I doubt we'll know the issue behind the OP, which, as you can see, was changed after Michael initially quoted it.
I think the OP is simply concerned that his house is under water and wonders when house prices will recover.
when will my home's value go up again?
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I doubt we'll know the issue behind the OP, which, as you can see, was changed after Michael initially quoted it.
I think the OP is simply concerned that his house is under water and wonders when house prices will recover.
TromboneAl
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I see your point, but note that the same argument could be used to justify going into the bank with a gun and holding it up. Just change some wording (for example, "you fail to pull it off, you go to jail," "They should have had better security.").
One is decided in criminal court. The other is a matter of contract law and possibly civil court. Huge difference.
Maybe when i started this thread i wasn't totally clear about my situation.
We bought our house seven years ago during the housing boom and we paid too much..probably like everyone else who is underwater. We have 30 year fixed rate mortgage at 6% which comes out to a whopping $2000 a month. We have a 3 year old son and baby coming on 12-16-2012 and i told the bank i might not be able to afford my mortgage any longer. I just sent out a hardship application to see if i can qualify for a home loan remodification...but i'm not expecting much from the bank. I've looked everywhere to refinance but i can't and my loan isn't owned by freddy mac or fannie may so i can't use obama's plan. I just wanted to know when people think home prices will bounce back so i could try to refinance once i got some equity back. If it is something crazy like ten years and the back won't try to help me, then i'll have to check my options and see what is best for family.
We bought our house seven years ago during the housing boom and we paid too much..probably like everyone else who is underwater. We have 30 year fixed rate mortgage at 6% which comes out to a whopping $2000 a month. We have a 3 year old son and baby coming on 12-16-2012 and i told the bank i might not be able to afford my mortgage any longer. I just sent out a hardship application to see if i can qualify for a home loan remodification...but i'm not expecting much from the bank. I've looked everywhere to refinance but i can't and my loan isn't owned by freddy mac or fannie may so i can't use obama's plan. I just wanted to know when people think home prices will bounce back so i could try to refinance once i got some equity back. If it is something crazy like ten years and the back won't try to help me, then i'll have to check my options and see what is best for family.
rescueme
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For me, that is the crux of any discussion of any loan - be it for a motorcycle, a car, property, or anything else that requires an extended payment period.
You made a contract. You made a commitment.
So the "object of your desires" and the contracted property is not worth as much today as you expected, or wished.
Does that mean you are released from your contract - your obligation?
Unfortunately, there are those today that think so. Their commitment, and word are of little value...
OTOH, would you pay the lending company more if your "property" rose in value while you were paying for it?
The contract provides for this. The bank is free to go after the defaulting party in civil court. They should do so if it's in their best interests. If it's not worth it (squeezing blood out of a turnip), they should spend the $5 and send a 1099-C to the defaulting party.
Thanks for coming back and providing additional details. No one knows when housing prices will get back to their previous highs but is will probably not be anytime soon. Do you have any idea of how far underwater (in %) you are?
Thanks for the clarification, it helps to visualize the scale of your problem. That is a really tough situation, adding a child to the family is equivalent to a big pay cut.
I expect house prices are going to be very specific to where you live. Where we are living they are building quite heavily, both houses and apartment complexes, from what we see on our bike rides. I don't track prices any more as we are renters since shortly before we retired.
Lakewood90712
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First thing , if you have not already done so ,get to the tax assessor and get your property tax assesment adjusted down to current value.
Next , If your income is dropping , or you just are so bugged by paying on a mortgage with negative equity , It may be time for a short sale. As long as you are keeping current with payments, the bank , IMHO , will do nothing with a hardship request , or proposed short sale. A 6% note with the money coming in every month is like gold to them.
I suggest you go see a realtor who is sucessfull with short sales, and rent for a few years. Your credit will be dinged big time , but no where near that of a forclosure or BK , and you will normally not get a 1099 for the forgiven debt.
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chinaco
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There must be more to the situation. Was there a job loss or income loss of some sort?
