The House That Swallowed Don and Shelly Cruz
The winners of a TV Dream Home thought their fantasies had come true. But after a year, it's clear that the giant house is no home--and financially, it's a nightmare.
By Stephen Gandel

(MONEY Magazine) – DON CRUZ HAD ALWAYS ASSUMED THAT THE ONLY TIME HE WOULD RIDE IN A STRETCH WOULD BE TO HIS OWN FUNERAL. Instead, his heart was definitely beating, maybe a little too fast, as he and his son Donald, 10, stood like guys at a bachelor party with their heads out of the sunroof of a 30-foot Cadillac on the way to see their new house for the first time. Only "house" doesn't adequately describe what awaited them at their destination on that spring day last year. Don and his wife Shelly had just been awarded the grand prize in HGTV's annual Dream Home Sweepstakes, winning $250,000, a GMC Denali SUV and a gigantic, fully furnished, barn-inspired mansion on an acre of lakefront property in the East Texas town of Tyler.

As the Cruzes toured the 6,000-square-foot, three-story structure--more than seven times the size of their modest home outside Chicago--each feature seemed more fantastic than the one before: the massive great room with its 30-foot ceilings and six-foot-wide fireplace; the master bedroom suite--in effect, a separate cottage connected to the main house by a breezeway, replete with a hot tub; the indoor elevator and the outdoor pool and fireplace; the guest house by the lake. As they passed through each room, Shelly found herself touching everything--running her fingers over the granite-topped island in the kitchen; turning the knobs on the his-and-hers showerheads in the master bathroom; opening the doors of the laundry room's two washers and two dryers. "I feel like I'm looking at someone else's house--this can't possibly be ours," Shelly said. Added Don: "I've fantasized most of my life about living in a big house, but my dreams never came close to this."

But a year later, the Cruzes are learning, painfully, that there can be such a thing as too big. There are minor complaints: The lights in the great room are going out one by one because the lamps that hang from the ceiling are so high, they'd need scaffolding to change the bulbs. Don, 41, and Shelly, 38, have never slept in the master bedroom--it's too secluded. At night, Don obsessively checks a live video feed of Donald's room, two floors away from the bedroom they occupy, to make sure his son is okay.

The biggest problem, though, is that the Cruz family can't afford their new bounty. Don, a stay-at-home dad, and Shelly, an administrative assistant who's gone back to school to become an accountant, are quickly running through their winnings as they struggle to pay thousands a month for electricity, household help and other outsize bills for their outsize home. On top of that, they still owe the IRS $672,000 on their winnings.

Most people will never have to worry about the unexpected fallout from what looked to be a huge windfall. But like the Cruzes, millions of Americans may soon find themselves struggling to pay the bills for a house that's bigger than they really need and suddenly more expensive than they can afford. Blame the strain of gigantism that has crept into U.S. home design, as well as rising interest rates and the expiration of low-rate introductory periods on popular adjustable-rate loans. Economy.com estimates that at least 1 million homeowners will see their house payments double in the next two years. A study by First American Corp. suggests that one in seven who have recently taken out adjustable-rate mortgages will have trouble making their payments.

For the Cruzes, the past year has been a daunting lesson in the dangers of overextending to live in your dream home. It's also changed their notion of who they are and what they want, making them realize that when it comes to real estate, you really do have to be careful what you wish for--you might actually get it.

Dream On

Don Cruz acquired his love of big houses as a child in Tampa. His family's three-bedroom brick house seemed huge to a small boy; it was always filled with family and friends, good food and fun. The idyllic life ended when they moved from Florida to Illinois in search of better schools for Don, who is dyslexic. Then 11, the boy sorely missed his extended family back in Florida, and that feeling deepened after his mother became ill with multiple sclerosis. As the years passed, the Tampa house grew bigger and sweeter in his memory.

After high school, Cruz went into the flooring business, met and married Shelly and bought a house, a two-bedroom Cape Cod in Batavia, an hour west of Chicago. The house was tiny but had potential, sitting on an acre of land. Don figured he could double its size for just $40,000. On his $60,000-a-year salary, he figured they'd save the cash in a few years, no problem.

But an injury at work, suffered in 1999 when Don tumbled down a flight of stairs, put an end to those plans. No longer able to crouch or kneel as his job required, Don got a disability settlement of just over $100,000 and retired from the field at 34.

