"Her property is underwater by 300K. Mine is about 250K. Neither of us are wealthy..."
I realize that "wealthy" is a hopelessly vague relative term, but unless your houses are literally worth $0 now to put you $550K underwater, most people would consider you wealthy to have bought them in the first place.
Hello, jdminhbg. It's an interesting point that you make, but here is the real situation with my girlfriend. Do you still think that she is considered wealthy?
- She has been employed as a licensed clinical social worker for 11 years with a county in california.
- She owned a condo for 3 years, sold it, made 100K profit.
- She used that 100K as a down payment on her current home.
- She bought the home for 500K, 400K 30 yr fixed mortgage.
- She bought the home 6 years ago.
- Today, she owes $370K, and the BPO of the home is 170K. This is commensurate with other homes in the area.
- She has 30K in the bank and a pension plan with the state of California.
She is still employed with the county, but they are pursuing layoffs in social services. Her job is at risk. Technically, she is insolvent, as the 300K owed is greater than the 30K she has in the bank. Her retirement pension doesn't count towards solvency.
So a set of circumstances where she used the profits from one investment, and placed all of those profits in another investment to buy a nicer home for herself has turned sour. Her salary let her afford the 400K mortgage, but she wasn't able to save or invest in other items.
She didn't have tremendous wealth, but she did have skills and a job that would allow her to continue payments against a loan, at the cost of not being able to afford any other investments.
When this is all done, she'll have 40K in the bank from saved mortgage payments, a pension, her job (hopefully), and bad credit.
If she can afford payments on a $400k mortgage (around $3k/month or so?), then yes, she is (or was) wealthy by the standards of the vast majority of America.
Unless she was making north of 100k yearly that is an excessive amount of debt to take on. If instead she would have bought a less expensive house she would be in a much better position today.
Her mortgage payments + real estate tax were amounting to 38% of her gross income when she first took the mortgage. Experts and mortgage companies now agree that real estate payments greater than 31.1% should be avoided at all costs.
She's a social worker, not comfortable with finance. She had little desire for other life comforts other than a home. She sat down, realized that she could make the monthly payments, and thought it was safe since the market continuously kept going up.
If someone had been there to tell her that the home purchase was too high given her salary, she would have thought differently.
I realize that "wealthy" is a hopelessly vague relative term, but unless your houses are literally worth $0 now to put you $550K underwater, most people would consider you wealthy to have bought them in the first place.