Upside-down on your mortgage?

[cKGunslinger]

Just curious, if you are upside-down on your mortgage (you owe more than you could sell the house for,) are you pretty much screwed? Is it possible to sell your house for 90% of its value, buy a new house, and roll the 10% difference into the mortgage for a new house, similar to the way you'd do it for a car (I'm guessing?)

Aren't there laws that dictate that you can't finance more than X% of your home's value? Or would you have to seller-finance your old home and use their payments + your cash to continue paying the mortgage?

Just curious, as prices took a huge downturn in our area and I was considering getting out in the next 3-5 years, but it doesn't look good.

 

[Mxylplyx]

No lender is going to give you over a 100% loan to value mortgage in this market. Your pretty much screwed until you can pony up the cash to get out of the house, or the house appreciates enough to get back in the black so you can sell it and walk away. Also, dont forget about agent fees, which are 5-6%.

 

[cKGunslinger]

Originally posted by: Mxylplyx
No lender is going to give you over a 100% loan to value mortgage in this market. Your pretty much screwed until you can pony up the cash to get out of the house, or the house appreciates enough to get back in the black so you can sell it and walk away. Also, dont forget about agent fees, which are 5-6%.

Yeah, I'm thinking I'm going to have to probably try to rent the place and eat the difference when I buy.

 

[Jumpem]

Originally posted by: Mxylplyx
No lender is going to give you over a 100% loan to value mortgage in this market. Your pretty much screwed until you can pony up the cash to get out of the house, or the house appreciates enough to get back in the black so you can sell it and walk away. Also, dont forget about agent fees, which are 5-6%.

We financed 106% without any issue from the lender. Granted this was a year and a half ago.

I am not terribly concerned about being in an upside down situation though. Our neighbors are great and we both have good jobs in the area. I don't plan on moving in the next 8-10 years at the earliest.

 

[cKGunslinger]

I was browsing and ran across this house for sale:

Text

3/4 mile from my kids' schools, bigger than our current, better neighborhood, established landscaping, etc. About $30K *less* than we owe on ours.

I so wish I could go back and rethink our house purchase.

 

[altonb1]

You don't think your house will be worth more than you paid in 3-5 years? I know the market turned a bit, but real estate rarely decreases in value for very long. I would expect that regular mortgage payments + home values will have you well out of the red in 3-5 years.

 

[Homerboy]

$95K? jeebus I live in the wrong part of town.

 

[vi edit]

Originally posted by: cKGunslinger
I was browsing and ran across this house for sale:

Text

3/4 mile from my kids' schools, bigger than our current, better neighborhood, established landscaping, etc. About $30K *less* than we owe on ours.

I so wish I could go back and rethink our house purchase.

That carpet burned my eyes.

 

[Squisher]

Not upside-down right now, but who knows what the future holds. I paid $335K in '05 a house down the street is selling for $235K, the house across the street went for $200K after 8 months in foreclosure.

I recently refinanced my Equity Line of Credit just because they offered to do it at a lower rate and the bank said the house was worth $305K.

Luckily I only owe $170K.

 

[Slew Foot]

You can look into a short sale, in which case the bank eats the difference in sale price between the loan and sale price. But they usually only do that if you're in a bad financial shape.

 

[olds]

The 10% would be eaten up by fees.

 

[her209]

Would it be "smart" for someone who CAN afford payments CONTINUE to make payments on their house even though its worth LESS than what they bought it for? At what point should someone WALK away?

 

[Slew Foot]

Originally posted by: her209
Would it be "smart" for someone who CAN afford payments CONTINUE to make payments on their house even though its worth LESS than what they bought it for? At what point should someone WALK away?

That's been a topic of major debate at an investors blog I frequent. The worst thing to to when growing your money is chase after bad money(depreciating assets) with good money(earned income). Many people are advocating anyone underwater to stop paying, take the credit hit and buy again in 5 or so years when prices are much cheaper. Wheter or not you feel comfortable with the plan is up to you.

It may be different in the OPs situation, when youre only down say 30K, than in CA where being down 500K is not unheard of.

 

[cKGunslinger]

Originally posted by: Slew Foot

Originally posted by: her209
Would it be "smart" for someone who CAN afford payments CONTINUE to make payments on their house even though its worth LESS than what they bought it for? At what point should someone WALK away?

That's been a topic of major debate at an investors blog I frequent. The worst thing to to when growing your money is chase after bad money(depreciating assets) with good money(earned income). Many people are advocating anyone underwater to stop paying, take the credit hit and buy again in 5 or so years when prices are much cheaper. Wheter or not you feel comfortable with the plan is up to you.

It may be different in the OPs situation, when youre only down say 30K, than in CA where being down 500K is not unheard of.

"Take the hit" as in foreclosure?

 

[Slew Foot]

Originally posted by: cKGunslinger

Originally posted by: Slew Foot

Originally posted by: her209
Would it be "smart" for someone who CAN afford payments CONTINUE to make payments on their house even though its worth LESS than what they bought it for? At what point should someone WALK away?

That's been a topic of major debate at an investors blog I frequent. The worst thing to to when growing your money is chase after bad money(depreciating assets) with good money(earned income). Many people are advocating anyone underwater to stop paying, take the credit hit and buy again in 5 or so years when prices are much cheaper. Wheter or not you feel comfortable with the plan is up to you.

It may be different in the OPs situation, when youre only down say 30K, than in CA where being down 500K is not unheard of.

"Take the hit" as in foreclosure?

Yep, I suppose technically its the bank taking the monetary hit, you take the credit hit for a few years.

