so how exactly does foreclosure (house) work?

[spacejamz]

Originally posted by: LegendKiller

Originally posted by: spacejamz

Originally posted by: waggy

Originally posted by: BriGy86
I think a lot of this can be avoided if you simply stay away from ARM loans. at least that's what my dad told me never to get.

yeap. i would NEVER get a ARM loan. just seems a bad idea.

the idea behind an ARM loan was for people with not so good credit to get a 'temporary' loan (one to three years) where they could rebuild their credit score. Once the ARM period was over, the mortgagor should have been able to qualify for a fixed rate mortgage.

However, most of these people did not change their habits and continued spending and paying their bills late, not giving a rat's ass that adjustable rate would kick in. Once the ARM rate was over (which is happening now), these people were scrambling to pay the new higher rate because they cannot qualify for a traditional fixed rate mortgage. their only choice is to walk away from the property.

The mess we are in right now was not very difficult to foresee. There was a push a few years back to extend more credit to people with bad credit and minorities (I am not implying that these groups are mutually exclusive, but the articles I read specifically targeted them in their marketing campaigns) to allow them to become homeowners...this was an untapped market that had the potential to provide higher revenues because they could charge these groups higher interest rates, higher fees (late charges, pre-payment penalties, etc) than people with good credit.

There was no chance in hell of these people being able to down 10 to 20% and get a fixed rate loan. They typically had very poor credit habits and getting an ARM loan was an invitation to delay the inevitable (in the mean time, mortgage brokers were making commissions out the ass closing thousands of loans which they pretty much knew that most of these new homeowners would probably be defaulting when the ARM kicked in)...

fast forward to today to see the shit hit the fan...and it will probably get a whole lot worse before it gets better....

As somebody else mention, this is completely incorrect. ARM loans were not for lower scored people.

Also, it wasn't completely to bet against the bank. It's matching your assets and liability timing primarily and also seeing where rates would go.

i work for a company that provides mortgage servicing software to major lending institutions...several of our customers have substantial subprime portfolios that have a large percentage of ARM loans...

Found this article has raises some of the points I raised in my post.

the article states that 2 Million sub prime ARM loans would reset last October and you don't think ARM loans are for people with bad credit???

 

[spacejamz]

Originally posted by: alkemyst
You are confusing teaser rates with the ARM product...an ARM is not about financial level, it's about thinking you can out guess the bank.

My point is that there was a push to market these ARM products to people with bad credit...it gave them a chance to get a mortgage since they would not qualify for a traditional fixed rate mortgage while increasing revenue streams for lending companies (banks/mortgage companies)...

Another article...

What kinds of loans do subprime borrowers get?

The vast majority ? about 80 percent ? have adjustable-rate mortgages, or ARMs, says Susan Wachter, a professor at the University of Pennsylvania's Wharton School who specializes in real estate. (It's worth noting, however, that not all ARMs are subprime loans.)

ARMs typically start out with an interest rate that's lower than the rate on a comparable fixed-rate mortgage. But after the introductory period ? often two or three years for subprime borrowers ? is over, the interest rate goes up, which can result in payments that increase by hundreds of dollars each month.

Who are these borrowers?

"A typical subprime borrower is not someone buying a house, but someone refinancing," says Mary Moore, a spokeswoman from the Center for Responsible Lending, a nonprofit that advocates curbs on predatory lending. "A typical subprime borrower is someone who has a lot of credit-card debt, and is refinancing to pay some of it off."

Studies have found that subprime borrowers tend to live in low-income neighborhoods. They're less likely to have a college education and more likely to be a minority, especially black or Hispanic. According to Freddie Mac, about 10 percent of subprime borrowers could have qualified for a prime loan.

 

[StageLeft]

Originally posted by: BriGy86
I think a lot of this can be avoided if you simply stay away from ARM loans. at least that's what my dad told me never to get.

