentrating on getting our family established, trying to pay off other bills etc. figuring that we'd get around to attacking the mortgage eventually.
We have done a lot of good things for ourselves financially, paid off our vehicles, taken a huge chunk out of student loan debt. etc.
The whole time we have each been contributing 10% of our income to our 401K accounts.
Well now we are at the point where we want to get out from under our current house so we can go in 1/2 on a larger piece of property with my in laws. We currently live in town on 1/3 of an acre. My in laws have recently retired and are selling their current home a couple hundred miles away and want to move over here to be close to our kids. We have been looking at land parcels in the 10-20 acre range. Even found some that already have two houses on them.

Anyway now that you're bored with my background story here comes the subject for which I am seeking advice.
We each have about 60K in our 401K. If we cash out our 401K plans I understand we would lose about half of it. So we would basically end up with 60K in our pockets.
With that 60K we could pay down our mortgage by 30K so that we only OWE as much as our house is worth instead of being upside down. I have an uncle that is a contractor so we could use the remaining 30K to finish our basement cheaply with his help and have some left over.
Then we would have not only paid down to what we owe, but then increased the value by finishing the basement. Thinking then we could sell the place and be in a much better financial situation in our next home purchase.
My wife and I are 34 years old.....I know saving for retirement is important. But I am skeptical that by the time we are retirement age that there will even be such a thing as retirement. We would immediately start investing in 401K again to start rebuilding right away. I am banking on there still being 30-35 years before we retire, that we would still be able to put enough away for retirement especially since we would financially be in a better situation after all this takes place.

Sorry this was long winded, I tend to be long winded with everything as my thoughts continue to evolve.

Thoughts, feelings, stupid, not stupid, better advice?

Thanks in advance.
Old 01-06-2013, 08:03 PM
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Harmless Drudge Harmless Drudge is offline
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If I were you, instead of liquidating the 401(k), I would simply put the money that you have been contributing to the 401(k) toward rural land and improvements on that land instead. Build a small cottage for cash, and then assess what your equity position is in your current liability of a house. That's what I would do.
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Old 01-06-2013, 08:09 PM
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Consider this.... assume that the price of land is the best it is going to be unless the economy suddenly slides further and the land prices adjust to it. With this assumption if you wait until you are right side up in your house the economy may rebound and the price of the land may adjust upward. If that happens your net gain is not positive.

So... if the land and home you will build is worth equal to or MORE than what your situation is now you may come out on the positive end and be no worse off than you are now. If the land and home you will get is LESS than your current situation you may lose money but at least you will have more to pay off the difference.
Old 01-06-2013, 08:12 PM
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Quote:
Originally Posted by Harmless Drudge View Post
If I were you, instead of liquidating the 401(k), I would simply put the money that you have been contributing to the 401(k) toward rural land and improvements on that land instead. Build a small cottage for cash, and then assess what your equity position is in your current liability of a house. That's what I would do.
This is good advice as long as the money you put into the property will either enable you to sell it sooner or you will get your money back out. The shed mentioned is probably good yet finishing a basement (an example, yours if finished, right?) generally doesn't pay back. A GOOD and QUALIFIED realtor can help you decided which improvements are worth it and which are not.
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Old 01-06-2013, 08:28 PM
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have you thought about renting out your current house? you may not get the full mortgage payments on it, but you may get most of it and that payment can free up some liquidity for you to do what you want on the land.

Plus the best part is you still own your current house and will be having somebody else build up some equity for you.
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Old 01-06-2013, 08:45 PM
NotARoleModel NotARoleModel is offline
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DO NOT spend money "finishing the basement". You are throwing good money after bad. The LAST thing you do on a house underwater is try to "improve" it. Fix whatever NEEDS to be fixed to pass your basic home inspection but that is IT. Putting lipstick on a pig doesn't change the FACT that it's STILL a pig.

You will NEVER get the $30K back out even in the BEST of times because you are refinishing it under your parameters. Potential buyers may hate it. Too much of a crap shoot. What if you set it up for a home theatre or playroom and they wanted a 4th basement or inlaw quarters? You just don't know. You might as well set fire to that $30k at least you'll get a couple minutes of warmth. EVEN if you could prove that the $30k will get you $30k of value what kind of math is that? And guaranteed it won't. Ask any HONEST real estate appraiser around and you will see.

