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" Just a year and a half ago, Jennifer and Jimmy Davis seemed to have it all together. Jimmy, 36, was making a six-figure salary as a heating and air-conditioning salesman; Jennifer, 34, was a stay-at-home mom to their infant daughter, Abby, and was expecting another child. The couple, high school sweethearts who&amp;#039;ve been married for 16 years, had just moved from Baltimore to suburban Pasadena, MD, and into their dream home \u2014 a $495,000, 2,800-square-foot house on a quiet, tree-lined street that&amp;#039;s filled with other young families and close to Jennifer&amp;#039;s family. Jennifer even joined a neighborhood moms group, which offered a sense of community that their old neighborhood lacked. &amp;quot;I was ecstatic when we moved here,&amp;quot; she says.  But a month after they moved in, suburban life suddenly became a lot less idyllic. Jimmy&amp;#039;s employer abruptly changed its compensation plan, moving all sales reps to 100 percent commission-based pay \u2014 a change that slashed his $120,000 annual income in half. Suddenly, their once affordable house became a financial albatross. The hefty mortgage payments \u2014 not to mention other monthly expenses, like their $729 car payment \u2014 ate up their $16,000 savings, and even after Jimmy reluctantly cashed in his 401(k), they came up short each month. As a result, they fell three months behind on their credit card payments \u2014 accruing debt for the first time \u2014 and found themselves fielding calls from collection agencies. To cope, Jimmy found a slightly better-paying job, and the couple sold their second car. They even auctioned off Jimmy&amp;#039;s treasured Rolex watch \u2014 a 10th anniversary gift from Jennifer \u2014 on eBay.  The financial crisis has taken a physical and emotional toll on the couple, too. Jimmy was hospitalized for a week with a bleeding ulcer last November, and Jennifer suffered a miscarriage eight weeks into her pregnancy, a loss she attributes to stress. Adding insult to injury, Jimmy&amp;#039;s hospitalization left the couple another $1,500 in debt, thanks to a high insurance deductible. &amp;quot;Our dreams came crashing down,&amp;quot; Jennifer says. Jimmy puts it more bluntly: &amp;quot;We&amp;#039;re at the point now where we&amp;#039;re trying to keep a roof over our heads.&amp;quot; They still want another child, but worry about adding more financial stress to their lives.  The Davises are in a bind\u2014saddled with a suddenly unaffordable mortgage \u2014 that has become increasingly common in the United States, says financial expert Bambi Holzer, author of Financial Bliss. Whether it&amp;#039;s the result of rising interest rates on adjustable-rate mortgages or being ill-prepared for catastrophe, a growing number of families are facing foreclosure. &amp;quot;It&amp;#039;s very common for a couple to assume that wealth and success will continue indefinitely,&amp;quot; Holzer says. &amp;quot;Often, it does, but you must still be prepared in the event that there&amp;#039;s a job loss or other sort of monetary setback.&amp;quot;   FINANCIAL ROADBLOCK:  &amp;quot;Hidden mortgage charges are costing us big-time!&amp;quot;  MONEY-SMART SOLUTION:  Contact your lender to work out a solution.  Closing on their dream house should have been cause for celebration for the Davises. Instead, it brought sticker shock. Jennifer and Jimmy didn&amp;#039;t realize their loan had a $25,000 prepayment penalty (meaning, in their case, they have to pay $25,000 if they try to refinance, change lenders, or sell before September 2008) and $8,000 of unexpected closing costs until it was too late \u2014 they&amp;#039;d already sold their old house. &amp;quot;If we didn&amp;#039;t have Abby and two dogs, we could have tried to live in an apartment and find a different lender,&amp;quot; Jimmy says, &amp;quot;but we felt like our hands were tied.&amp;quot;  Because of the prepayment penalty, selling the house should be an absolute last resort for the Davises. (Plus, finding a new house would mean a whole new set of closing costs.) Instead, to cope with this fine-print fiasco and try to keep their home, Jennifer and Jimmy should approach their lender, explain their situation, and ask if they can work out a solution, Holzer says. &amp;quot;They should emphasize that they are being proactive and not waiting until they fall behind on their payments,&amp;quot; she adds. As a temporary hardship solution, the lender may allow them to defer the payments for several months, or may offer them another form of relief. &amp;quot;Let the lender offer some options and then negotiate,&amp;quot; Holzer says. &amp;quot;The lender is in this, too, and they will want to help Jennifer and Jimmy keep their home \u2014 especially if the Davises have a plan for being able to make their mortgage payments in the future, such as a better-paying job or extra income from a second job.