You can still lose your job and not be able to make payments. ARMs are bad if you can only pay it as long as the interest rate stays very low, but if you can lock something in for 3-5 years, which is pretty short term, and have no realistic expectation to stay in the house longer than that anyway, an arm is fine. I should have gotten one for my first house--it would have saved quite a bit/month. I don't have one in this house because the only way I'll ever sell it is if it a) burns down b) I move out of the city c) I cannot afford it due to job loss; I'll not be "upgrading" unless a great lost uncle gives me a million bucks.

From the sacramento floppers link above:

"Sold on 2006-04-28 for $440,000" Now asking $235,000.

omfg, OUCH

Anyway, an ARM is somewhat like a savings account vs stock market. Savings account you know what you're getting, but it ain't much. Stock market has a bigger potential but greater risk. With an ARM your risk is getting bent over with a high rate that you can't cover but the benefit can be a lower rate for a while and it can workout for you--plus if you have a good one and not a prepayment penalty setup like a lot of deadbeats, then nothing says you cannot always refinance to a fixed anyway.

 

[LegendKiller]

Originally posted by: spacejamz

Originally posted by: LegendKiller

Originally posted by: spacejamz

Originally posted by: waggy

Originally posted by: BriGy86
I think a lot of this can be avoided if you simply stay away from ARM loans. at least that's what my dad told me never to get.

yeap. i would NEVER get a ARM loan. just seems a bad idea.

the idea behind an ARM loan was for people with not so good credit to get a 'temporary' loan (one to three years) where they could rebuild their credit score. Once the ARM period was over, the mortgagor should have been able to qualify for a fixed rate mortgage.

However, most of these people did not change their habits and continued spending and paying their bills late, not giving a rat's ass that adjustable rate would kick in. Once the ARM rate was over (which is happening now), these people were scrambling to pay the new higher rate because they cannot qualify for a traditional fixed rate mortgage. their only choice is to walk away from the property.

The mess we are in right now was not very difficult to foresee. There was a push a few years back to extend more credit to people with bad credit and minorities (I am not implying that these groups are mutually exclusive, but the articles I read specifically targeted them in their marketing campaigns) to allow them to become homeowners...this was an untapped market that had the potential to provide higher revenues because they could charge these groups higher interest rates, higher fees (late charges, pre-payment penalties, etc) than people with good credit.

There was no chance in hell of these people being able to down 10 to 20% and get a fixed rate loan. They typically had very poor credit habits and getting an ARM loan was an invitation to delay the inevitable (in the mean time, mortgage brokers were making commissions out the ass closing thousands of loans which they pretty much knew that most of these new homeowners would probably be defaulting when the ARM kicked in)...

fast forward to today to see the shit hit the fan...and it will probably get a whole lot worse before it gets better....

As somebody else mention, this is completely incorrect. ARM loans were not for lower scored people.

Also, it wasn't completely to bet against the bank. It's matching your assets and liability timing primarily and also seeing where rates would go.

i work for a company that provides mortgage servicing software to major lending institutions...several of our customers have substantial subprime portfolios that have a large percentage of ARM loans...

Found this article has raises some of the points I raised in my post.

the article states that 2 Million sub prime ARM loans would reset last October and you don't ARM loans are for people with bad credit???

...and I work at the 10th largest bank in the world doing securitization issuance as a VP (I still have a job). I also spend most of my day, if not working on a deal, strategizing and determing where the market is going. We have been pitched billions in RMBS financing, from straight up term deals to CDO warehousing for CDO^2 and other transactions. I also read a few dozen securitization rags every week (asset securitization report, asset backed alert, among others) and closely follow the status fo the RMBS/CMBS market, the rating agency perceptions, insurance companies (MBIA/AMBAC/FGIC...etc) movements, and also general trends in consumer credit.

I read the reports coming out of Credit Suisse constantly, as well as other research pertaining to the composition of securitization pools. I continually monitor the ABX index from MarkIt, the S&P Case-Shiller Index (which I discussed way before it hit the MSM), as well as several other indexes.

You make the mistake of thinking that all ARMS are subprime, not some ARMS are subprime, as I clearly outlined above. Your statement that it's a temporary loan to rebuild credit scores is flat-out incorrect. It was never intended to fix anything and historically has been offered to a broad range of clientele.

