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Please help if you can! Do we stay or go???

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blair0708
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Please help if you can! Do we stay or go???  Reply with quote  

Hi there,

My family and I are in a bit of tight spot at the moment. We are currently paying 7% interest on our home. We just tried to refinance, which would save us $700 a month (that includes taxes); however, our home is appraising for $191,000, which is $20,000 less than it is worth. Our mortgage is also not backed by Freddie or Fannie, so no help there.

I have been told that in order to refinance we would need to come up with $40,000 to make up for the difference, as the bank will only finance up to 80-85% of what the home is worth.

I am a relatively new stay at home mom and with one income, we are barely paying our bills. This was supposed to be our starter home and we have been here 8 years. It is not large enough for another child...

My question is - Should we try to come up with the money and stay?? Or should we walk away and put that money toward a downpayment on another home and take advantage of this low interest rate? I would want to avoid a short sale at all costs; however, I'm not sure we could get what we owe on this house...

Any input is greatly appreciated!!!!


Last edited by blair0708 on Mon Aug 12, 2013 12:44 am; edited 1 time in total
Post Sun Aug 11, 2013 10:11 pm
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oldguy
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To save $700/m you must have a $300,000 mortgage? That's a pretty big 'starter' home.

Do you have the $40,000 available to refi? If not, that is a moot point.

I would try a few mortgage lenders (in addition to your current one), lenders need customers now. Others might offer you a better deal, some lenders are making loans with 3.5% down payments, so that would be quite a bit less than $40,000. With a small DP, you would have to pay PMI for a few yrs but that is a lot less than $700/m.

As for "not large enough for another child" - you're barking up the wrong tree with me Very Happy - when I was a child, the 5 of us lived in a 500 sq foot cottage on a farm, no running water, no inside plumbing. You'd be surprised at how many of us lived during WW2. But time have changed, back then a 1000 ft house was normal for a family of 5, now families feel crowded with 1500 ft, they like 2500 ft mcmansions. Very Happy
Post Mon Aug 12, 2013 12:07 am
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blair0708
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Thank you for your reply! We bought the house for 206,000 and refinanced for 225 a few years ago so we still owe 206...It's a small ranch and we could make it work with 2 children, but it seems like it would be a tight squeeze. It is a little over 1000 sq feet...

We have 40,000 from inheritance but I would hate to put all of that into the house that isn't even worth what we are paying.

I would be interested in looking into a loan, like you mentioned. That sounds much better, especially if we could get it at that low rate. Very Happy Very Happy Very Happy Very Happy
Post Mon Aug 12, 2013 12:42 am
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oldguy
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quote:
It's a small ranch and we could make it work with 2 children, but it seems like it would be a tight squeeze. It is a little over 1000 sq feet...


My rentaluses are in the 1000 to 1150 foot range - I often have young families with 2 or 3 small children, they seem to make it work. Also, a second child won't actually need much romom for the first couple years.
Unless you are near Detroit, your house is likely to increase in value over the next 3 yrs, perhaps by about $30,000.

But your $700/m savings is not calculated right, if you refi'd from 7% to 4% it would cut the payment by about $425/m.

You might be able to shop around for a better mortgage, invest about $20,000 of your fund into it, then stay put for about 3 years - then sell it a a good enough price to recover your $20,000?
Post Mon Aug 12, 2013 1:14 am
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blair0708
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We are in the Detroit area!! Scary, huh? Actually we are in a very nice suburb outside of Detroit. The market does seem to be picking up around here and houses are selling really fast.

I don't really get the $700 a month either but somehow taxes are calculated into that as well. You are right though. 425 for just the mortgage.

So you're saying invest 20,000 of my own money and then borrow 20,000 in order to refinance? We have to come up with 40,000 in order to refinance and save money every month.
Post Mon Aug 12, 2013 1:49 am
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oldguy
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quote:
So you're saying invest 20,000 of my own money and then borrow 20,000 in order to refinance? We have to come up with 40,000 in order to refinance and save money every month.


No - I would offer to put $15,000 into the house to bring the $206,000 owed down to $191,000. And then shop for a almost-zero down payment mortgage. I think 3.5% down-payment loans are now available. No need to sink your $40,000 into house equity, there are higher and better uses for your money than that.