&amp;quot;  If the lender refuses, the Davises should at least ask if the prepayment penalty could be waived if they do have to sell their house or if they try to get the loan refinanced through the existing lender, Holzer says. Lesson learned: Read the fine print \u2014 or hire a lawyer who can interpret it for you and understand all its ramifications \u2014 before you sign on the dotted line.  FINANCIAL ROADBLOCK:  &amp;quot;We weren&amp;#039;t prepared for an emergency.&amp;quot;  MONEY-SMART SOLUTION: Go beyond building a reserve fund.  Jennifer and Jimmy thought they were prepared for the proverbial rainy day \u2014 after all, Jimmy was making good money, and they had $16,000 in savings and $14,000 in Jimmy&amp;#039;s 401(k) fund. But unfortunately, a salary, no matter how hefty, can always go away, and when the Davises were hit with two unexpected events \u2014 the reduction in Jimmy&amp;#039;s income and his hospitalization \u2014 their emergency savings cushion was simply not cushy enough.  Holzer&amp;#039;s recommendation for purchasing a home: Have six months&amp;#039; worth of mortgage payments and living expenses in the bank (a mark that the Davises fell short of). If you don&amp;#039;t have that, consider buying a less expensive house that leaves you with more cash. &amp;quot;Banks qualify you for a high mortgage, because the more you borrow the more interest they earn, but you shouldn&amp;#039;t take it if it leaves you with too small a cushion,&amp;quot; Holzer says.  Emergency preparedness goes beyond having cash in the bank, too. Medical, disability, and life insurance are important safeguards &amp;quot;that need to be in the mix before you take on a mortgage,&amp;quot; Holzer says. Jimmy paid for COBRA health insurance until his new employer&amp;#039;s coverage kicked in, but he didn&amp;#039;t have disability insurance \u2014 so not only were the Davises stuck with some hospital bills but they also weren&amp;#039;t earning any income while he was sick.   FINANCIAL ROADBLOCK:  &amp;quot;We don&amp;#039;t make enough money!&amp;quot;  MONEY-SMART SOLUTION:  Get creative!  Jennifer and Jimmy have slashed their expenses by selling their second car and cutting out bowling nights. But they&amp;#039;re still stuck with some big expenses, like the payment for Jimmy&amp;#039;s truck. (&amp;quot;We can&amp;#039;t trade it in right now because we&amp;#039;d lose about $7,000,&amp;quot; Jennifer says. And refinancing a car loan &amp;quot;is expensive and hard to do because cars depreciate so rapidly,&amp;quot; Holzer says.) So now, the Davises need to increase their income \u2014 fast. Jimmy is looking for a better-paying job, and Jennifer even considered getting a full-time job, but she ruled it out when she realized that she&amp;#039;d barely break even after paying for day care. But their thinking has been too narrow, Holzer says. Jimmy, who&amp;#039;s good at sales, has limited his job search to opportunities within his current field: heating and air-conditioning. That&amp;#039;s a mistake, Holzer says. &amp;quot;Jimmy&amp;#039;s sales skills may transfer to another industry offering more income potential \u2014 he might even find a job that includes a company car so that they can use a second car for free.&amp;quot;  Jennifer&amp;#039;s babysitting and part-time work selling Avon and Southern Living at Home products contributes to the family income, but Holzer says she should consider other home-based sales opportunities that offer higher-ticket items, such as fashion trunk shows. She&amp;#039;d put in the same amount of time, but potentially earn more money.  Additionally, the Davises should be networking like crazy. Jimmy has been searching Internet job boards and sending out r\u00E9sum\u00E9s, but he should also contact recruiting firms. (Go to google.com and enter your job title and &amp;quot;recruiting&amp;quot; or &amp;quot;headhunter&amp;quot; to find one.) Holzer also stresses the importance of putting the word out among family and friends in their community. After all, she says, you never know who might have a job opportunity.  Luckily, the Davises aren&amp;#039;t short on their commitment to each other. &amp;quot;The most important thing is that Jennifer and Jimmy are communicating with each other,&amp;quot; Holzer says, &amp;quot;and they&amp;#039;re attempting to work this out as a couple as opposed to casting blame.