Sure, it was pitched to lower credit obligors as an affordability product, stretching them into houses they couldn't otherwise afford, but it was *never* a credit fixer. This isn't secured credit card land here. Furthermore, I know plenty of people with 800+ FICOs that have ARM loans.

The loans which garner the most attention, Option Arms, were never intended for lower credit and, the vast majority of those offered still, are not to lower credit people.

Keep in mind that sub-prime was only ~20% of all mortgages in 2006, anywhere between 60-75% were ARMS.

23.4% of 2004-2006 prime originations were some type of ARM. That means that ~20% of the ARMs are prime arms. This shift only occured in the last 5 or so years, when speculators were desperate to fit into as big of a house as possible.

I have always stated that subprime arms will cause problems. However, to say that ARMs are for subprime people, is wholly incorrect. Additionally, to say that it was intended as a credit fixer, is incorrect. This whole mess has twisted the original intent of many mortgage product into subprime.

When it comes down to it, ARMs were intended for one specific purpose, to match timing of assets to liabilities. If your asset (house) was timed for 5 years, then you match funded your liability (mortgage) to the same period. Why would you ever pay for a 5-year asset with a 30-year liability when you have to pay more for the 30-year liability. Using efficient funding, then you match fund. There are several levels of rationale for investors to charge more for longer-termed funding, including preferred habitat, forward-curve, time-premium...etc.

Do not spread FUD about ARMs, most ignorant reporters are doing a good job of it already, they don't need help.

 

[LegendKiller]

Originally posted by: spacejamz

Originally posted by: alkemyst
You are confusing teaser rates with the ARM product...an ARM is not about financial level, it's about thinking you can out guess the bank.

My point is that there was a push to market these ARM products to people with bad credit...it gave them a chance to get a mortgage since they would not qualify for a traditional fixed rate mortgage while increasing revenue streams for lending companies (banks/mortgage companies)...

Another article...

What kinds of loans do subprime borrowers get?

The vast majority ? about 80 percent ? have adjustable-rate mortgages, or ARMs, says Susan Wachter, a professor at the University of Pennsylvania's Wharton School who specializes in real estate. (It's worth noting, however, that not all ARMs are subprime loans.)

ARMs typically start out with an interest rate that's lower than the rate on a comparable fixed-rate mortgage. But after the introductory period ? often two or three years for subprime borrowers ? is over, the interest rate goes up, which can result in payments that increase by hundreds of dollars each month.

Who are these borrowers?

"A typical subprime borrower is not someone buying a house, but someone refinancing," says Mary Moore, a spokeswoman from the Center for Responsible Lending, a nonprofit that advocates curbs on predatory lending. "A typical subprime borrower is someone who has a lot of credit-card debt, and is refinancing to pay some of it off."

Studies have found that subprime borrowers tend to live in low-income neighborhoods. They're less likely to have a college education and more likely to be a minority, especially black or Hispanic. According to Freddie Mac, about 10 percent of subprime borrowers could have qualified for a prime loan.

It all depends on individual borrowers. Some obligors could have taken less of a house and gotten a 30yr fixed easily. ARMs were recently sold as an affordability tool, broken down further into buy and buy bigger. If I had to guess, it was more heavily weighted into "buy bigger" from all data I have read, since you can really always get less, unless you're talking about going to worse MSAs.

Many ARM purchasers can afford to get into a 30yr fixed.

Keep in mind also, that this was just a recent development. Historically ARMs are not so heavily weighted in subprime.

 

[Mark R]

Originally posted by: amdforever2
You don't just walk away and take a credit score hit.

The bank can collect the $100K deficiency from YOU!

Generally they can't. At least, not if the mortgage you are foreclosing on is the one you used to *buy* your house.

If it's a re-fi mortgage (e.g. for equity withdrawal, or for a better rate) then these mortgages generally can be collected on later, if foreclosed in deficiency.

Of course, even if the bank is entitled to collect, they may not do so. If you are foreclosing, generally it means you are financially shafted - and only 1 step away from bankruptcy. Rather than waste time and money suing you for the deficiency, and then not getting a penny back because you can't pay anyway, the bank may just decide to write off your deficiency. No point throwing good money after bad.