But since you are in a Detroit suburb it might be wise to stall for a couple months to see what Obama does. - he might actually come up with a gov't program for Dtroit that bails out underwater houses in Detroit - he seems to have a soft-spot for car manufaturers, unions, & Detroit. Very Happy
Post Mon Aug 12, 2013 4:07 am
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coaster
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Have you checked to see if you're eligible under the HARP program?

http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx

~Tim~
Post Mon Aug 12, 2013 4:37 am
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blair0708
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[quote="oldguy"]
quote:
No - I would offer to put $15,000 into the house to bring the $206,000 owed down to $191,000. And then shop for a almost-zero down payment mortgage. I think 3.5% down-payment loans are now available. No need to sink your $40,000 into house equity, there are higher and better uses for your money than that. Very Happy


Thank you!!! I'm going to look into this. It would be much more manageable and realistic for us.
Post Mon Aug 12, 2013 11:36 am
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blair0708
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quote:
Originally posted by coaster
Have you checked to see if you're eligible under the HARP program?

http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx


Hi Tim,

We aren't backed by Freddie or Fannie Sad So no help wiht Harp
Post Mon Aug 12, 2013 11:37 am
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littleroc02us
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I'd tie in a low interest rate quickly before rates go up, 7% is terrible in today's market. You have the money to bring your mortgage down as Oldguy suggested to attempt to refi with only 3.5% down. I just had friends who were able to do the same. As for walking away, I don't believe that is a moral act since you have 40k sitting in the bank. Not to get all high and mighty, but if you have the money you shouldn't strategically default. Smile

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Aug 12, 2013 1:46 pm
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blair0708
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quote:
Originally posted by littleroc02us
I'd tie in a low interest rate quickly before rates go up, 7% is terrible in today's market. You have the money to bring your mortgage down as Oldguy suggested to attempt to refi with only 3.5% down. I just had friends who were able to do the same. As for walking away, I don't believe that is a moral act since you have 40k sitting in the bank. Not to get all high and mighty, but if you have the money you shouldn't strategically default. Smile


Thank you!
Post Mon Aug 12, 2013 1:50 pm
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Boydfred
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There is no moral obligation...  Reply with quote  

quote:
Originally posted by littleroc02us
I'd tie in a low interest rate quickly before rates go up, 7% is terrible in today's market. You have the money to bring your mortgage down as Oldguy suggested to attempt to refi with only 3.5% down. I just had friends who were able to do the same. As for walking away, I don't believe that is a moral act since you have 40k sitting in the bank. Not to get all high and mighty, but if you have the money you shouldn't strategically default. Smile


These are business transactions and both sides go in knowing the risks. Default risks are written into the price of the mortgage. If you owe more than the property is worth you should consider defaulting. It's ridiculous to pay a premium on a house you have been paying on just because you've been paying on it. Your payments are gone and have lost you money. Your house is only worth what a willing buyer will pay for it, future appreciation is a dream. It's monthly value to you is its housing value- or roughly the rent cost for equivalent shelter.

That 40k is wealth and should not be sunk into a declining asset. Figure you can double that 40k twice (to 160k) with good, alert investing before your kids go to college, keep and/or get the money into a retirement account (Roths if you can). Give them some of your wealth for college (good investment). Keep your oars in the water and stay in the middle of the current of the powerful American economy.

One of the hidden deceits in this market is these appreciation figures. The house that sells this month for 200k is not the same house that sold six months ago at the same address for 140k- it's been upgraded at substantial cost and risk. Don't expect your same basic ranch house to appreciate at that same rate. What's selling at premium prices in any price category are "premiumized" properties.

That being said- negotiate! You have the most leverage going in or getting out. But be willing to get out and enjoy the life of a renter until you're willing to risk home ownership again. Good luck! Enjoy your kids, get outside the four walls and live!
Post Mon Nov 04, 2013 5:21 pm
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Boydfred
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Another idea- rent until you've saved enough to pay cash.
Post Mon Nov 04, 2013 5:24 pm
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coaster
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Re: There is no moral obligation...  Reply with quote  

quote:
Originally posted by Boydfred
Default risks are written into the price of the mortgage. If you owe more than the property is worth you should consider defaulting.

There are more consequences to a default than those you've mentioned here.

~Tim~
Post Tue Nov 05, 2013 5:36 am
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Boydfred
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Re: There is no moral obligation...  Reply with quote  

quote:
Originally posted by coaster
quote:
Originally posted by Boydfred
Default risks are written into the price of the mortgage. If you owe more than the property is worth you should consider defaulting.

There are more consequences to a default than those you've mentioned here.


Consequences? You mean hit on credit score? If OP has a 7% mortgage she probably has a less-than-perfect credit score already, making the 40k even more important. Better to lose creditworthiness and move into a pay as you go reality until they get the realities of cash and credit figured out.

Sure there are consequences but most are long-term positives and defantasizing home ownership dreams and "good debt" are big long-term positives, IMHO.
Post Wed Nov 06, 2013 4:34 pm
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