Starting a new family creates extra expenses. Did it created a situation where you cannot afford the home, or do you have other unexpected expenses?
You are working with the bank to see what you might be able to do with the loan to adjust your budget.
Did you consider looking at all of your family expenses to see where else you might be able to make changes to your spending to improve your family budget?
Starting a new family creates extra expenses. Did it created a situation where you cannot afford the home, or do you have other unexpected expenses?
You are working with the bank to see what you might be able to do with the loan to adjust your budget.
Did you consider looking at all of your family expenses to see where else you might be able to make changes to your spending to improve your family budget?
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There is nothing in haha's post to suggest that he is prejudiced. Those who are not familiar with Cotton Mather might be interested in the following.
"Cotton Mather, FRS (February 12, 1663 – February 13, 1728; A.B. 1678, Harvard College; A.M. 1681, honorary doctorate 1710, University of Glasgow) was a socially and politically influential New England Puritan minister, prolific author and pamphleteer; he is often remembered for his role in the Salem witch trials. He was the son of Increase Mather, and grandson of both John Cotton and Richard Mather, all also prominent Puritan ministers."
Source: Cotton Mather - Wikipedia, the free encyclopedia
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Chuckanut
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When my home increased in value, I never gave a thought to paying the bank more interest or give them a percentage of the gain. It was mine to keep. We both honored our contract. Now that the price has gone down, I would not expect the bank to take a loss, assuming I can make the payment. I think contracts should be honored.
Aiming_4_55
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OP - if you are unable to meet the 2k a month payment with the new addition (congrats on the addition) next month, you have to consider all your options. Depending on your location location location, I doubt much will happen within the next 5 + years, but really depends on your neighborhood, etc.
While I know others have comments on personal obligations and commitment to contract/mortgage, it has to be mutually beneficial. While it can damage your credit rating, etc. its life. I view it as a form of tax loss harvesting or a divorce or borrowing from a family member and never paying back (just ½ joking).
The issue is can you obtain comparable/suitable housing at an affordable price until you rebuild your credit, depending on your Income potential, you could ride it out or rent until you qualify to buy again.
While I know others have comments on personal obligations and commitment to contract/mortgage, it has to be mutually beneficial. While it can damage your credit rating, etc. its life. I view it as a form of tax loss harvesting or a divorce or borrowing from a family member and never paying back (just ½ joking).
The issue is can you obtain comparable/suitable housing at an affordable price until you rebuild your credit, depending on your Income potential, you could ride it out or rent until you qualify to buy again.
more clarification about my post...
right now according to a 2010 assessment done by my town i live in (portsmouth, RI) i'm underwater by almost $60,000. We owe $297,000, zillow has it at 257,000 and our town has it at 233,000. I don't even know how they assessed my home without coming inside. We have done tons of work around the house in 7 seven years....painted the outside, put in a nice wooden front door in, renovated the downstairs bathroom, new appliances, new plumbing, tankless hot water heater, we are the middle of our kitchen renovation...etc...maybe when the kitchen is done i should have a new appraisal done. We have cut expenses in a few places: delayed buying new cars, got rid of cable and put an antenna on the home, cut back on groceries..etc.. We aren't losing income we may just not have enough. To tell you the truth, i don't want to be paying a $2000 mortgage for 30 years because it take so much money away from other things we could use it for. I'll wait to see what the bank says and then decide....maybe i'll ask my neighbor a few questions since she's a real estate lawyer. thanks for the input everyone.
right now according to a 2010 assessment done by my town i live in (portsmouth, RI) i'm underwater by almost $60,000. We owe $297,000, zillow has it at 257,000 and our town has it at 233,000. I don't even know how they assessed my home without coming inside. We have done tons of work around the house in 7 seven years....painted the outside, put in a nice wooden front door in, renovated the downstairs bathroom, new appliances, new plumbing, tankless hot water heater, we are the middle of our kitchen renovation...etc...maybe when the kitchen is done i should have a new appraisal done. We have cut expenses in a few places: delayed buying new cars, got rid of cable and put an antenna on the home, cut back on groceries..etc.. We aren't losing income we may just not have enough. To tell you the truth, i don't want to be paying a $2000 mortgage for 30 years because it take so much money away from other things we could use it for. I'll wait to see what the bank says and then decide....maybe i'll ask my neighbor a few questions since she's a real estate lawyer. thanks for the input everyone.