 

[spacejamz]

Originally posted by: LegendKiller

Originally posted by: spacejamz

Originally posted by: LegendKiller

Originally posted by: spacejamz

Originally posted by: waggy

Originally posted by: BriGy86
I think a lot of this can be avoided if you simply stay away from ARM loans. at least that's what my dad told me never to get.

yeap. i would NEVER get a ARM loan. just seems a bad idea.

the idea behind an ARM loan was for people with not so good credit to get a 'temporary' loan (one to three years) where they could rebuild their credit score. Once the ARM period was over, the mortgagor should have been able to qualify for a fixed rate mortgage.

However, most of these people did not change their habits and continued spending and paying their bills late, not giving a rat's ass that adjustable rate would kick in. Once the ARM rate was over (which is happening now), these people were scrambling to pay the new higher rate because they cannot qualify for a traditional fixed rate mortgage. their only choice is to walk away from the property.

The mess we are in right now was not very difficult to foresee. There was a push a few years back to extend more credit to people with bad credit and minorities (I am not implying that these groups are mutually exclusive, but the articles I read specifically targeted them in their marketing campaigns) to allow them to become homeowners...this was an untapped market that had the potential to provide higher revenues because they could charge these groups higher interest rates, higher fees (late charges, pre-payment penalties, etc) than people with good credit.

There was no chance in hell of these people being able to down 10 to 20% and get a fixed rate loan. They typically had very poor credit habits and getting an ARM loan was an invitation to delay the inevitable (in the mean time, mortgage brokers were making commissions out the ass closing thousands of loans which they pretty much knew that most of these new homeowners would probably be defaulting when the ARM kicked in)...

fast forward to today to see the shit hit the fan...and it will probably get a whole lot worse before it gets better....

As somebody else mention, this is completely incorrect. ARM loans were not for lower scored people.

Also, it wasn't completely to bet against the bank. It's matching your assets and liability timing primarily and also seeing where rates would go.

i work for a company that provides mortgage servicing software to major lending institutions...several of our customers have substantial subprime portfolios that have a large percentage of ARM loans...

Found this article has raises some of the points I raised in my post.

the article states that 2 Million sub prime ARM loans would reset last October and you don't ARM loans are for people with bad credit???

...and I work at the 10th largest bank in the world doing securitization issuance as a VP (I still have a job). I also spend most of my day, if not working on a deal, strategizing and determing where the market is going. We have been pitched billions in RMBS financing, from straight up term deals to CDO warehousing for CDO^2 and other transactions. I also read a few dozen securitization rags every week (asset securitization report, asset backed alert, among others) and closely follow the status fo the RMBS/CMBS market, the rating agency perceptions, insurance companies (MBIA/AMBAC/FGIC...etc) movements, and also general trends in consumer credit.

I read the reports coming out of Credit Suisse constantly, as well as other research pertaining to the composition of securitization pools. I continually monitor the ABX index from MarkIt, the S&P Case-Shiller Index (which I discussed way before it hit the MSM), as well as several other indexes.

You make the mistake of thinking that all ARMS are subprime, not some ARMS are subprime, as I clearly outlined above. Your statement that it's a temporary loan to rebuild credit scores is flat-out incorrect. It was never intended to fix anything and historically has been offered to a broad range of clientele.

Sure, it was pitched to lower credit obligors as an affordability product, stretching them into houses they couldn't otherwise afford, but it was *never* a credit fixer. This isn't secured credit card land here. Furthermore, I know plenty of people with 800+ FICOs that have ARM loans.

The loans which garner the most attention, Option Arms, were never intended for lower credit and, the vast majority of those offered still, are not to lower credit people.

Keep in mind that sub-prime was only ~20% of all mortgages in 2006, anywhere between 60-75% were ARMS.

23.4% of 2004-2006 prime originations were some type of ARM. That means that ~20% of the ARMs are prime arms. This shift only occured in the last 5 or so years, when speculators were desperate to fit into as big of a house as possible.

