When is enough enough? (mortgage thread)

[mrCide]

Update near end of thread today.

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This is long, sorry.

Background:

I stupidly bought a house in March of 2006. I signed and gave my deposit in 2005 for a pre-construction. Everyone around me is yelling buy buy buy, I was living at home and ready to move out. It's a nice development, although a bit small.. In fact other than the actual size of the home and that it's a townhouse on next to zero land, it's a great location. Stipulation from this builder was that you must live in the home for a year before you sell it as they didn't want to attract investors. I said sure, my plan is to stay in it for a year or two and depending on my work situation I'd like to sell it hopefully make a few bucks (I figured the market was "near peak" so I wasn't expecting much) and move out of South Florida.

I got a loan at 6.6% 30 year fixed, put down 20% to avoid PMI, closed at $262k for a 2 bedroom townhouse. I knew it was a lot and not a large place but I really wanted to move out and get on with my life, and of course, relative price was low to the other homes.

Now:

Here I am 4 years later still regretting my purchase. Time passed as people said don't worry it will recover don't worry. Meanwhile people buying their second home walked away or got loan modifications, actually a lot of people got modifications and perks. Get the low payment with the ARM loan and apparently get a ticket out of it. Between loan modifications and banks offering to cut the mortgage to help people this and that. Of course, I was refused any type of modification and even insulted by the Chase employee because I have money in a savings account. In other words, because I broke my back to make my mortgage payments and was able to work my ass off to put away emergency money, I don't qualify for help.

My home is now worth about $130k, maybe. It's also undesirable because it's 2 master bedrooms rather than 3+, and I won't go into all the things I hate about it. I still owe $200k and paying a high APR. I can't refinance because closing costs and PMI would make it pointless. I also don't want to be stuck in a small townhouse when I'm ready to start a real family (at current prices I can afford a regular place), and I'll be turning 30 soon.

I've heard short-sale thrown around, foreclosure obviously, and other such "options", but I always refused because of my credit and the hope that the market would bounce back so I could break even, however, it's become increasingly apparent that even a full blown 7 year hit to my credit will be over sooner than my home ever reaching the value of what I paid, or even enough to break even.

Dilemma:

I've actually began to think of what options I have. Renting wouldn't make up the monthly cost of the home if I could manage to rent it, I'd be losing money. I've had people suggest short-sale but I don't know what that is or what it involves, or if it affects your credit the same as foreclosing. I've become more willing than ever before to become another statistic that I once despised.. I'm not happy, and ultimately that's what's important to me. I currently have very good credit (800~ fico) and no real debt other than my car loan (small) and my mortgage.

I want to be in a bigger house, I can afford it, I just don't know the best way to get there, and if it's worth it or not, or even an option. I know it's ATOT, but still looking for advice/experience/etc.

No cliffs, looking for serious responses.

 

[soulcougher73]

Too bad you cant just trade in homes like you can cars when upside down and just roll the remainder into the new mortgage

Did you lose your job or anything that is making it hard to afford the mortgage payment now compared to 4 years ago?

 

[mrCide]

No kidding..

Actually this year is the first year I'm able to afford everything, which is why I wanted to look at options getting out of my current house into a bigger home (I got a raise recently and some smart choices have let me put some extra money away). I just don't know how to do so or if it's a reasonable option... with the current market. The market right now seems reasonable, for what I'm paying now, probably less, I could get into a much nicer home.

EDIT: I should note that 4 years ago I was eating away at my savings paying the mortgage and the bills where-as now I'm more comfortable, just extremely bitter about what I'm "stuck" in.

 

[BlahBlahYouToo]

what's gonna piss you off even more is that i heard they're offering to reduce principal to troubled homeowners, up to $50k for 5 years, so that their monthly payment is lowered.
if they remain current on their payments for the duration of 5 years, it becomes permanent.

lets screw all the responsible homeowners and bail out all the other idiots instead.

 

[HardcoreRobot]

i dont really see many options for you

 

[CycloWizard]

Welcome to the new US, where you are penalized for fulfilling your contractual obligations and rewarded for bailing on them. You have seen what you get in this country for believing that the government will act rationally in the best interest of its upright citizens, so now what choice do you have? Set up a 50 cal in the window and stop paying your mortgage.

 

[Aharami]

what's gonna piss you off even more is that i heard they're offering to reduce principal to troubled homeowners, up to $50k for 5 years, so that their monthly payment is lowered.
if they remain current on their payments for the duration of 5 years, it becomes permanent.

lets screw all the responsible homeowners and bail out all the other idiots instead.

you talking about this? That only applies to homeowners who are upside down on their house even though they are making monthly payments

Bank of America on Wednesday announced a new program aimed at reducing mortgage principal for homeowners that owe more than 120 percent of their home's value.

The initiative, according to BofA, would aim to bring loan values back down to 100 percent of the home's value over five years.

