Getting Out Of Debt In January 2013! - Page 3 - Mothering Forums

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Old 01-15-2013, 05:39 AM
 
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I hope it's okay to pop in with some questions for the Dave Ramsey followers..

 

With regard to the 3-6 months worth of expenses, what exactly is that for? Is it for when you are suddenly out of a job?

My questions are:

What if you have $ sitting in your leave pay (for us, this is payable upon being made redundant or leaving on your own accord)?

What if you have salary continuance insurance set up.. Do you still need to save those 3-6 months worth?

 

TIA! biggrinbounce.gif
 


The 3 to 6 months, or 8 months income equivalent if you listen to Suzy Orman, or one full year according to others, is just a general rubric about how much to aim for in cash accounts to help you through an emergency when one should arise.  The emergency could be anything:  a period of unemployment (the average length of which is longer now than it used to be), a major car repair, a large medical bill, a short or longer term disability, funeral expenses, etc.  Homeowners may want a larger cushion than renters.   In the northeast this year, many people missed one or even two weeks of paid work due to the impact of the hurricane.  For many Americans, missing even a couple of days work creates a financial crisis because they don't have a cushion.  On the other hand, too much cash sitting in a bank account isn't working for you in terms of earning interest.  In general, you have to look at your own life to decide what your goal is.  For me, as a single mother with no prospect of any one else to pitch in if I should have an emergency, I am shooting for a solid year of basic expenses before I meet other goals:  that is about 25000 and I am almost half way there.  If I didn't have any children, I wouldn't be so concerned.  I would imagine that if a person knows that their health is questionable, they might go for more as protection against disability.  A single young person living with a parent would have very different concerns and may only need a few months. 

 

The other part of this equation is insurance, which can protect against many of the same things as an emergency fund.  Disability insurance, life insurance, health insurance, home and property insurance, renter's insurance, ynemployment insurance, etc.  These all cost money but provide different kinds of protection.   I think these things can be factored in to an emergency fund when you are planning, as can banked sick days, etc.  But, really, the whole point of the emergency fund is that you need to keep adding to it as your expenses and your income increase.  The percentage of what you save or invest may change, but you should plan on saving money in some form for all of your life to ensure your security and possibly that of your descendents. 

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Old 01-15-2013, 05:55 AM
 
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The 3 to 6 months, or 8 months income equivalent if you listen to Suzy Orman, or one full year according to others, is just a general rubric about how much to aim for in cash accounts to help you through an emergency when one should arise.  The emergency could be anything:  a period of unemployment (the average length of which is longer now than it used to be), a major car repair, a large medical bill, a short or longer term disability, funeral expenses, etc.  Homeowners may want a larger cushion than renters.   In the northeast this year, many people missed one or even two weeks of paid work due to the impact of the hurricane.  For many Americans, missing even a couple of days work creates a financial crisis because they don't have a cushion.  On the other hand, too much cash sitting in a bank account isn't working for you in terms of earning interest.  In general, you have to look at your own life to decide what your goal is.  For me, as a single mother with no prospect of any one else to pitch in if I should have an emergency, I am shooting for a solid year of basic expenses before I meet other goals:  that is about 25000 and I am almost half way there.  If I didn't have any children, I wouldn't be so concerned.  I would imagine that if a person knows that their health is questionable, they might go for more as protection against disability.  A single young person living with a parent would have very different concerns and may only need a few months. 

 

The other part of this equation is insurance, which can protect against many of the same things as an emergency fund.  Disability insurance, life insurance, health insurance, home and property insurance, renter's insurance, ynemployment insurance, etc.  These all cost money but provide different kinds of protection.   I think these things can be factored in to an emergency fund when you are planning, as can banked sick days, etc.  But, really, the whole point of the emergency fund is that you need to keep adding to it as your expenses and your income increase.  The percentage of what you save or invest may change, but you should plan on saving money in some form for all of your life to ensure your security and possibly that of your descendents. 

 

Thank you for such a thorough and well thought out reply EmsMom. flowersforyou.gif

 

I like the idea of having 12 months worth of expenses covered. thumb.gif


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Old 01-15-2013, 10:42 AM
 
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Thank you for such a thorough and well thought out reply EmsMom. flowersforyou.gif

 

I like the idea of having 12 months worth of expenses covered. thumb.gif


LoveOurBabies, I agree with the previous poster about having 3-6, or 8 months, or a year of expenses based on your personal situation. Since I own a home, at least 6 months is what I am going to shoot for in case I or my DH lose a job, the roof needs repair, the furnace goes out, some major disaster comes through town and our home is destroyed (need the cash in savings while insurance companies get their adjustors out to assess damage and pay claims). Things like that are important.  I am still back at the get $1000 in the bank since we had some car repair that came up out of the blue, but DH and I are hoping to get that taken care of in the next month or so and get back on our paying off debt snowball.