I have always stated that subprime arms will cause problems. However, to say that ARMs are for subprime people, is wholly incorrect. Additionally, to say that it was intended as a credit fixer, is incorrect. This whole mess has twisted the original intent of many mortgage product into subprime.

When it comes down to it, ARMs were intended for one specific purpose, to match timing of assets to liabilities. If your asset (house) was timed for 5 years, then you match funded your liability (mortgage) to the same period. Why would you ever pay for a 5-year asset with a 30-year liability when you have to pay more for the 30-year liability. Using efficient funding, then you match fund. There are several levels of rationale for investors to charge more for longer-termed funding, including preferred habitat, forward-curve, time-premium...etc.

Do not spread FUD about ARMs, most ignorant reporters are doing a good job of it already, they don't need help.

I apologize if I made anyone think that this was the only use of an ARM loan, but for the past few years, it has been the most popular, especially for subprime borrowers...

please point out which parts of my post are factually incorrect...granted, my explanation of the use of an ARM loan was just one example of how an ARM loan can be used...yes, there other ways for people with good credit to benefit from them, but that does not make my example inaccurate.

 

[V00DOO]

Originally posted by: amdforever2
Drop the keys off at the bank and you're done?



Right.


You: ZOMG Here's the keys I don't want the house anymore.
Banker: Aww I understand no problem I'll take the house worth $400k even though we gave you $500k to buy it. Merry Christmas!



BULLSHIT


You don't just walk away and take a credit score hit.

The bank can collect the $100K deficiency from YOU!

From what I understand, in California the bank can't go after you for a non-recourse mortgage loan given the house is your primary residence and you have have not refinanced (HELOC) your house. Once you refinanced your house the loan becomes a recourse loan and the bank can go after your personal finance. Also, under normally circumstance you are require to pay tax for the short sale or foreclose sale, for example if your borrowed $500K to purchase your house and it ended up foreclosed or short sale for $400K. You're require to pay tax for the $100K in capital gain (1099) but the government is working on a, tax forgiveness program (bail out) to eliminate such tax. If you didn't put any money down your monetary loss is very minimum. The banks are the one holding the bag. Yes, you'll bad credit for a couple of years. IMHO, the problem is not subprime loans, the problem is "People bought houses they simply can't afford with their income".

 

[alkemyst]

Originally posted by: spacejamz

Originally posted by: alkemyst
You are confusing teaser rates with the ARM product...an ARM is not about financial level, it's about thinking you can out guess the bank.

My point is that there was a push to market these ARM products to people with bad credit...it gave them a chance to get a mortgage since they would not qualify for a traditional fixed rate mortgage while increasing revenue streams for lending companies (banks/mortgage companies)...

Another article...

What kinds of loans do subprime borrowers get?

The vast majority ? about 80 percent ? have adjustable-rate mortgages, or ARMs, says Susan Wachter, a professor at the University of Pennsylvania's Wharton School who specializes in real estate. (It's worth noting, however, that not all ARMs are subprime loans.)

ARMs typically start out with an interest rate that's lower than the rate on a comparable fixed-rate mortgage. But after the introductory period ? often two or three years for subprime borrowers ? is over, the interest rate goes up, which can result in payments that increase by hundreds of dollars each month.

Who are these borrowers?

"A typical subprime borrower is not someone buying a house, but someone refinancing," says Mary Moore, a spokeswoman from the Center for Responsible Lending, a nonprofit that advocates curbs on predatory lending. "A typical subprime borrower is someone who has a lot of credit-card debt, and is refinancing to pay some of it off."

Studies have found that subprime borrowers tend to live in low-income neighborhoods. They're less likely to have a college education and more likely to be a minority, especially black or Hispanic. According to Freddie Mac, about 10 percent of subprime borrowers could have qualified for a prime loan.

As others have pointed out, you aren't understanding the full story. If fixed rate loans came with teasers or temporary buy downs like the ARM/specialty products did, they'd be pushing them just as well.

In all fairness, fixed rate loans are more profitable on the resale for a mortgage company to do...if the mortgage companies were just looking out for themselves then they'd do fixed only.