FIRE'd@51
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Are you saying you want to refinance at the current low interest rates in order to reduce your monthly payment, but the bank won't let you because you are underwater?
meierlde
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Thats typically the situation that you must meet some loan to value ratio for a new mortgage.
At 9 years you are still paying mostly interest. It looks like the balance would be in the neighborhood of 87% of the initial amount. At 15 years it is 71% and at 20 years 55%. (Note that this is why only young mortgages really benefit from the mortgage interest deduction). So over time the house will naturally come above the water, its a long slog on a 30 year mortgage.
Of course in general the moralists are not business persons, in business defaulting on a loan is just business, but somehow people are expected to abide by a higher standard than businesses.
Since there is a contract that specifies the results of not paying, then there is no morality at all involved, both sides have agreed what is what.
Brat
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It might be possible to borrow money from a relative to pay down your mortgage enough so that a re-fi would be possible then take the money you save to pay back your relative. Give your relative a 2nd mortgage to secure the loan and pay him/her interest at your current mortgage rate. It will take a while to achieve break even but mortgage rates will never be lower. Banks don't like folks doing that and the relative may need to say that the money is a gift but...
I ran into that issue with a lender several years ago when I used money from an inheritance to pay down my mortgage and then re-fi. They insisted that I prove that I received the inheritance.
I ran into that issue with a lender several years ago when I used money from an inheritance to pay down my mortgage and then re-fi. They insisted that I prove that I received the inheritance.
FIRE'd@51
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Putting aside the ethical (and perhaps legal) question of a misrepresentation such as this, in order to qualify for the mortgage interest deduction, you need a contract specifying the interest paid to your relative. You can't have it both ways
obgyn65
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In my honest opinion, not before 10-15 years. Sorry, I wish I had better news.
The way your town assesses property value is probably just based on location and size. It's better to have a low value because that is how they calculate your tax. If the zillow estimate is close to real market value, you would need about 20% increase to break even. That is not an unreasonable expectation for the next 5-10 years. It could even be more than that.
You knew this was going to be the case when you bought the house. Maybe your real estate neighbor can help you find a way to deal with this. Maybe next year there will be a way to refinance mortgages that are underwater, which would help reduce the monthly payment and make it affordable. Good luck with the kitchen renovation.
REWahoo
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This statement sounds like a delayed case of buyer's remorse...
chinaco
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+1 for two reasons stated.
- Change in priorities
- Disappointment about the value of the home and not being able to get a lower rate.
what you said is somewhat true in Asia. A loan shark will come to your home, first beat you up, then put a gun on your head, last send you to jail.
pimpmyretirement
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You have options, they will all be hardships. It's up to you and your wife to decided if they are worse than keeping things the same. If debt is growing, the situation will only get harder. You need to start acting on the problem. Some ideas:
1. Rent the nice house out, go live someplace you want to afford. This could be better than just selling, since a straight sale leaves you with almost $100k in debt after paying your real estate broker..
2. Stop paying the mortgage and hope the bank will negotiate a lower rate with you. The bank does not want your property, already owns the risk and even at a 5% rate would still be doing well. I would seek out guidance on doing this and understand what it would do to my credit. Also realize even a 1.5% reduction in interest will save less than $5k a year. Your credit could be worth more than that, especially given that some employers and insurers now use credit checks as screening tools.
3. You and/or your spouse get a second job. Child care costs could make this tough, but perhaps a family member would help.