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Old 01-15-2013, 05:48 PM
 
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I just realized that since starting my total money makeover I have taken out a $5000 loan to buy an RV, paid off a credit card (actually two but the following week my transmission went out and had to recharge another $4k) and now I'm buying a $269k house by borrowing more money. Despite sounding like I'm actually getting deeper in the hole I actually feel like I am getting somewhere. Weird, huh?

 

If you didn't figure it out from that last statement, we did finally get an accepted offer on a house today. We originally wanted a $250k house and we are ending up with a $269k house so I'm pretty happy with that. DH is going to look at it Friday to finalize the deal. He hasn't seen it yet but I think it's a really good property for us.

 

and now, for some dancing vegetables!

 

 

 

 

broc1.gif carrot.gif broc1.gif carrot.gif


that is awesome! congratulations!!!

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Old 01-15-2013, 05:50 PM
 
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WRT saving the emergency fund, what about using the money that would normally be saved in other envelopes? should we stop saving into clothes, haircuts, car maintenance, etc and put that money into the EF to get to $1000 faster?

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Old 01-16-2013, 06:56 AM
 
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 I am new to DR -so somebody jump in and correct me but, I would think that you would keep saving for these items; car maintenance etc. These are expenses that you know are going to occur at some point down the road - so budget for them.

Otherwise, if you don't maintain your car, it will break and then you will need to dip into your EF.

 

But I don't really know, I only have $2 in my EF at the moment. I think DR's goal of getting $500-$1,000 EF in 30 days time is unrealistic. At least for me it is.


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Old 01-16-2013, 07:22 AM
 
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WRT saving the emergency fund, what about using the money that would normally be saved in other envelopes? should we stop saving into clothes, haircuts, car maintenance, etc and put that money into the EF to get to $1000 faster?

 



Personally, if it is a matter of 3-6 mths, I would stop saving money for clothes, haircuts etc. and even car maintenance if your car is running well. I suppose its similar to snow balling; put the majority of extra money towards EF, then spread it out. Perhaps allocate 5%-20% towards a kitty, so you have some cash that can go towards car maintenance, hair etc w/out dipping into EF. 


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Old 01-16-2013, 09:42 AM
 
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It is officialpartytime.gif PAID OFF OUR FINAL CREDIT CARD FROM CHRISTMAS EXPENSES!!!! Yahoo!  broc1.gifcarrot.gif

I'm so proud of the hard work and dedication that we have put into this!  Let me begin by saying that this is the THIRD time that we have found ourselves into and out of CC debt!  After the 2nd time I never thought it would happen again!  Then we bought a house, and well we had multiple things that cost us!  It has been a daunting task!  At times I wasn't sure we would find our way out!  I have learned so much about myself and my own personal spending habits through this process!  This is the first time that we used DR's method and we have had many bumps along the way. 

 

Now as we proceed with DR's steps, next in line is to pay off vehicles, right?  We have one that is almost paid off (if I snowball it, it will be paid off in about 2 months) and the other vehicle is on a 0% interest loan.  So do I really have to payoff both vehicles before I start to really save?  I'm inclined to payoff first vehicle and split the snowball amount in half to payoff car faster and to begin save 3-6 months of expenses and start funding Roth IRA's for both of us.  Looking for some guidance on this as I'm feeling a bit torn!


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Old 01-16-2013, 09:48 AM
 
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It is officialpartytime.gif PAID OFF OUR FINAL CREDIT CARD FROM CHRISTMAS EXPENSES!!!! Yahoo!  broc1.gifcarrot.gif

I'm so proud of the hard work and dedication that we have put into this!  Let me begin by saying that this is the THIRD time that we have found ourselves into and out of CC debt!  After the 2nd time I never thought it would happen again!  Then we bought a house, and well we had multiple things that cost us!  It has been a daunting task!  At times I wasn't sure we would find our way out!  I have learned so much about myself and my own personal spending habits through this process!  This is the first time that we used DR's method and we have had many bumps along the way. 