To some others here...ARM products and interest only loans have very good niche markets. For some people, mainly investors; these products are the most economical. To some interest only loans are a smart investment on a property that is appreciating plus giving a tax benefit...

Thing is most aren't stinking the difference into 'investments', but stretching their dollars too far.

Too many people saw moneybags in their eyes and planned on flipping these homes for 2-3x the cost...now they are crying for a bailout when they were left holding the bag.

 

[spacejamz]

Originally posted by: alkemyst

Originally posted by: spacejamz

Originally posted by: alkemyst
You are confusing teaser rates with the ARM product...an ARM is not about financial level, it's about thinking you can out guess the bank.

My point is that there was a push to market these ARM products to people with bad credit...it gave them a chance to get a mortgage since they would not qualify for a traditional fixed rate mortgage while increasing revenue streams for lending companies (banks/mortgage companies)...

Another article...

What kinds of loans do subprime borrowers get?

The vast majority ? about 80 percent ? have adjustable-rate mortgages, or ARMs, says Susan Wachter, a professor at the University of Pennsylvania's Wharton School who specializes in real estate. (It's worth noting, however, that not all ARMs are subprime loans.)

ARMs typically start out with an interest rate that's lower than the rate on a comparable fixed-rate mortgage. But after the introductory period ? often two or three years for subprime borrowers ? is over, the interest rate goes up, which can result in payments that increase by hundreds of dollars each month.

Who are these borrowers?

"A typical subprime borrower is not someone buying a house, but someone refinancing," says Mary Moore, a spokeswoman from the Center for Responsible Lending, a nonprofit that advocates curbs on predatory lending. "A typical subprime borrower is someone who has a lot of credit-card debt, and is refinancing to pay some of it off."

Studies have found that subprime borrowers tend to live in low-income neighborhoods. They're less likely to have a college education and more likely to be a minority, especially black or Hispanic. According to Freddie Mac, about 10 percent of subprime borrowers could have qualified for a prime loan.

As others have pointed out, you aren't understanding the full story. If fixed rate loans came with teasers or temporary buy downs like the ARM/specialty products did, they'd be pushing them just as well.

In all fairness, fixed rate loans are more profitable on the resale for a mortgage company to do...if the mortgage companies were just looking out for themselves then they'd do fixed only.

To some others here...ARM products and interest only loans have very good niche markets. For some people, mainly investors; these products are the most economical. To some interest only loans are a smart investment on a property that is appreciating plus giving a tax benefit...

Thing is most aren't stinking the difference into 'investments', but stretching their dollars too far.

Too many people saw moneybags in their eyes and planned on flipping these homes for 2-3x the cost...now they are crying for a bailout when they were left holding the bag.

i guess we will have to agree to disagree...the thread topic deals with foreclosures (or potential foreclosure scenarios) and right now the main cause of the foreclosures we are reading about are the ARM loans that were given to sub prime borrowers.

What other part of the story am I missing that we need to discuss here? ARM loans used by people with good credit use to maximize their investments? IMO, this isn't relevant to the foreclosure discussion.

Mortgage servicers (Countrywide and Citibank - two of the largest mortgage companies in the US have very large sub prime portfolios) have profited greatly from the higher fees that they are charging their sub prime borrowers...on top of the higher interest rates they charge, fees for late payments, NSF fees, pre-payment penalty fees and other miscellaneous fees can be higher than those assessed to their credit worthy borrowers. This increased revenue was one reason why lenders were willing to give money to these risky borrowers.

The bailout you are referring to affect mainly the subprime borrowers who cannot make the higher payments after the adjustable rate on their loan kicked in, not the people who gambled by getting an ARM loan with the intent to flip a house...

 

[bctbct]

Originally posted by: ahurtt

Originally posted by: BriGy86
I think a lot of this can be avoided if you simply stay away from ARM loans. at least that's what my dad told me never to get.