Don struggled to find other, comparably paid work. Living expenses drained the settlement as well as $20,000 the Cruzes had saved for renovations. So they switched roles: Don stayed home to care for Donald, almost four, and Shelly got a job as an administrative assistant, earning $40,000 a year. "Once I got injured," says Don, "we put all our dreams on hold."

Until the Dream Home Sweepstakes, that is. The family first entered the contest in 2003, then again in 2004 and 2005. When they learned last year that they'd been picked randomly out of 39 million entries, only Donald wasn't surprised. With its elevator and hot tub, he notes, "The house was made for my dad."

A House Fit for Kings

In the 10 years that HGTV has run the contest, the Cruzes are the only winners who've chosen to live in the Dream Home. Most of the rest sold, happily pocketing the cash. The Cruzes say they too had offers, for millions. But as soon as Don saw the house, he was determined to find a way to make it home.

The house is really three structures: a main building, a separate master bedroom suite and a lakefront guest cottage. Some 550 tons of limestone went into the construction of the main house, much of it used to build the 30-foot fireplace in the great room. Ten cedar trees were used to support the beamed ceiling, the trunks shaved down to square posts around the perimeter. Six sets of glass french doors let in sweeping views of the yard and lake.

In addition to the great room, the main house has two bedrooms; 2½ baths; a state-of-the-art kitchen (lots of granite and stainless steel); a sunroom, laundry room and entertainment room (the centerpiece: a 50-inch TV); and a workout area with his-and-hers treadmills. A breezeway leads to the master suite. The guest cottage, built into a dock on the lake, has water views from a wraparound balcony on the second floor. Downstairs, the living room windows work like garage doors, rolling up into the ceiling to eliminate barriers between the house and the lake. From the couch, Don can cast his fishing pole while he watches TV.

Spectacular? Sure. But spectacularly costly to own too. So Don immediately began strategizing about ways to make living there affordable. Plan A: Turn the place into a bed and breakfast--a reasonable enough plan until Don found out that he doesn't own the land under the house but instead has a 30-year lease, with the right to renew. Without full ownership, he is subject to town rules, which don't allow new businesses in the lake area.

Plan B: Sell the guest cottage. Without ownership of the land, however, the Cruzes are obligated to keep the property whole. Scratch Plan B.

Still, Don figured, they'd be okay. After all, they had the $250,000 in cash that they'd won with the house. "We were used to living on $40,000 a year," says Don. "I thought we'd be able to live on the prize money for a few years at least."

But living expenses in the Dream Home, like the house itself, are far bigger than what they were used to in Batavia. Upkeep is $2,900 a month. Homeowners insurance runs $7,000 annually. The insurance and gas bill on the Cruz fleet (they own seven vehicles, including the SUV they won in the contest) costs $1,000 a month. That's on top of the $1,000-a-month mortgage payment for the Batavia house, which they've kept, just in case.

Then there are the incidentals. Fixing up the family boat, which got little use in Illinois, cost $11,000. A dog run for their three dogs was $6,000. Between family and friends eager to see the Dream Home, the Cruzes have company nearly every weekend. The tab: about $1,000 a pop. They've donated $40,000 to charity. And then there have been the splurges--$5,000 on Christmas presents; $2,000 for scuba lessons; an $1,800 go-kart.

The upshot: The Cruzes have just $36,000 left, and no solution for the biggest bill yet--their 2005 taxes. Although they knew they'd owe a hefty amount on their winnings, they were totally unprepared when the IRS sent a bill in February for a staggering $672,000.

Seeing the statement, Don knew that the dream was over. With no viable plan to pay for the upkeep on the house, let alone the tax bill, there was only one solution. That night he huddled in the great room with his wife and son, knees touching, and told them they'd have to sell. Donald asked why. But when he saw his father crying, he stopped asking. The next day, they put the Dream Home up for sale.

Two months later, Cruz, who's trying to sell the house himself, has yet to get a serious offer. He's put up a website, Doncruz.net, listing the house for $5.5 million and promising a 2% commission to any broker who brings him a buyer. But local agents say he's aiming too high. They say the house is worth $2.5 million and may go for a lot less since million-dollar homes are rare in that part of Texas.

The Cruzes say they will be sad to leave once a deal is made, but confess that they're also a little relieved. The Dream Home, they admit, is just too big. They miss their cozy quarters in Batavia. "With only one room to gather in you are forced to spend time together," says Cruz. "I miss that."

