- The Washington Times - Friday, February 21, 2003

Q: We have lived in our town house 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 for two years, not to mention other late bills, so our credit is not perfect.

We bought the house for $208,000. The balance is $187,000, and we live about 10 miles from the District. The house is 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 and then sell, or is it OK to sell now? How hard would it be to find someone to give us a loan? (We have never filed bankruptcy.) Our debt totals about $60,000 (mostly for college loans for our children). Consolidation is not an option. We applied for a home equity loan but were turned down. Help. K.

A: I'll give you an answer, but you might not like it. Many times loss of jobs, sickness, easy credit or just plain bad money management gets us into dire financial straits.

I can only give you options. Don't make a move with these ideas until you have 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 town house. Here are the facts as you have laid them out to me:

• Home value: $350,000

• Mortgage 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 and closing costs 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 have 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 and commissions are $24,500 (7 percent). 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 farther away from where you're located.

The area where you live now is expensive. If you want to stay in the same location, you must reduce the size of your house. Farther out 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 percent 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, look closer in but you need to get your living style down to your financial realities. In most major metropolitan areas like Washington, that means moving farther out.

Best of luck. 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.

M. Anthony Carr has written about the real estate industry for more than 14 years. Reach him by e-mail ([email protected]).

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