That's a blanket statement. Way too generalized. It depends on a persons needs. I have a ARM with a 7 year fixed rate of 5.125%. It's got about 3.5 years left on it at that rate. This is our first home (a townhouse) and we never planned on living in it for more than about 5-7 years before we traded up to a single family home. I could have gotten a 30 year fixed rate loan but not at that low of an interest rate. So why pay a higher interest rate for the long term fixed rate loan when I'm not planning to be in the house for more than 7 years? Hopefully by the time my 7 years has come up, all this crap will have blown over. We also have a clause in our loan papers that state when the loan adjusts it cannot go over predominant market rates at the time. I suppose if rates were really really low again it could adjust downward too, but I think that's pretty unlikely. Bottom line is, just understand exactly what you are getting into. Don't just start signing shit they shove in front of you without understanding what you're signing. And if you don't like it, walk away from the table.

And to address the OP's question, you typically don't put your house in foreclosure as the owner/borrower. The bank forecloses ON the house when the loan goes into default. If you wanted to force your house into foreclosure, just stop making mortgage payments. The lender/bank will eventually foreclose on you.

Not saying that you made a mistake in what you did but this is the general reason that people are in trouble now.

You plan on making a change in the future before the rate hike hits. If you lose your job, your house devalues, or your credit takes a major hit you will be stuck with the loan you have now.

 

[alkemyst]

Originally posted by: spacejamz
i guess we will have to agree to disagree...

ok?

 

[Dr. Detroit]

Originally posted by: BlahBlahYouToo

Originally posted by: Fmr12B
106% financing!

Yes, many people financed there homes for more than the seller was paid. They used the 6% for closing costs and had no equity in there home. On top of that they did an interest only mortgage so they never paid 1-cent of equity all in the hope they too could "flip that house"



Suckers!

I've been on the sidelines for 3yrs now waiting while my down payment money continues to grow!

so i take it you're living at home with your paren... i mean roomates?

Ha Ha, funny guy!

Unfortunately I've been paying rent for some 15yrs........Been in silicon valley the past 7 1/2 so it's hard to afford a home when the median price is $800K and you have a family.

The last 3 I've had the income & savings to buy a home, but I've withstood the peer pressure and sided with caution.

 

[alkemyst]

Well, in all fairness the person that bought a home even without equity sheltered their money much better than you on the 'sidelines' (you do realize most that work in the valley don't live there, right?).

The problem with buying without equity is you have no leeway if values drop, you are basically looking at stroking a check at your next closing should that happen. In the best situation your equity grows with the duration of your loan.

Many people keep themselves 'in debt' with as much an interest payment as is reasonable for the tax benefit it provides and stick that difference in money into other investments esp if they are not hitting their limits on IRA/401k's each year.

Most people go at it wrong though...put nothing down, leverage their credit to the hilt and any equity they gain they immediately pull out for a big screen TV, jet ski, motorcycle, RV etc.

IMHO, 2 things an equity line should be used for for most people...1) something that will directly increase the value of the home and 2) catastrophic emergency.

 

[OutHouse]

on a side note but still good info:

never make extra payments on your home. its a gamble that has screwed a lot of people, the reason is say you make extra payments on your home for several years instead of putting that money away. you loose your job, cant make payments anymore. you cant call the bank and have them refund you the extra payments, you loose your house along with thousands of bucks...

if you can afford to make extra payments on your home. put it away and save it for a bad rainy day.

 

[BlahBlahYouToo]

Originally posted by: Fmr12B

Originally posted by: BlahBlahYouToo

Originally posted by: Fmr12B
106% financing!

Yes, many people financed there homes for more than the seller was paid. They used the 6% for closing costs and had no equity in there home. On top of that they did an interest only mortgage so they never paid 1-cent of equity all in the hope they too could "flip that house"



Suckers!

I've been on the sidelines for 3yrs now waiting while my down payment money continues to grow!

so i take it you're living at home with your paren... i mean roomates?

Ha Ha, funny guy!

Unfortunately I've been paying rent for some 15yrs........Been in silicon valley the past 7 1/2 so it's hard to afford a home when the median price is $800K and you have a family.