&amp;quot;  THE COUPLE&amp;#039;S REACTION JENNIFER:  &amp;quot;I feel that Bambi&amp;#039;s advice was helpful. But being behind on our bills does not give Jimmy room to explore other sales jobs because we don&amp;#039;t have the money in the bank to support us until he would get his first paycheck. I am open to finding something with more commission for me. I&amp;#039;ve already increased my sales with Southern Living, though, and I am proud of that.&amp;quot;  JIMMY:  &amp;quot;I looked outside the box for more job opportunities, specifically at car sales and pharmaceutical sales. The car sales jobs are 100 percent commission \u2014 I would not receive a paycheck for 30 days \u2014 and the pharmaceutical jobs that I found in Maryland want you to have experience or a college degree, which I don&amp;#039;t have. But I&amp;#039;m continuing to look for jobs outside of my field. In the meantime, I found a part-time job working in a retail chain in addition to my full-time job. We also contacted our mortgage company and are in the process of trying to defer the payments for a month or two.&amp;quot;  Avoiding trouble on the home front There were more than 1.2 million foreclosure filings in 2006 \u2014 an increase of 42 percent over 2005 \u2014 according to RealtyTrac, an online marketplace for foreclosure properties. Much of the increase can be attributed to defaults on subprime mortgages, which are given to people with poor credit and typically carry higher interest rates. To protect the roof over your family&amp;#039;s head, follow Bambi Holzer&amp;#039;s home-buying do&amp;#039;s:  Do a budget. Know how much you spend on all living expenses and debt payments so you can calculate how much house you can afford. Factor in nonrecurring expenses, such as home repairs and property taxes.  Do the math. The Federal Housing Administration recommends that monthly housing costs \u2014 principal, interest, taxes, and insurance \u2014 not exceed 29 percent of your gross monthly income. If you have other debts, housing costs plus other debt payments should not exceed 41 percent of your gross monthly income.  Do your own mortgage approval. If a lender approves a higher mortgage payment than you feel comfortable with, find a home that costs less. You don&amp;#039;t have to use all the credit awarded to you.  Do be in the know. Read your documents and be sure you understand what you are signing \u2014 and ask questions about anything you don&amp;#039;t understand. You might even consider hiring a real estate lawyer to explain it to you \u2014 some will agree to a flat up-front fee.  The Davises had $16,000 in savings, but their emergency cushion wasn&amp;#039;t cushy enough.  HOW ARE THEY DOING? GET THE UPDATE!   Check out redbookmag.com/moneymakeover for the latest from Jennifer and Jimmy themselves. UPDATE Months after financial expert Bambi Holzer helped Jennifer and Jimmy with their mortgage crisis, the Davises update us on their situation. On negotiating with their lender: Our mortgage company let us skip one payment, so it has helped \u2014 maybe not as much as we need right now, but we are on the right step.  On boosting their income:  Jimmy contacted a head-hunter and has found a job that pays as much as his last job and part-time job together. We are able to pay our bills now \u2014 barely \u2014 but we&amp;#039;re able to pay them on time. Jimmy is commuting two hours each way to and from his job, but he really is enjoying it, and he was able to quit his part-time job.   My Southern Living sales have leveled off, but my Avon and Southern Living pay for groceries. My babysitting has ended for the summer months. I haven&amp;#039;t looked into the company Bambi had mentioned yet, because I have taken over as vice president with the Mom&amp;#039;s Club, and between Avon, Southern Living, and taking care of Abby, I just have been a little overwhelmed. Since Jimmy is home more now, I am going to call; I just haven&amp;#039;t had the time. I am so behind on laundry, etc., I am playing catch-up now! When Jimmy was working two jobs, I felt like a single parent, so I don&amp;#039;t know how women do it by themselves. I have always appreciated how much he helps out, but I appreciate it even more now!  On their financial future:  We really feel positive about the future, but owing money still lingers over our heads. We are still praying for a financial miracle, just to be able to sleep a little better and know that Abby&amp;#039;s future would be a little more stable financially. We still want to add to our family, and being able to afford to would be such a relief. I still have a hard time dealing with the loss of my second pregnancy, and it still affects me a great deal. "^^<http://www.w3.org/2001/XMLSchema#string>
<http://www.redbookmag.com/life/money-career/a1784/money-makeover-0707-hl/>