Is there anything I can do?

[Brian B]

I was wondering if anyone could give me advice on what to do regarding my underwater mortgage. I understand I have a bunch of options but I'm not sure which one is best. I am a teacher; my wife is unable to find a full-time job so she tutors 10 hours a week. We have a one-year old child. We pay our bills on time (95% of the time...sometimes I make mistakes), but at the end of the month once bills and living expenses are paid we have nothing else. We have some CC debt, about $13,000, plus student loans totaling about $40,000. We are underwater on our mortgage. Our condo is tiny for our family and we would really like to get out of it to save money, rent and streamline so that we can have another child and have the space in the budget and the space in an apartment/house to accommodate it.

In 2007, my wife and I bought a condo in Pennsylvania for $135,000. We got 100% financing. I had just gotten a big promotion and the promise of another, so we bought it with the idea of renovating (it's a little bit of a fixer-upper, not much) to either "flip" or rent out once we did the work and refinanced and paid down some principle to gain equity and lower the payments. That never happened. We did get to do the kitchen before the bottom fell out and my wife and I (who both taught at the same school) found both our salaries cut by 25%, my promised promotion (and future raises) gone, and our savings decimated. Now, we have very little savings. After our child was born my wife could not get her job back. I did get another job, which combined with a timely refinance has kept us afloat, but barely.

We are not behind on payments of anything. But, we are underemployed and have very little money. Getting out from under this property with it's tax load and condo fees and debt would go a long way toward helping us get long-term comfort, but I don't know how to do it.

I know most will recommend to stay the course, but this condo has become a massive burden.

I'm not sure about renting the place out, because I don't think the monthly rental would cover the mortgage plus the condo fees (which, together with taxes and PMI totals about $1050). Plus, if I did that I'd have to pay income tax, and our budget doesn't have space for it.

If I sell, I'd have to short-sell and damage my credit, and have no money to pay realtor's fees.

What should we do? Are we stuck here? I know we would be much better off financially and even emotionally if we could rent a bigger place in an area with a lower cost of living, which is closer to my work (as of now I commute an hour each way). At this point I'm thinking the best way out is to take the big credit hit for a few years and walk away. We don't use our credit cards anymore, and we've cut back significantly...we can live on cash.

What would you do?