 

Now as we proceed with DR's steps, next in line is to pay off vehicles, right?  We have one that is almost paid off (if I snowball it, it will be paid off in about 2 months) and the other vehicle is on a 0% interest loan.  So do I really have to payoff both vehicles before I start to really save?  I'm inclined to payoff first vehicle and split the snowball amount in half to payoff car faster and to begin save 3-6 months of expenses and start funding Roth IRA's for both of us.  Looking for some guidance on this as I'm feeling a bit torn!

Congratulations! That is so awesome and really inspiring!!!

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Old 01-16-2013, 01:35 PM
 
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Cookiepie - Congratulations!  I think if a loan is not costing you more $$ then the principle, then its ok to make the monthly payments on it and work at other items on your list (Not sure what DR recommends, but thats how I view 0% interest;))


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Old 01-16-2013, 03:53 PM
 
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I just realized that since starting my total money makeover I have taken out a $5000 loan to buy an RV, paid off a credit card (actually two but the following week my transmission went out and had to recharge another $4k) and now I'm buying a $269k house by borrowing more money. Despite sounding like I'm actually getting deeper in the hole I actually feel like I am getting somewhere. Weird, huh?

 

If you didn't figure it out from that last statement, we did finally get an accepted offer on a house today. We originally wanted a $250k house and we are ending up with a $269k house so I'm pretty happy with that. DH is going to look at it Friday to finalize the deal. He hasn't seen it yet but I think it's a really good property for us.

 

and now, for some dancing vegetables!

 

 

 

 

broc1.gif carrot.gif broc1.gif carrot.gif


That is awesome!  Congratulations!


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Old 01-16-2013, 05:02 PM
 
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Here's a question for y'all..if you have multiple savings accounts for different things do you count them all as your Efund or do you do it separate? For example our savings, the kids savings and our "Christmas fund" are all separate from our emergency fund but technically we could borrow from those funds any time. So if you had $1000 spread across these accounts would you move on to baby step 2? Or would you wait until you have $1000 in a dedicated Efund account?


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Old 01-16-2013, 05:34 PM
 
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I hope it's okay to pop in with some questions for the Dave Ramsey followers..

 

With regard to the 3-6 months worth of expenses, what exactly is that for? Is it for when you are suddenly out of a job?

My questions are:

What if you have $ sitting in your leave pay (for us, this is payable upon being made redundant or leaving on your own accord)?

What if you have salary continuance insurance set up.. Do you still need to save those 3-6 months worth?

 

TIA! biggrinbounce.gif
 


Hi, have been following this thread, but haven't posted yet. I am not sure exactly how leave pay and the insurance you mention works, but it sounds like if your concern was being laid off, that would take care of it. We keep a larger amount in an "untouchable" savings account for emergencies like major illness (although we do have health insurance, I work freelance, so a longer illness would cut our income; knock on wood, DH has a pretty secure job), car dying completely and needing to be replaced quickly, etc. We keep a smaller amount in a savings account attached to our checking for low months and non-regular but more frequent expenses like vacation, some medical stuff (downpayment on braces), car repairs, etc.


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Old 01-16-2013, 06:02 PM
 
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Here's a question for y'all..if you have multiple savings accounts for different things do you count them all as your Efund or do you do it separate? For example our savings, the kids savings and our "Christmas fund" are all separate from our emergency fund but technically we could borrow from those funds any time. So if you had $1000 spread across these accounts would you move on to baby step 2? Or would you wait until you have $1000 in a dedicated Efund account?
l
If you had an emergency such as needing 2 new tires immediately would you borrow from the kids or your Christmas fund? Maybe not a big deall on January 16 since you have time to build it back up but what if it was December 13th? Personally, I would put $1000 in a separate account and not touch it. You will probably never regret having that cushion when something happens.
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Old 01-16-2013, 08:54 PM
 
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i agree that EF should be kept separate and used ONLY for emergencies. otherwise you may find yourself dipping into EF for xmas etc. i have personally been trying to budget car expenses, gifts etc into monthly budget so there is always som e cash available when something like that sneaks up on me smile.gif
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Old 01-17-2013, 04:05 AM
 
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 I am new to DR -so somebody jump in and correct me but, I would think that you would keep saving for these items; car maintenance etc. These are expenses that you know are going to occur at some point down the road - so budget for them.

Otherwise, if you don't maintain your car, it will break and then you will need to dip into your EF.