 

[cKGunslinger]

It might not be financially smart, but we have moral issues with walking away from debt. We could have easily filed for bankruptcy several years ago, but chose to rather tighten down and pay off our overwhelming debts as best we could. After all, we racked them up - doesn't seem right to just let someone else eat our mistakes, just because they are "faceless" bank/corporations.

I'm thinking we'll just smartly try to improve the value of our house as much as possible.

 

[Linflas]

When we sold our townhouse we bought at the peak of the 89 real estate boom in 1996 we were a bit upside down on the mortgage. We ended up selling it to my brother and taking an $8000.00 loss. If we had not sold it to my brother and had had to go through an agent we would not have been able to sell it at all.

 

[Greenman]

Originally posted by: Slew Foot

Originally posted by: her209
Would it be "smart" for someone who CAN afford payments CONTINUE to make payments on their house even though its worth LESS than what they bought it for? At what point should someone WALK away?

That's been a topic of major debate at an investors blog I frequent. The worst thing to to when growing your money is chase after bad money(depreciating assets) with good money(earned income). Many people are advocating anyone underwater to stop paying, take the credit hit and buy again in 5 or so years when prices are much cheaper. Wheter or not you feel comfortable with the plan is up to you.

It may be different in the OPs situation, when youre only down say 30K, than in CA where being down 500K is not unheard of.

I don't don't think I'd speculate on the housing market being down in 5 years, and few lenders are going to give you a loan until the bankruptcy drops of your credit report, I think thats 7 years.

 

[thomsbrain]

Originally posted by: Jumpem

I am not terribly concerned about being in an upside down situation though. Our neighbors are great and we both have good jobs in the area. I don't plan on moving in the next 8-10 years at the earliest.

Yeah, even accounting for the recent downturn since you bought, AND accounting for the chance that there's another downturn in 10 years, I think the appreciation that will happen in the meantime is plenty to cover that and make sure you have positive equity if you need to move. And if you live there for 30 years, it's almost a non-issue. Do you think the previous generation is still wringing their hands over whether they paid $5000 or $6000 for a house that is now worth $600,000? Time and inflation smooth these things out. And if you don't have time, you should have been renting instead of buying.

 

[JEDI]

Originally posted by: cKGunslinger

Just curious, if you are upside-down on your mortgage (you owe more than you could sell the house for,) are you pretty much screwed? Is it possible to sell your house for 90% of its value, buy a new house, and roll the 10% difference into the mortgage for a new house, similar to the way you'd do it for a car (I'm guessing?)

Aren't there laws that dictate that you can't finance more than X% of your home's value? Or would you have to seller-finance your old home and use their payments + your cash to continue paying the mortgage?

Just curious, as prices took a huge downturn in our area and I was considering getting out in the next 3-5 years, but it doesn't look good.

if u r upside down on mortgage, just walk away from it. goto the bank, and turn in the keys.

easy as pie. your credit rating will goto shit, obviously. but if u dont need good credit for the next 2 yrs, it's fine

 

[XZeroII]

Originally posted by: cKGunslinger
It might not be financially smart, but we have moral issues with walking away from debt. We could have easily filed for bankruptcy several years ago, but chose to rather tighten down and pay off our overwhelming debts as best we could. After all, we racked them up - doesn't seem right to just let someone else eat our mistakes, just because they are "faceless" bank/corporations.

I'm thinking we'll just smartly try to improve the value of our house as much as possible.

You get a gold star in my book :thumbsup:

 

[alkemyst]

Originally posted by: Mxylplyx
No lender is going to give you over a 100% loan to value mortgage in this market. Your pretty much screwed until you can pony up the cash to get out of the house, or the house appreciates enough to get back in the black so you can sell it and walk away. Also, dont forget about agent fees, which are 5-6%.

Not totally true. A lot of builders are fronting the 3-5% down (and more); however you'd need to still have excellent credit to qualify in this situation.

You can't roll negative equity into your new home (usually....some may do this; again you'd need uber credit)...what usually happens is you stroke a check at closing and it sucks.

I know quite a few that had to relocate in the past couple years that took out equity thinking the roof of the boom was still out there. When the ball dropped quickly many put themselves upside down.

This has to do a lot with why this holiday shopping season is so crappy for many merchants.

 

[cKGunslinger]

Originally posted by: XZeroII

Originally posted by: cKGunslinger
It might not be financially smart, but we have moral issues with walking away from debt. We could have easily filed for bankruptcy several years ago, but chose to rather tighten down and pay off our overwhelming debts as best we could. After all, we racked them up - doesn't seem right to just let someone else eat our mistakes, just because they are "faceless" banks/corporations.

I'm thinking we'll just smartly try to improve the value of our house as much as possible.

You get a gold star in my book :thumbsup:

Thanks. That and $1.30 will get me a cup of coffee.

But yeah, I guess we'll just have to stick it out a bit longer. I was just getting that "want a bigger home" itch, seeing as we bought a starter home a bit early and were planning to trade up about now.

 

[HomeBrewerDude]

I've heard of some people walking away from condo/vacation homes, especially when you add in condo association fees etc... When will these type of properties look good again? I wouldn't mind having a house on or near a beach in some place warm.

 

[Slew Foot]

Originally posted by: Greenman

I don't don't think I'd speculate on the housing market being down in 5 years, and few lenders are going to give you a loan until the bankruptcy drops of your credit report, I think thats 7 years.

Historically bust cycles are at least as long as boom cycles and then theres a few years of neutrality before things pick up again. The thinking is that this boom started in 2000 and peaked at 2005, thus historically it should bottom in 2010 and then probably pick up around 2012 or so.

Banks were dying to lend money to anyone during the boom, credit rating didnt matter at all. That's different now, but in a few years will probably be back to the same. People have short memories.