4. You and/or your spouse find a higher paying job. This would probably be you, given the pregnancy. The fact that a $2k per month mortgage is a problem suggests you have a lot of potential for higher earnings. Getting into a high profit sector like finance or insurance could pay off, even if it's just doing the job you do now for a different company.
5. Empty a room and take in a boarder.
6. Sell all but your absolutely most needed posessions, maybe even going down to a single car. Use that money to help work down the debt.
7. Similarly, cut all expenses until you are living like a student. Reduce phone service to a single pre-paid cell. Don't eat out. If you're taking vacations or when you have fun, stay local and do free stuff. No new consumer goods - clothes, furniture, electronic toys, etc. No consumer services - gyms, massage, stylists, etc. Stop any renovations. Barely survive for a year or two, so you can provide a stable environment for when your kids are old enough to remember it.
I would definitely go for 4, 6 and 7. I would explore option 2 very carefully. If there was a way to pursue it where the credit hit did not hurt my anticipated financial future, I would do it without hesitation.
1. Rent the nice house out, go live someplace you want to afford. This could be better than just selling, since a straight sale leaves you with almost $100k in debt after paying your real estate broker..
2. Stop paying the mortgage and hope the bank will negotiate a lower rate with you. The bank does not want your property, already owns the risk and even at a 5% rate would still be doing well. I would seek out guidance on doing this and understand what it would do to my credit. Also realize even a 1.5% reduction in interest will save less than $5k a year. Your credit could be worth more than that, especially given that some employers and insurers now use credit checks as screening tools.
3. You and/or your spouse get a second job. Child care costs could make this tough, but perhaps a family member would help.
4. You and/or your spouse find a higher paying job. This would probably be you, given the pregnancy. The fact that a $2k per month mortgage is a problem suggests you have a lot of potential for higher earnings. Getting into a high profit sector like finance or insurance could pay off, even if it's just doing the job you do now for a different company.
5. Empty a room and take in a boarder.
6. Sell all but your absolutely most needed posessions, maybe even going down to a single car. Use that money to help work down the debt.
7. Similarly, cut all expenses until you are living like a student. Reduce phone service to a single pre-paid cell. Don't eat out. If you're taking vacations or when you have fun, stay local and do free stuff. No new consumer goods - clothes, furniture, electronic toys, etc. No consumer services - gyms, massage, stylists, etc. Stop any renovations. Barely survive for a year or two, so you can provide a stable environment for when your kids are old enough to remember it.
I would definitely go for 4, 6 and 7. I would explore option 2 very carefully. If there was a way to pursue it where the credit hit did not hurt my anticipated financial future, I would do it without hesitation.
I agree with this time frame.
Couple of points. How can you know you will have a baby on 12/16/2012? Isn't that like 13 months from now? Or was that a typo and you are expecting a baby 12/16/2011?
The bathroom and current kitchen renovation may not add much value to the home. It will most certainly not add what you paid, unless of course you did them yourselves...which helps a lot! But my point is the appraisal process doesn't give you much credit...unless you added square footage, added a bedroom, added a bath....etc.
You are underwater. It does not become a "real" loss until you sell. Do you have other capital gains you can use to offset a real capital loss if you sell?
What does future appreciation look like in "your" market? Are you in a desirable location in R.I.?
When you bought it, you and your wife must have thought you could make the payments ..no problem. So unless there has been a reduction of income (which you said no there hasn't been), I'd be hesitant to sell right now or do anything that would give me that "real " loss.
That money you used for renovations or money you plan for future stuff...could be routed to help pay down the principle of the mortgage. What would your decision be, if in 2 to 4 years (or perhaps even sooner) of paying down as much extra mortgage principle as you could, you find yourself in a situation where you are no longer underwater, able to refinance...etc...etc.
I'd focus on getting out of "being underwater" so I'd have more options with the banks. During this time, there may be other federal programs that are initiated that you may be able to take advantage of.
It is difficult to give you real solutions without knowing the other pieces of your financial information.
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