 

But I don't really know, I only have $2 in my EF at the moment. I think DR's goal of getting $500-$1,000 EF in 30 days time is unrealistic. At least for me it is.


Orangemomma, I know the only way we got our $1000 was from our tax return last year and we were 7 weeks into DR.  Unlike many people, we didn't have an "toys" to amputate, no coffee habit or eating out habit to break, or some other "easy money" way to save for our EF that so many "financial gurus" suggest.  Keep plugging away at your 50 cents a week and build up your EF over time. Every little bit will help, even it if it is small, to get you to your goal.


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Old 01-17-2013, 04:06 AM
 
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It is officialpartytime.gif PAID OFF OUR FINAL CREDIT CARD FROM CHRISTMAS EXPENSES!!!! Yahoo!  broc1.gifcarrot.gif

That is awesome, CookiePie!


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Old 01-17-2013, 04:08 AM
 
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Here's a question for y'all..if you have multiple savings accounts for different things do you count them all as your Efund or do you do it separate? For example our savings, the kids savings and our "Christmas fund" are all separate from our emergency fund but technically we could borrow from those funds any time. So if you had $1000 spread across these accounts would you move on to baby step 2? Or would you wait until you have $1000 in a dedicated Efund account?


I have it as a separate savings account for the $1000 part of my EF and then my other line item saving accounts for my other "know their coming and better save a little along the way" kind of bills.


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Old 01-17-2013, 04:48 AM
 
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I have my EF fund as a separate account. It has grown and I still add to it but  I do not want to ever touch it, so I have a second account that I am working on. Its for predictable "emergencies" and wants - car maintenance, travel, big ticket items for myself&home (new camera, furniture, etc); although I have an idea of how much I need for each item / year, the money is grouped together and can easily be used for what ever comes up. (I got tired of micro managing every penny); I have another account for home maintenance and renos. I also wont mind drawing from this to cover a different expense if that happens. But the EF, I dont want to touch.


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Old 01-17-2013, 08:39 AM
 
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Congratulations Cookie Pie! What a great feeling!

 

lilacvioletiris - how did the first session go of the DR group  that you attended last week?

 

I am going to have to go slow and steady wins the race with the EF because that's all I can do! This is my 4th month doing DR and I have $2 in my fund. (I am keeping track of the 50 cents per week and will deposit the whole month's worth next time I am paid)  I've had more at various times over the past few months but had to drain it to keep current on my bills. My tax return will be taken to pay back taxes. We have one toy - a car with an upside down loan on it. It's not in my name though and I can't convince my SO to sell it. I am still waiting to hear from my boss about whether or not I can get a few more hours each week.

 

Sometime in the next few days, I am going to drop one line off my cell phone plan - it's no longer under contract and it's not needed. That should save another $10-12 per month.


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Old 01-17-2013, 09:11 AM
 
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Thanks everyone!  It does feel amazing!! Now all I can think about is what to do next, more toward mortgage & set up Roth IRAs, Dh start contributing to his 4O1K again, all while simultaneously saving 3-6 month EF....Seems to make the most sense to me.  Because they are all important but it is not baby step style alla DR. 

 

I keep trying to figure out if there is a way that I can fully fund a 2012 Roth for myself by the cutoff date of April 15.  Because I understand the sooner that we start the better.  I'm thinking that if we get our taxes done early & continue to pay the car loan minimum that I might be able to do it.  It is something that I have wanted to do for years and I think mentally will give me a feeling of security.  It would  the make us postpone paying off DH's vehicle loan for a couple of months but we can't ever get back the option to start in 2012 after April 15, YK?  THOUGHTS??? 


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Old 01-17-2013, 10:42 AM
 
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There is not a tax advantage for ROTH IRA (from my understanding), so I'm not sure it matters if you put current money into a 2012 ROTH IRA.   The sooner you invest money the better, but you can't "retroact" investment earnings.  If you were putting money into a traditional IRA then you could allocate it to 2012 and then when you do your taxes it will go towards lowering your taxed earnings.


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Old 01-18-2013, 06:37 AM
 
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Yes, Sunrise that is my understanding as well.  However there is a cap of $5000/person/year.  So if I don't start it by April 15 (for 2012) I will miss the opportunity to contribute $5000, I can then contribute another $5000 in 2013.  Make sense?  I just feel since I'm in my mid 30's and have nothing other than my $1000 EF, (DH has a 4O1K)  that I really want something for retirement asap!      