 

[kranky]

One thought is to let it foreclose and wait to buy until you are married (I'm assuming you aren't). If your wife has good credit and can qualify on her own, it would mean your own 7-year wait for a clean record won't matter. And in the big picture, you could probably get other types of credit within 2-3 years after a foreclosure.

I think that there have been so many foreclosures (and many more to come), that there's no way lenders will blacklist people for the full 7 years. There are just too many people who will have a great record with the one exception of a foreclosure. And while their score will reflect the foreclosure, they aren't all horrible credit risks. Smart (non-mortgage) lenders will realize a two or three year old foreclosure with no other negatives doesn't indicate much of a risk.

 

[BlahBlahYouToo]

you talking about this? That only applies to homeowners who are upside down on their house even though they are making monthly payments

yup, i heard it on the radio so i don't have all the details, so my summary may be slightly off.

 

[JTsyo]

Don't think a short sale works for you since you owe more than the house is worth.

Original price: 262K
Still Owe: 200K
Current Value: 130K

It still leaves you $70K to payback. Question is, is your credit score worth 70K?
Think it's going to be a question on what you think the market will do. If you think the price will come up another 70K, you can walk away clean. If you're going to walk away from it, it's better to do it now than to keep paying your mortgage and then walk away later after sinking even more money into it. If the price drops again, then the sale wouldn't even make sense. You've already sank 62K into it, not counting interest.

 

[geno]

I read "Florida" and braced for the worst, but 130K is all your place is worth now? Holy hell man, good luck.

 

[allthatisman]

There is a reason bankruptcy and things like that exist, because SOME people are idiots and will keep making poor decision after poor decision. You on the other hand seem like an intelligent person who simply made a poor investment. Buying a home is not a sure thing, yet people in this country seem to accept that the stock market will be what it'll be, but if my house looses money that is unnacceptable. At least at the end of the day you will eventually own something substantial, which is more than one can say about stocks and the like...

If you don't mind being part of the problem, by all means, walk away and save some money.

<<<BTW, see where I am at... same vortex of foreclosures here as well, so I feel your pain... not trying to be harsh, just realistic

 

[BoomerD]

We live in "meltdown central" and there have been numerous stories about people who think it's perfectly fine to just walk away from mortgages that are more than the house is worth.

We're upside down in our house by about 30&#37; and in the process of a mortgage modification. I'd LOVE it it BofA offered us a 20-30% reduction of principal...

We can make our payments...barely. When I was working construction, the mortgage payment was about 15% of my take home...now, with my ever reducing disability payments and part-time bookkeeping job, the mortgage payment is over 30% of the budget. (not gonna hold my breath for the offer though.)

 

[mshan]

delete (see my follow-up posting below)

 

[SearchMaster]

Don't think a short sale works for you since you owe more than the house is worth.

Original price: 262K
Still Owe: 200K
Current Value: 130K

It still leaves you $70K to payback. Question is, is your credit score worth 70K?
Think it's going to be a question on what you think the market will do. If you think the price will come up another 70K, you can walk away clean. If you're going to walk away from it, it's better to do it now than to keep paying your mortgage and then walk away later after sinking even more money into it. If the price drops again, then the sale wouldn't even make sense. You've already sank 62K into it, not counting interest.

There are short sales without recourse where the bank accepts the short sale as a loss and doesn't hold you accountable for the difference. It obviously trashes your credit.

For the OP, if there's not a driving reason to move (you're making payments, not in job distress, etc.) I'd just stay put and see what happens to the market for the next few years.

 

[mrCide]

I am currently with Chase which whom I don't qualify for anything, such as like BofA or loan modification. Just to comment on a couple things.. these are things I would have thought to do once I found/purchased a second home, rather than something I do before trying to get another home. Also, by the time my home is worth what I paid, of course the homes I'd be looking at will sky rocket too, so that puts me back in square one (I can afford what I'm paying now, it's just obviously not worth it since the same value/payment would get me a much nicer home if I was to buy now).

Seems like Chase has strict rules for a short sale as well, looking at their revised page. The big dilemma I guess, if it's possible, is it worth trashing my credit to live in a nicer home that I can afford, or wait for god knows how long to break even on my current home..

It's depressing that there are no decent options for someone like me. And yes while I can afford the payments, it's just not fair... Why should someone paying less than me have a much nicer home than I do just down the street or next door.

Obviously that's whiny and life's a bitch, etc etc. But.. wahhhh! It's gotten to nearly the point where it's not acceptable.

Anyway, thanks for the responses so far.

 

[mshan]

You have $130,000 in capital right now.

You have to think of best way to get best rate of return going forward, not how am I going to get back to even, because then you could way underperform vs. you had just sold, realized the loss, then bought something much higher quality that, if you chose wisely, should appreciate back to intrinsic value faster, hold it's value better because better neighborhood, better built house, better features, etc. and if you are really are going to be an owner for decades, hopefully greater rate of appreciation once housing has returned to normal market values. Low end of market also seems to be moving faster because mortgages are easier to get and your home may actually be a great bargain for another potential first time home buyer or someone weighing renting vs. buying.