I would put it up for sale at the mortgage balance amount or close. WHY pay down anything right now if you don't have to? IF you have to bring the $30K to settlement (and that's your choice) do it then NOT first. You are putting too many carts before the horse. You are reacting instead of being PRO-active.

Don't withdraw ANY money until you have a sale. Then you will know EXACTLY how much to bring to settlement if any. You will have at least 45 days to get the money ... it only takes a week usually if that. At this point today YOU DON'T KNOW how much you will need.

Take the $30k you were going to blow "fixing up" the house and use it for the new property.

Next the inlaws. You better be DAMN sure what you are getting yourself into. Both you and "the wife" and YOU individually. Because if (I'm sorry) WHEN there are disagreements about the "joint" property of any kind I hope you know that it will be THREE against ONE. Guess who the "ONE" is? Hint: Look in the nearest mirror. IF you and your wife divorce (50% do so don't take it personally) YOU will be screwed worse than a "normal" divorce. How about if one or both of the inlaws age and have to go to assisted living or a home? How will that work if you "all" own the property? State doesn't care all they want is money. How about if one of you runs over a kid and they sue for millions? Lawyers don't care all they want is the money. You ALL better get some VERY good legal advice before taking this on. And you BETTER have an exit plan in advance if either you two OR your inlaws decide in a couple of years they want out. Or there is a divorce.

If I were YOU I'd think twice about the whole thing. Your wife is STILL their "little girl" ..... and it WILL be 3 against 1 every time. About kids, pets, mowing the lawn, chopping wood, playing music WHATEVER. They will be in YOUR BUSINESS constantly. For better or worse usually worse. It all looks good on TV ... real life is WAAAAAAYYYYYYYY different.

This has all the markings of an unmitigated disaster. I understand that you and your wife see a "way out" of your predicament .... but there are other ways other than her moving back home and taking you with her. Because that is what she is doing ..... most likely from a good place in her head but moving home nonetheless.

THINK it over.
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Old 01-06-2013, 08:54 PM
NotARoleModel NotARoleModel is offline
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Quote:
Originally Posted by Castor View Post
have you thought about renting out your current house? you may not get the full mortgage payments on it, but you may get most of it and that payment can free up some liquidity for you to do what you want on the land.

Plus the best part is you still own your current house and will be having somebody else build up some equity for you.
To expand on this rental thought how about a lease purchase deal with say a 2 yr or 3 yr buyout? The market may come back or even if you retrace 50% of your $30K underwater amount you are better off. Plus you have "tenants" that have a vested interest in taking care of the house.

This is all predicated on the thought that you could get enough rent to cover the mortgage/taxes/insurance.
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Old 01-07-2013, 12:24 PM
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I agree with NotARoleModle 100%. Only thing i could add is if you do buy the land with the in-laws, that you should devide it into seperate tracts and deed each tract. We are in the process of buying 57 acres with a buddy and his wife, and that is what we are doing, we will each have our "own" land deeded as such and then a common part that we will all still own. That way you can pay your own taxes and they can too. saves a lot of headaches!
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Old 01-07-2013, 12:44 PM
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Quote:
Originally Posted by haligan78 View Post
The whole time we have each been contributing 10% of our income to our 401K accounts.
Assuming you work for someone else, what percentage is your employer matching on your 401K? I would look at how much extra I had after reducing to the match percentage (which a lot of financial advisers say not to go over anyway) and use the additional to pay down the mortgage.

The caveat to improving the basement is it may not increase the value of your property. At least in some areas you cannot list below ground rooms as a part of the house. Say you have 2 bedrooms 2 1/2 baths upstairs, and when finished an additional 2 bedrooms and a bathroom downstairs, you could still only list the house as a 2 bedroom 2 1/2 bath. While a finished basement would still contribute to increasing the value, it will likely be less than what you had to put into it.
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Old 01-07-2013, 12:52 PM
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NO!

Keep your 401K. It is protected from creditors in almost all cases.
Old 01-07-2013, 12:55 PM
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As already said. Don't put another dime in the home other than required repairs to sell. Look at a short sale if needed. Save your money to put into the new place.