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Old 01-18-2013, 07:24 AM
 
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Ah, I get it, the goal is to have 10,000 in it before the end of 2013. Yes, good idea.  Makes sense.

Roth is good to use as an EF too, since one can withdraw principle without penalty.  I started an ira 2 years ago and I do like the sense of security it gives me and that Im doing something financially responsible!

 

A side note, I did notice in my (traditional) IRA account that I am able to save 5500 in year 2013, so I am assuming the amount has gone up.


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Old 01-18-2013, 09:59 PM - Thread Starter
 
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Cookie Pie you rock! I'm glad I'm not the only one that loves those dancing veggies....

 

 

So after much concideration, I'm pretty sure I'm not going to take the house. I think my realtor must be totally fed up with me. It took us about 45 offers to finally get an accepted one. The problem is that it needs so many repairs. I really don't think I make enough money to pay my mortgage plus take care of all the repairs it needs. What do you wise ladies think I should do?????????????????????


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Old 01-18-2013, 11:17 PM
 
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Unless you have the time, money and knowledge to do a REALLY good job on repairs or the money and connections to hire out, I'd walk.

All houses will have upkeep and money that you need to spend and repairs you need to do as you go, but for every repair you know about or can see, there is probably at least one more you don't know about or have overlooked.

We own two houses. An older house that was an "easy" (floors/paint/fixtures) project that only got "finished" because we were moving and we couldn't sell it so rent it and it's still costing me repair money :S and our 6 year old house that was in "move in condition" and now that we've been in it 6 months or so I'm noticing stuff that needs to be done on top of the few things we knew about the day we moved in wink1.gif

So I wouldn't take on something you know you can't afford to fix already, there will be enough projects in house that doesn't seem to need anything... It will come along!

Before we bought this house we had an offer on another and I didn't see it at first, we put in a super low offer based on my husband and friend seeing it and pictures I had and it was turned down. We walked and when I was able I went and saw it (was 900miles away) and realized how much more work than originally thought and didn't even think about putting in a second offer!

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Old 01-19-2013, 10:39 AM
 
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I did our long term budget today and figured out that we will pay off our CC in August of this year and the van by July 2014..then we will be 100% debt free! Now just to keep on budget, it's a tight one which makes it hard but I so want to be debt free!


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Old 01-19-2013, 10:50 AM
 
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Originally Posted by micah_mae_ View Post

I did our long term budget today and figured out that we will pay off our CC in August of this year and the van by July 2014..then we will be 100% debt free! Now just to keep on budget, it's a tight one which makes it hard but I so want to be debt free!

AWESOME!!

Quote:
Originally Posted by trekkingirl View Post

Cookie Pie you rock! I'm glad I'm not the only one that loves those dancing veggies....

 

 

So after much concideration, I'm pretty sure I'm not going to take the house. I think my realtor must be totally fed up with me. It took us about 45 offers to finally get an accepted one. The problem is that it needs so many repairs. I really don't think I make enough money to pay my mortgage plus take care of all the repairs it needs. What do you wise ladies think I should do?????????????????????

I hate to say it, but I'm thinking "walk" also. If you're going to be that tight or even over on your budget, I think that it would just be way too much stress to go through for years and years.

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Old 01-20-2013, 08:25 AM
 
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Thanks!!!  DH brought home his 4O1K forms and we have to sit down and look at them!!!

 

I realize it is a different market now, than when we purchased our home, but after our home inspection we negotiated the seller fix certain things that the inspector found.  We also got money kicked back to us for a brand new heating system.  We never thought that they'd agree to all of those terms, but they did.  Apparently we were the only offer on this house!   


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Old 01-20-2013, 10:05 AM - Thread Starter
 
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thanks for the responses. here in the bay area there are about 20+ offers per property and it took me about 45 offers to finally get an accepted offer on this property. That's why I am so scared to walk away. The house is owned by fannie may so it's a REO and they won't even replace the cracked windows! So from what I can see it needs a new roof, new windows, a new kitchen, and eventually two new bathrooms. Also they put linoleum over the kitchen and living room floors and you can see the ripple where the two floors used to be divided. So basically they didn't bother to remove the old floor before putting down the linoleum. In the back yard it needs new fence on all three sides plus two sheds removed. Also I lost all my furniture because my storage had a rodent infestation. So I also need all new furniture! Oh and the central heat unit is 20 years old, not sure how long those usually last.

 

and we found signs of rats and possible mold.


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