You have an unrealized loss. Can you afford to realize that loss and still be able to finance purchase the purchase of a new home, especially when rates are still historically low and you may not have as much competition from other buyers?

It's basically trading up when a macro factor is depressing value of everything about the same percentage-wise, irrespective of quality, or lack thereof, of one particular property vs. another.

Strategic default, as mentioned below, may or may not be better choice, but you should analyze your situation from both points of view, and both against baseline of just staying where you are and seeing how much housing market improves this spring or fall. Money you had earmarked for new home, if instead deployed wisely in some quality mutual funds, will probably appreciate way more than any of these other options if you choose wisely and can wait at least 3 - 5 years, more ideally 5 - 10 or more.

 

[SandEagle]

pay your bills.

j/k. its called strategic default. look into it.

i liked this article:
http://www.usatoday.com/money/economy/housing/2010-03-25-underwater25_ST_N.htm

"It's not about not having money," says Shelby, a purchasing manager for a shoe company. "It's about not throwing money away."

http://articles.latimes.com/2010/mar/17/business/la-fi-walkaway17-2010mar17

"Now, it's more of a business decision -- it's people who could afford their house but it's an inconvenience," Maddux said.

"The bank stabbed me, but at least I got in a pinprick back," he said. "This is the new economy. The old rules don't apply any more."

The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more.

 

[mugs]

For starters, stop blaming everyone else. And stop complaining that it's "not fair" when you want to stick someone else with a $70k loss for a house that you bought.

 

[Jzero]

You mention about being stuck in a townhouse when you want to start a family but honestly there is no reason to get a bigger house BEFORE you start a family. You'd pretty much be fine in a 2BR townhouse with one kid. Doesn't really matter that you're turning 30 soon - how soon do you foresee yourself having a wife and a kid - that's the real question.

I mean, if you're really miserable living there that's one thing. If you're more anticipating being miserable when you have a family, I would say destroy that bridge when you get to it. Someone mentioned your wife having good credit. I know plenty of people in their 30s who both owned a home when they got married and sold one or rented one. I would wait to see what the future holds.

As for it being not fair and annoying, I am here to commisserate. I am at least fortunate enough that my home has not lost value, but at the same time I'm watching all of the idiots getting handouts and bailouts....where's my cookie? I haven't screwed my lenders...it would sure be nice of them to cut $5000 off my principle for being a good client...

 

[mvbighead]

For starters, stop blaming everyone else. And stop complaining that it's "not fair" when you want to stick someone else with a $70k loss for a house that you bought.

As far as I know, this as not at all uncommon. It's not as if the OP bought a house he couldn't afford. He simply bought a house that depreciated far quicker than expected, which essentially traps him in the house due to the fact that he can't sell it without incurring a major financial loss.

My wife has a friend who has experienced the same thing in California. The options to escape such a fiasco are never workable, either.

Personally, I can't speak as to what the op should do, but I can certainly understand that his initial intention would've been to build equity in a home, and walk away with some money when he decided to sell his house 3-5 years down the road. Now, instead, he can't walk away without adding 70k to his debt. It's a very schitty situation, and I for one don't see the OP as blaming others. He's just frustrated with the situation, and rightfully so.

 

[Hacp]

Foreclose, then suck on government tit.

 

[Uppsala9496]

FWIW, I currently live in a 2 bedroom condo with my wife and 2 year old daughter. It's enough room for the 3 of us. We are thinking about a second child, so time to move, because 4 in a 2 bedroom won't work.

Suck it up and sit tight for a couple of more years. You can handle a wife and kid in a 2 bedroom. When it is time for the second kid, then make the move. Hopefully your place will be worth a little more.

 

[Dirigible]

This is America, not commie-ville, dammit! Act in your intelligent best self interest and don't worry about the pinkos whining about "oh what if your actions aren't best for society at large?" The banks are staffed and owned by grown adults: they took on risk and should stfu and take it if that risk bites 'em in the ass.


Take a look at what would happen if you stopped paying for the house. Credit hit: certain. Would the bank be able to go after your other assets? Are there tax implications? How much would you be saving if you shed the house and rented? How likely/when would values go up. Right now you have $130k house and $200k mortgage so your net worth would jump by $70k if the whole thing went away. I can't decide for you if it would be worth it, but given that kind of potential cheese in the game it may well be.

 

[rsd]

I'm in an extremely similar situation having bought a condo that has depreciated by potentially as much as 50&#37;.

I'm also looking to buy a house in the next year as I hope to start a family etc. To me my only clear option is to Rent out the condo. I'll lose $200-400 a month by doing so but at least that's tax deductible.

I don't see it as an option to somehow foreclose or have some sort of modification while trying to purchase a house. But if someone knows a way, speak up!