Rental is a good option depending on what you can get for the place. If nothing else it will allow you to buy the new place/get a good loan rate, and then you can later short sell the rental if it is costing you too much a month in losses.
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Old 01-07-2013, 12:57 PM
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Finishing the basement should cost about 3K at best if you do the work yourself, but I wouldn't even do that, it won't increase the value but it MIGHT make it an easier sell, maybe.
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Old 01-07-2013, 01:32 PM
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Quote:
Originally Posted by Castor View Post
have you thought about renting out your current house? you may not get the full mortgage payments on it, but you may get most of it and that payment can free up some liquidity for you to do what you want on the land.

Plus the best part is you still own your current house and will be having somebody else build up some equity for you.
When my father and I got into the rental business many years ago our goals was not to make a bunch of monthly profit because we knew the layer of units that you buy to do this comes with a bunch of problems. We were looking to make "just enough" money on a yearly basis to cover repairs and improvements and allow us to purchase more units. We went for stability. Our goals was what Castor mentioned and that was someone else is paying off your mortgage. Eventually in these units (some homes, some 4-plexes) a renter would want to buy the house and if the time was right we would help them out. Other times they would end the lease but the house would be in good shape, not like the cheap rental units that are rented to animals.
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Old 01-07-2013, 01:35 PM
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NotARoleModel offers some good advice. If possible buy a parcel of land as one then immediately split it into two deeds. That gives you more rights than if you even legally share things.
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Old 01-07-2013, 01:35 PM
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Quote:
Originally Posted by Odieds69 View Post
I agree with NotARoleModle 100%. Only thing i could add is if you do buy the land with the in-laws, that you should devide it into seperate tracts and deed each tract. We are in the process of buying 57 acres with a buddy and his wife, and that is what we are doing, we will each have our "own" land deeded as such and then a common part that we will all still own. That way you can pay your own taxes and they can too. saves a lot of headaches!
Well crap if I would have read yours I could have skipped typing mine.
Old 01-07-2013, 01:38 PM
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Usually if a Realtor wants you to finish the basement the most they suggest it to frame and drywall it. Nothing else. However most say "Clean out the basement so it appears as large as possible and allows the buyer to imagine what it COULD be".
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Old 01-07-2013, 01:53 PM
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ask the bank to forgive some of the mortgage. I did and without any fight, they forgave almost $70k and reduced my interest down to 2%. was never late on a payment or anything either. Only thing is I had to agree to keep the house for 3 years min. at the new rate, I can rent it out for the next 3 years and sell the house without forking over a large chunk of cash. does not hurt to ask.

either way, I would look at a 401k loan. You might me able to withdraw for a home without penalty. But I would not recommend just pulling out and taking the hit. that is a lot of $$$$ to be losing.
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Old 01-07-2013, 02:18 PM
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Quote:
Originally Posted by hardpike View Post
ask the bank to forgive some of the mortgage. I did and without any fight, they forgave almost $70k and reduced my interest down to 2%. was never late on a payment or anything either. Only thing is I had to agree to keep the house for 3 years min. at the new rate, I can rent it out for the next 3 years and sell the house without forking over a large chunk of cash. does not hurt to ask.

either way, I would look at a 401k loan. You might me able to withdraw for a home without penalty. But I would not recommend just pulling out and taking the hit. that is a lot of $$$$ to be losing.
What was the conversation like when you called them? Not doubting you at all but I am wondering why the bank would do that for you?
Old 01-07-2013, 02:25 PM
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I didn't read all the previous replies to this thread, so I apologize if this has already been mentioned.

You can borrow against both of yoru 401ks for house purchases, without penalty. I know this, because my wife and I just did the very same thing.

You'll have to read the details but I believe the limit (our at least our limit) was we couldn't borrow more than 50% of what we contributed. So, matched funds are off limits. The loan you repay to yourself with reasonable interest.

Look into it, as it's something to consider.
Old 01-07-2013, 02:45 PM
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Quote:
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What was the conversation like when you called them? Not doubting you at all but I am wondering why the bank would do that for you?
they called me. My payment was due on the 1st which was a Sunday. i was going to make my payment on the 2nd when I got in the office. they called before I got in. I was a little anoid by the call, so I told them screw it. come get the house, I am upside down anyhow and nobody there cares to help me out. (original loan was tat 8.5% for 40 years). They asked what they can do to help, I said drop my interest rate so I can afford to eat again. within 3 weeks, I got the refy paperwork. They were not part of the H.A.R.P program, but they were copying it. Maybe I just got lucky, who knows. All i originally wanted was a interest rate reduction. I went for $1800/month less escrow to $1250/ month with escrow.
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