They will go back a changed family. Don dresses better these days; Shelly is less shy; both admit to noticing appearances more, especially when it comes to other people's houses--and their own. Renovating their old house is a priority once they get back to Illinois. They want hardwood floors, wall paneling and a hot tub. "We didn't realize how much we liked that stuff until we moved here," says Cruz.

They say they have no regrets. "It was great to live the life of the rich and famous, if only for a year," says Don. Adds Shelly: "Even if we only break even financially, I feel like we came out ahead."

The Advice

To help the Cruzes get out of their sticky situation, planners Steve Blankenship of Grapevine, Texas, and Deborah Feldman of Buffalo Grove, Ill. offer these suggestions: STOP THE BLEEDING The Cruzes have to make some tough choices to avoid running out of money entirely, Feldman says. Shelly should go back to work to provide the family with some much needed income, even if it means putting school on hold. Don should also look for a part-time job. And the Cruzes should sell all but two of the cars and stop entertaining altogether.

Most important, Blankenship and Feldman suggest hiring a savvy real estate agent to help speed up the sale of the Dream Home. The money that Cruz might save on commissions by selling it himself is being eaten up by the costs of continuing to maintain the house, and the growing penalties on his unpaid tax bill.

PLAN REALISTICALLY Don Cruz believes his family can live comfortably off the sale of the Tyler house, even if they get only $1.75 million. After paying the back taxes, they'd have $1 million left. If he puts the money into CDs, recently paying nearly 5%, Cruz figures they'll generate $50,000 a year in income.

But Blankenship cautions that Cruz will need more money than he thinks since inflation will sharply erode the purchasing power of his portfolio over the next 20 to 40 years. If he manages to sell for $2.5 million, he'll net around $1.6 million after taxes and fees. That would provide enough money to support the family while Shelly goes back to school, with plenty left over for retirement.

The worst-case scenario is that the Dream Home sells for only $1 million, netting around $250,000 after taxes. If that happens, Feldman urges the Cruzes to consider selling the house in Batavia as well; renting instead of owning will help the family get back on its feet. She estimates Don and Shelly could net as much as $400,000 from the sale of the smaller house--enough to support the family while Shelly is in school and still have some money to put away for retirement. SPREAD THE WEALTH Whatever the Cruzes make from selling the house, Blankenship urges them to shoot for higher returns by spreading their money among a number of investments rather than putting the entire portfolio into CDs. He suggests investing about 55% of the total in a diversified mix of stock funds, with the rest in bonds and cash.

For the time being, though, the Cruzes are enjoying what they expect will be their last few weeks in their dream house. A recent highlight: watching on TV as Donald Cook, 56, a wheelchair-bound utility analyst from Alum Creek, W.V., won this year's Dream Home. Unlike the Cruzes, however, Cook intends to sell. "The house is absolutely gorgeous, first class," he told reporters. "But I'm not in a position to live in a $2 million house."

Bottom Line

The Cruz family thought their $250,000 cash prize would last a few years. But the Dream Home high life turned out to be more expensive than they expected.

Can You Afford Your House?

If you're worried that the honest answer is no, consider these steps

Over the past few years, many home buyers have snapped up McMansions and other pricey houses, financing the purchases with low-rate adjustable mortgages and small down payments. But as those loans adjust upward, many may find that they need to rethink.

HEED WARNING SIGNS

If you're paying more than a third of your gross income on housing (including mortgage, homeowners insurance and property taxes), you may be in over your head. When assessing your financial ability to stay in your home, also take into account repair and maintenance costs. In a typical year, you should count on spending between 1% and 3% of your home's value on these expenses.

SEEK MORTGAGE RELIEF

If you have a 15-year mortgage or less than 20 years left on a 30-year loan, and you're likely to stay in your house for at least five years, you can lower your payments by refinancing into a 30-year fixed-rate mortgage. The downside: It will take you longer to build up equity in the house, and you'll pay more in interest in the long run. To see how much you might save, go to mortgage-calc.com.

DOWNSIZE NOW

If you run the numbers and find that you'd be struggling to make your monthly payments even after refinancing, consider selling now and moving into a less costly home. While the housing market is cooling, prices are still going up, albeit slowly, in most areas of the country. So you should still be able to get out with a profit. Wait much longer and that may not be true.

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.