Right decision...financially?

[swhite005hb]

We bought our first home in 2005 in a location we could afford, not a location we wanted to live in forever. We thought we could make some quick equity to put towards another house where we wanted to be. We are about 30 miles from where we want to live, but in California, that equals about an hour of driving plus tolls almost everyday. We were convinced that foreclosure was the answer, but we went over our finances and now were not sure.
We haven't missed or been late on a payment. We "save" approx $1348 per month if you factor in the huge tax return we receive for writing off all the mortgage interest, property taxes, etc. We only see approx $575 of this each month since the tax return doesn't come until the end of the year. We have been living paycheck to paycheck since the purchase because something financially always comes up with home ownership. We have an 80/20 and both loans are interest only for another year and a half.
If we rent, we would be saving $1857 per month, which we would see immediately because we wouldn't need to wait for the tax return.
Is the amount we save each month plus the tax return worth waiting out the real estate market? Our thoughts are that based on 7 years (amount of time foreclosure is on credit report) we could rent and save money to put towards a house where we want to live, and by then well have a good idea as to the direction the real estate market is heading...versus holding onto this property and hopefully breaking even one day when the market comes back around, but not being able to save any significant amount of money in the mean time.
One thing is true, I'll never recommend someone buy their first home as an investment...

[Randyp79]

swhite005hb,

First, you need to contact your employer immediately and request to change your W-4. You never want to get back a large tax return. If you are getting large tax returns it means that you are paying in too much taxes throughout the year and the government is simply refunding the surplus without paying you any intrest. Wouldn't you rather have the money in hand to invest where you could at least earn a little return. Anyway, you definately need to change your W-4.

Second, you need to contact you bank today to see about doing a loan modification on the 1st mortgage. I wasn't behind at all and contacted my 1st mortgage company (Aurora) 4 months before my loan was scheduled to reset to see about a loan mod. They sent me a financial packet to fill out, and I completed the packet, sent it in, and 30 days later they fully amoritized the loan at 5%. My payment still went up $150 becuase I was previously only paying intrest. But this was still affordable. Anyway, its never to early to contact the bank about a loan mod. They may be willing to work with you.

All of this hardwork didn't matter though. Out of the 24 homes in our neighborhood 14 were in some stage of foreclosure and vacant. The place was out of control and unsafe. Our home was broken into twice. Once when my wife and I were at the movies and a second time when we went home for Christmas. Needless to say we no longer felt safe there so we walked.