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Old 11-12-2011, 11:13 PM   #41
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Originally Posted by FIRE'd@51 View Post
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?
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.
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Old 11-12-2011, 11:44 PM   #42
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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.
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Old 11-13-2011, 06:41 AM   #43
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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...
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
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Old 11-13-2011, 06:51 AM   #44
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In my honest opinion, not before 10-15 years. Sorry, I wish I had better news.
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in your honest opinion, when do you think the home values will go back up?

thanks
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Old 11-13-2011, 07:00 AM   #45
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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.
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.
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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.
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.
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Old 11-13-2011, 07:34 AM   #46
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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.
This statement sounds like a delayed case of buyer's remorse...
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Old 11-13-2011, 08:04 AM   #47
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This statement sounds like a delayed case of buyer's remorse...
+1 for two reasons stated.

  1. Change in priorities
  2. Disappointment about the value of the home and not being able to get a lower rate.
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Old 11-13-2011, 08:13 AM   #48
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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.").

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.
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Old 11-13-2011, 08:17 AM   #49
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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.
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Old 11-13-2011, 09:28 AM   #50
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In my honest opinion, not before 10-15 years. Sorry, I wish I had better news.
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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Old 11-13-2011, 11:01 AM   #51
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To answer the OP's original question:

First, you need to recognize an increase in "price" has two components. The first being nominal growth and the second is real growth.

I suspect that we will start to see nominal growth in prices in two to four years timeframe depending on location. I don't expect to see real growth for quite sometime (minimum 8-10 years).
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Old 11-13-2011, 11:07 AM   #52
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We sold in 08 in Texas and have not bought back in...I think we still have a year or two until unemployment AND wage inflation needs to kick in. So many have had a kick to the groin on being burned by their home depreciation & short sales galore.

We're in no hurry to get back in, but if I was, I'd buy in Florida or Texas...FL for vacation, TX for low tax expense, both for price. We are 70-80% cash / CD's for the opportunity of a lifetime (if it comes)...
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Old 11-13-2011, 02:31 PM   #53
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Don't put too much stock in Zillow, my friend. Nobody really knows how they come at their valuations. For example, Zillow claims that our home is worth almost $100K more than our next door neighbor's home, which is bigger and nicer in almost every way than ours. This seems to be the result of my having "claimed" our home and added details about improvements we've made.

IMHO Zillow's main reason for existing is so people can look up their neighbor's home's sale price and say, "They paid WHAT for that place? Hahahahaha!"

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We owe $297,000, zillow has it at 257,000 and our town has it at 233,000.
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Old 11-13-2011, 02:51 PM   #54
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Don't put too much stock in Zillow, my friend. Nobody really knows how they come at their valuations.
Zillow didn't even have zestimates in our area for a long time. They have had them for a few years by now, though. What they seem to do here (or my best guess of that, anyway), is to take average prices for large areas (perhaps zip codes? Perhaps from census data?) and then do a linear interpolation by distance to the next area over. This give laughable results in areas like Frank's neighborhood, which has some smaller 50-year-old small frame houses and some brand new multi-story McMansions mixed together. Each house is valued at about the same as the next house over, when really the selling price might differ by as much as 300%. Zillow has no idea how many bedrooms or bathrooms, or what the square footage of a house is here, unless it has sold recently.
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Old 11-13-2011, 03:32 PM   #55
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What does the current perceived value of a home (or any other financed purchase - such as a car) have anything to do with your ability to make a payment?

If a home loses half, or gains half its perceived "worth", what does that really mean?

Unless you have a need to move (e.g. j*b transfer, j*b loss, health problems, or other "real" reason), you still need a place to live.

Assuming you have the same income as you had when you signed the note/mortgage papers, what does it matter?

If you can make the payments in order to satisify the commitment you made, continue to do so. To do otherwise just means (to me) is that you are a person who cannot keep their word, nor satisify a commitment.

Don't blame it on a bank, the economy, or the opinion of others to say what the current value of your home is.

You may not like my comment, but you asked for opinions...
+10. Thanks for saying what needed to be said!

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Old 11-13-2011, 04:02 PM   #56
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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.
At the risk of seeming simple-minded, I have to ask this.
Could you rent an equivalent house (equally suitable for your young family, in an equivalent neighborhood with equivalent schools, etc.) for anywhere near that $2,000 a month?

I don't know the answer, but when I look at Zillow for your location (and I agree with Amethyst that there are problems with using Zillow), I seem to see that your $2,000 would be a very reasonable rental rate.