The last 3 I've had the income & savings to buy a home, but I've withstood the peer pressure and sided with caution.

it was a reference to the movie Grandma's Boy

 

[hanoverphist]

Originally posted by: BlahBlahYouToo
hypothetical situation:

so lets say you pay $500k for a house.
you put a down payment of $100k leaving you with a $400k balance.
lets say you lose your job, but you have a couple months of payments in the bank that will keep you going until you sell the house.
you sell the house 1 month later for $500k and you pay the bank what you owe, which is $400k and you have back in your pocket your initial $100k investment.

of course nothing is ever so simple, so you lose some money for closing costs, lawyer fees, agent fees, etc.
so maybe you would be out $25k (not including interest on the principal, RE taxes, etc).

the only time i see a problem is:
1. you owe a lot more on the house than you can get by selling
2. you cannot find a buyer

do i have this correct?

that isnt foreclosing, thats liquidating an asset. foreclosing is when you fail to pay on the mortgage and they take it from you, then force you to pay the loan off as well. same as a car, isnt it?

 

[amdfansftw]

but isn't it smarter to just get a home pay the payment and build equity rather than renting and building someone elses equity? sure it might be a little less to rent, but in the long run you are paying for someone elses stuff.

 

[hellokeith]

Originally posted by: amdfansftw
but isn't it smarter to just get a home pay the payment and build equity rather than renting and building someone elses equity? sure it might be a little less to rent, but in the long run you are paying for someone elses stuff.

Only if you can truly afford the home. Many people under-estimate the expenses of a house.. higher utility bills, various insurances, upkeep, lawn maintenance, security system, cable/satellite stb in every room, furniture and fixings.. the list goes on and on. It's difficult to do on one salary (even a reallly good income) and risky due to job market fluctuations. You really shouldn't consider free-standing house unless you have 20-30% saved in advance with at least 10% ready immediately for the down payment. And you should plan to be in the house minimum 7 years.

 

[Slew Foot]

Originally posted by: amdfansftw
but isn't it smarter to just get a home pay the payment and build equity rather than renting and building someone elses equity? sure it might be a little less to rent, but in the long run you are paying for someone elses stuff.

When the price of the house is dropping by the amount of your mortgage every month, youre not really building any equity.

Plus by renting, the money you save can go into savings.

 

[XZeroII]

Originally posted by: Citrix
on a side note but still good info:

never make extra payments on your home. its a gamble that has screwed a lot of people, the reason is say you make extra payments on your home for several years instead of putting that money away. you loose your job, cant make payments anymore. you cant call the bank and have them refund you the extra payments, you loose your house along with thousands of bucks...

if you can afford to make extra payments on your home. put it away and save it for a bad rainy day.

I have to disagree with you big time on that. You can save LOTS of money by paying just a little extra every month. It's no different than a credit card. You are basically saying that it's best to pay off your credit cards by paying the minimum amount every month even if you have the money to pay more.

You should be careful making blanket statements like that. There are always good reasons to do things. For some people, they should not be paying extra. For others, it can certainly work to their advantage.

 

[alkemyst]

Originally posted by: XZeroII

Originally posted by: Citrix
on a side note but still good info:

never make extra payments on your home. its a gamble that has screwed a lot of people, the reason is say you make extra payments on your home for several years instead of putting that money away. you loose your job, cant make payments anymore. you cant call the bank and have them refund you the extra payments, you loose your house along with thousands of bucks...

if you can afford to make extra payments on your home. put it away and save it for a bad rainy day.

I have to disagree with you big time on that. You can save LOTS of money by paying just a little extra every month. It's no different than a credit card. You are basically saying that it's best to pay off your credit cards by paying the minimum amount every month even if you have the money to pay more.

You should be careful making blanket statements like that. There are always good reasons to do things. For some people, they should not be paying extra. For others, it can certainly work to their advantage.

It really depends on what one is trying to accomplish...sending another $100-200 per month to the mortgage company can cut down your payment term by 10 years or more usually (people forget that much of a mortgage payment is not the principle, but the taxes/insurance). I plan to increase my payments when I can and keep this house to rent and then upgrade as I go.

If retirement comes and I can't keep my same lifestyle then I know I at least have a paid off house and probably one close to paid off I can sell.

However; most people tend not to downgrade, but just downsize at retirement. Going from a sprawling home to an equally priced condo.