Credit Card Center Advertiser Disclosure†
03-26-2012 07:19 AM
I was wondering if we can get some advice from the great people here.
My fiance bought the home we live in back in 2007 for $172,000. An identical house just went on the market down the street for $129,000. He still owes $162,000 so its way underwater. He is trying to get a loan modification because with his income has decreased since he first bought the house. We are in a trial mod right now, and hoping to get a perm mod.
This home works for us now but we want to have kids soon and it's way to small to raise kids in. We would like to buy a bigger house within the next few years and we REALLY want to take advantage of the great home prices that are out there right now.
We are debating on what to do.
We have thought of letting this house go now and then when his credit is better in a few years we could buy a house together.
We have thought about keeping the house if the perm mod goes through, then in a few years buying a house together. But we would have to hope that the current house would actually sell, or that we could rent it out and still get approved for the new house.
Does anyone have any ideas on how to handle this underwater house and be able to buy our dream house in a few years.
03-30-2012 12:35 PM
I don't know much about modifications but my wife and I were in the same boat as you were. We have two young children and had outgown our home and like many were underwater by 32K. We talked to several loan officers and ask some questions on here and ultimately we came to the conclusion that it wasn't going to be easy but we needed to do it. We decided to save up and paydown the current loan to market when that appraised in the black we were able to purchase a 2nd home and rent the first. This took about a year and a ton of sacrficing but it was well worth in the end. I know that isn't the fast quick way but we feel very good about our decision. The rates waited on us and we ended up with a 4.25 on the new home and 3.5 on the 2nd home refinance. As a result of rent being very high in our area we are able to rentt it at 50% more than our payment. I know being a landlord isn't for everyone but so far so good. Just giving you our route but anyway good luck!
03-30-2012 12:59 PM
To be honest, you're not THAT underwater (at least the way I see it).
How do YOU feel the market is going to react in the next few years? Do YOU think it's going to rebound? If yes, then I would stick to what you have now and wait for prices to come back up.
03-30-2012 04:21 PM
Hi, my hubby and I were/are in the exact same position, and here's what we are doing. Not sure if it is an option for you...
In our area (IL), several of the new home builders are using a company called MarketPlace Homes. If you build new with one of the participating builders, the builder will pay MPH a premium commission. In return, MPH will lease your current home (assuming it is in reasonable shape) for up to 6 years, and will pay you guaranteed rent whether they find a tenant or not. They handle maintenance, utilities, tenant repairs up to $1000, and everything else. Your rent payment comes from MPH, not from the tenant, so if the tenant falls behind or whatever, it won't impact you--you are paid regardless. They rent as rent-to-own, and if/when they sell, you get your full asking price (no commission.)
The pluses are this: guaranteed monthly rent, no hassle property management, and no commission sale. And because tenants are rent-to-own, they will *probably* take better care of the property. MPH makes their money off the builder (who sells more homes this way), and off the tenant. For example, if they pay you $1600/mo in rent, they might actually be charging their tenant $1800/mo or whatever. You will get all the tax deductions from an income property, which might substatially lower your yearly taxes. And, with 6 years of committed rent, you will have the luxury of keeping your house until the market (hopefully) turns around and you are no longer underwater. You can opt out of the program at 1 year intervals and take your home back if you want, but MPH cannot back out until the 6 years are up.
The minuses are this: you will, of course, need to qualify for both mortgages. You must carry landlord insurance, which can be a bit more expensive than regular homeowner's insurance. You will probably lose your homestead (owner-occupied) deduction on the property taxes for the old home. And you are responsible for any major repairs over $1000, although MPH will handle getting the repairs done if you want, or you can do them or contract to have them done on your own.
DH and I researched the program extensively, and it looks like a win-win for everyone. The company is nationwide, but not all builders participate. It is another option though, and one that can help underwater people who want to buy new. Don't mean to make this sound like an ad, but it works for us.
03-30-2012 10:25 PM - edited 03-30-2012 10:26 PM
To the OP, really the house you are in is not very far under water at all based on your post. It's difficult to tell because you don't post what the recent closed sales are for similar homes in your neighborhood, so the market value is not obvious. The one that just came on the market could be an individual distressed sale either bank owned or short sale and an anomaly in your market. Have you checked the recent closed sales?
But, lets assume that the market is around that value of $129k at the moment. You are still not far under water at all. The accelerated payment plan that one of the above posters put into place is a reasonable viable solution for very small differences like you are discussing. If you concentrated, you could pay down the difference in a year or two, just like that poster in North Carolina above. It certainly would preserve your credit to allow you both to purchase your dream home and finance it much more quickly than following a modification, short sale or other plan that would create a derogatory on your finance's credit. Remember the hit to your finance's credit would be at least 3 years from the date of the final derogatory posted to his mortgage (if he gave the house back in f/c then 3 yrs from the date the house transfers from him to the bank at a minimum).
Count yourself fortunate that you are in an area that hasn't been hit very hard by the housing crisis. Your neighborhood is in very good shape - or your fiance made an excellent purchase in 2007! (In our area here, the values are down well over 50% and in excess of several hundred thousand dollars - which makes it much more difficult to bring money to the table when selling or accelerate the payoff unless the seller is going to stay in their home for many years.)
05-01-2012 12:32 AM - last edited on 05-01-2012 12:11 PM by MarineVietVet
Currently, at no fault of our own, we live in a 2 bedroom townhouse mortgaged for about 367, and now worth about 275. My wife and I desperately need a bigger home, with an expanding family(children). We have one, and probably gonna have another in the next year. What should we do? Please see explanation for our options as we see it.
Rent our home, and buy another - not sure anyone will lend me another mortgage.
Rent and Rent - easiest option, but need to find a renter, and a place to rent...