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Hi this is my first time asking a question here. I hope you all can help.

My husband and I bought our 1st home in 2002 in southern california for $155,000. In 2006 we took a 2nd mortgage to landscape our backyard and do some improvements. The second was orignally for $46,000 at 6.75%. We currently owe $149,000 on our first and $40,000 on our second. We are finacially stable and pay our bills every month without fail.
We have extra money every month and feel we can defintely afford a larger mortgage payment on a new home. We both have well over 800 FICO scores. Our problem is we didn't realize it when we purchased our house but we are in a horrible school district and our oldest are about to start school in a year. We had another baby late last year and need more space. Comparable homes in our neighborhood are selling for around $140,000-$150,000, they are all either short sales or bank owned. We would like to get out of our current home but don't want to do a short sale as we feel we made a commitment to the banks when we took out our loans and fully intend to pay them back. Right now we have close to $20,000 in savings, but I feel it would be unwise to plunk it all down towards the 2nd mortgage to pay it down with a large lump sum. We've met with a few realtors and they feel that we could list our house for the approximately $190,000 we owe but would only get offers for around $175,00 at the best. How should we deal with paying down the 2nd mortgage as fast as possible so we could sell it. We really don't care at this point if we make any profit at all we just want to get out of this neighborhood and into a better school district for our kids.

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Also, our payment on the 2nd is $352.00 per month. Right now only around $116.00 is going toward principal.

jenkin7 · Posted: Fri Mar 12, 2010 9:47 pm Post subject:

Hi jnbmom,

With the way the real estate market is, it is unlikely that the sales price of your property will cover both the first and the second mortgage. Especially when the comparables are selling for less than their actual value, it is understandable that there will be deficiency from the sale of your property. If you want to pay off the loans in full, you will have to come up with some money from your savings to cover the deficiency. This would not be a wise thing to do in my opinion. Moreover, if you short sell the property or go for a deed in lieu of foreclosure, it will affect your credit negatively and it will be difficult for you to qualify for a new mortgage.

I think if you can use the extra money you save each month to pay off the second mortgage faster. The extra money you pay will be applied towards the principal and it will reduce the balance of the loan quickly. In the mean time, the real estate market will recover a bit and you can expect to get a better price when you sell the home.

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Getting out from under a 2nd mortgage