So it seems to me that you're actually OK, since you're paying a fair price for what you have, AND you're building equity in it. A pretty sweet deal, IMHO. Given time, it should get even better.
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Old 11-13-2011, 04:13 PM   #57
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Don't put too much stock in Zillow, my friend.
That is so true. Unless you're in a fairly homogeneous subdivision [shudder], Zillow has some serious drawbacks.

In my case, it's ridiculous. My next door neighbor has his house currently on the market for roughly eight times the value of my house (which is a reasonable asking price, IMHO). The house has been on the market for about a year, but Zillow doesn't seem to know it's for sale, and values it at only five times the value of my house.

The next door neighbor on my other side has a far larger property, but with a lesser house, and Zillow has absolutely no clue what its value might be.

So there is a huge grain of salt that has to be taken with many Zillow estimates.
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Old 11-13-2011, 08:47 PM   #58
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When are housing prices going to go up? I can predict that exactly as well as I can predict the stock market. I have not a clue, and neither does anyone else.

I'm late to this thread. I was sympathetic (I've been way underwater myself and I know how uncomfortable it is), especially with you having another child on the way, until I got to.... kitchen renovation? If you've already decided to walk away, why are you renovating the kitchen? If you've not yet decided to walk away, and are having trouble making the payment, why are you renovating the kitchen?

If it sounds like I'm picking on you (and maybe I am), it's because when I was underwater on my mortgage (WAY underwater, a local situation decades ago), the last thing I even considered doing was throw money away to keep up with the Joneses. That's the main reason DH and I were able to pay off the d*&m mortgage. And yes, our kitchen is unchanged (except for replacing broken appliances) but still perfectly functional.
If you've already committed to the kitchen renovation, so be it, but it suggests to me that you have a long way to go before you're learned to live below your means. And LBYM is one of the secrets to a happy life.
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Old 11-13-2011, 09:43 PM   #59
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Eh, WTH, I'll say it.

You and the bank entered into a contract. They loan you money and you pay them over 15/20/30 years. If you default on the contract, the bank gets a house.

BOTH the bank and you are at risk. The bank took a risk that you may default. Their collateral is the house. Unless something was fraudulent, such as an inflated appraisal or a broker/applicant falsifying income, then it's a simple business agreement.

==> You do X, you get Y. You fail to do X, we get Y; your credit is penalized and you possibly get a 1099 for forgiveness of debt.

The bank and you shouldn't expect housing values to increase all the time. They should've demanded more down payment. You shouldn't have bought more house than you could afford or taken that ARM or whatever.

In the end, it's a business agreement. Treat it like one.

Eridanus,
You viewpoints on this topic seem extremely unpopular. That being said, I have to admit that I personally think you are 100% correct. (It is all business.)

Why so much sympathy toward the loaning institutions if the buyer chooses to default on their home loan?

The bank agreed to all of the terms of this business transaction knowing that a loan default is one of the possible outcomes. They agree to the home value as collateral, and the size of the down payment. They even make the person borrowing the money buy mortgage insurance to cover their possible loses if the down payment is not large enough.

I also don't think it is that lucrative for someone to default on their home loan. Their credit is trashed, they lose all the money they put down on the loan, everything they added to the home, and any principle they may have paid down on the loan. They also have to go find someplace to live.

If the home owner believes that all of these negatives consequences still add up to a better situation for their family than continuing to live in the house and pay the mortgage, they should default on the loan and give the loan collateral (the house) back to the bank.



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Old 11-14-2011, 12:20 AM   #60
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At the risk of sounding harsh, I'll offer my opinions. Of course all I know is what I've read in this thread.

The original poster entered into a contract for 30 yrs at $2k/mo. Assume the house remained stable in value. Does that change the "I don't want to pay $2k/mo for 30 years" statement? This statement would imply the OP wants to sell, but can't. Yet the OP still managed to decide to have 2 kids and remodel 2 rooms. Seems that either the OP CAN afford the payments, and just doesn't like them, or the OP is not planning very well. I don't like a lot of things I pay for, too, and yet I still live by my commitments.

Given all that, the laws are the laws. Companies wouldn't lose a moment's sleep screwing you over for the good of their own fiscal needs. The big banks took hundreds of $billions of our money and are still too big to fail. I wouldn't lose too much sleep over a BK or short sale if it was the best answer for my own family situation.
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