A HOMEOWNER’S dream home turned out to be a nightmare mortgage situation.
He and his wife spent too much on a $680,000 home, leaving them feeling trapped.
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Abraham, of Fort Collins, Colorado – located 60 miles north of Denver – called to the Dave Ramsey Show for advice on how to proceed with your mortgage.
At the episodehe explained the situation to financial experts Ken Coleman and Rachel Cruze.
“We are upside down when it comes to the amount of housing we have,” Abraham began.
He explained that he and his wife bought their first home about six years ago for $230,000 and sold it for $315,000.
They then bought a house for $439,000 and sold it for $495,000 two years later.
Their third and current home was their dream property, which cost $680,000 and came with land.
Abraham explained that he “did a no-no” and took money from his 401k penalty-free during the pandemic and used that to put toward his down payment.
He said the mortgage represented 48% of their $125,000 household income and it has been a struggle the past two years they have lived in the house with their three children.
The caller also noted that they had $3,000 in credit card debt, as well as a $500 monthly payment on his $40,000 truck, for which he still owed $33,000.
Abraham asked the financial professionals whether they should sell the house for about $850,000 or remodel it, taking on even more credit card debt but selling it for $950,000 within a year.
PROFESSIONAL ADVICE
The co-hosts advised Abraham against making the renovations, warning him that it would increase debt and stress and would likely take longer than expected.
“This thing that we thought was a blessing ends up being the biggest burden for you and your wife,” Cruze said, explaining that this happens to a lot of people.
She suggested that Abraham sell his house and instead find one that only represents 25% of his take-home pay.
Experts also advised Abraham to sell his truck and use his work vehicle, using the proceeds to pay off his credit card debt.
After he paid off his truck and credit card debt, they calculated that Abraham would save $580 a month, totaling more than $6,000 in annual savings.
Next, he should work to create an emergency fund.
COMMISSION COSTS
Here’s what Joy Dumandan, consumer editor at The US Sun, had to say…
The dream of becoming a homeowner comes with a price.
There are unexpected costs associated with buying a home. It is better to save for additional expenses.
The biggest upfront fees are closing costs.
These are fees you must pay at the closing of your home, when the title to the property is transferred from the seller to the buyer.
The commission earned varies from state to state.
Expensive payment
A recent $418 million settlement with the National Association of Realtors (NAR) is changing Realtor commission rates.
The lawsuit alleges that the real estate industry conspired to keep broker commissions at around 5% to 6% of the home’s price.
Plaintiffs in the suit argued that commission rates advertised on a multiple listing service (MLS), a database used by agents to find homes for clients, allowed real estate agents to prioritize homes with higher rates.
Home sellers may not be aware that they could negotiate buyer’s agent compensation, which appears in the MLS, with the listing agent.
NAR did not admit any wrongdoing, but agreed to change its guidelines to make commission rates more transparent to consumers.
This could result in rates dropping 1% to 2% for home buyers and sellers.
Who pays the commission?
The seller pays the full commission at closing, but it is usually included in the price of the home.
So, for example, if a commission is 6% on a $300,000 home, that would equal $18,000, which is split between the buyer’s and seller’s agents.
A buyer may offer to pay some of the real estate agent’s fees. This strategy can be used to convince a seller to accept a buyer’s offer.
It is important to know your rights, which will be spelled out in the real estate agent contract when you sign to hire a real estate agent.
Experts were sympathetic to the undesirable prospect of selling his dream home and truck, but noted that Abraham might consider purchasing land or a truck in the future when he could afford it.
“This whole thing about being debt free and having a solid foundation doesn’t mean you can never enjoy things or go back to the dreams you had,” Cruze said.
Many other homeowners have struggled with their mortgage payments.
One saw her mortgage increase by $400 – she is “really upset” that no one told her about the hidden fees and now feels trapped in her home.
Another homeowner felt stuck on her mortgage after her ex-husband stopped paying – all because she signed off on the divorce.
This story originally appeared on The-sun.com read the full story
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