How do you come up with $153,000 in a hurry? Really I have no idea, but that is the amount I would need to refinance my mortgage. I bought a small starter home in 2005, we planned to move up after ~5 years. I took out an adjustable rate loan, which now seems like a ticking time bomb in my lap. Mortgage rates have never been better but like all the other underwater homeowners, I can’t take advantage of them. I tried calling my lender to see what they could do. The news wasn’t good.
They are holding my mortgage, it was not sold off to investors. But any modification or refinance would have to conform to traditional standards and the loan could not exceed 80% of the appraised value. The not so helpful loan officer asked how much I was upside down - I told him I didn’t know but it was significant. Afterwards, I used their online home valuation estimator. Based on my current loan balance, their value estimation and the 80% limit, the difference was $153,000. Yeah, I’ll just write you a check.
Their valuation model had some quirks, my home value was placed 50% below the comps! Only 1 of the 8 was actually in my neighborhood. None of the comps have a view like I do, most are in poor condition and all have smaller lots. Still, even an optimistic appraisal would leave me owing a hundred thousand to refinance. Money I don’t have.
The call left me rattled. I had held on to the hope that my lender, a credit union, would be more flexible. The money has already been loaned out, why not reduce the risk of default. It’s extremely painful knowing I could pay half as much for the same house. I’ve made a lot of financial mistakes in my day, but I’ve been able to recover. I don’t know what to do this time. It will take me 10 years to save up that much. If the rate adjusts to the maximum, my payments would increase by 60%. The $3500 monthly house payment would eat up most of my salary, say goodbye to saving. I feel helpless.
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Yikes, that's scary. How much longer do you have until the rate is due to adjust? Is there a supervisor you can discuss this with rather than the unhelpful loan officer?
(I don't know, it just seems like in this environment, it would behoove them to work with folks who want to actively participate in mitigating possible defaults.)
Do you expect the rate to adjust to the maximum? With current rates being low, you'd think you might get a break.
that sounds very stressful, I hope something works out.
@Revanche - I have two years left, not enough time for the market to recover. I got the name and number of the supervisor and I'll probably have to keep climbing the ranks from there. I don't want my principal reduced or anything, I'm happy to pay the full amount. I just need the security of a fixed rate loan now that I'm stuck for a decade or two.
@SP - if it adjusted right now my rate would go down! But sometime in the next 20 years rates will be higher and the max is certainly a possibility. Back in the 80's rates were over 13%, my rate is capped at 10.5%. All I can do is hope the CU changes their policy or the housing market rebounds quickly and strongly.
Breathe! :)
You still have two years, which is a long time. Think how much has happened in the last two years. I highly doubt you will still be $100,000 underwater in two years. At the very least you should be able to sell it. The market isn't going to be this terrible forever.
Plus, like you said, your rate would actually go down if it adjusted right now. Don't think about worst case, besides there isn't anything you can do about it right now.
Ugh, that sucks so badly. I hope things turn around this year. I am so sorry hun!
If things keep going as they are then there is hope for even lower rates and refinancing, think positive. Keep up the pressure on lenders! I would have to pay $200,000 to get my loan balance to 80% of current value so I am hoping for your sake as well as my own!
Holy moley! If you need over 150K to get under 80%, I hope you put nothing down...
I agree with Ashley - breathe. You're painting the worst case scenario and panicking. Of course I'll never know, but based upon my own experience with adjustable rate private student loans (which has no cap), I truly doubt the 10.5% APR will ever come to fruition. I know I'm comparing apples to oranges, but hear me out - in 2005, my APR was 6.239% and going higher and higher. As the market bubble was getting frothier and frothier, my APR went up as high as 8.47% in 2007. Then the market turned and guess where it's at now? 4.518%. I think the Fed will do everything in its power to keep the rates low until the housing market stabilizes. When your rates adjust upward, I predict it will be incremental, not a sudden jump. And when it does adjust upward, it's a sign that the housing market is recovering. Don't despair and don't lose faith.
@Ashley - I sure hope you are right. The low rates have breathed some life back into the housing market, but I think it will take me years and years to be in the positive.
@Mrs Money - thanks
@Kathy - I'm trying to stay positive, I'm generally an optimist. I hope for both our sakes that something works out.
@Dog - I did put a small downpayment, which felt huge at the time! Down and closing costs came to $25k, add in 4 years of mortgage payments totaling $120k...I have a lot of money in this place already.
@Kat - thanks hon, I hope so. And I hope you can get those loans paid down before rates rise, I guess there are some positives to a crappy economy.
Like everyone else has been saying, you still have 2 years. Focus on saving (maybe save the extra you'd be paying if it reset to $3500?), but know that things can change. A lot can happen in 2 years, and I don't think that the housing problems will be solved by then. As Shtinkykat said, there's a high likelihood that rates will stay low while the market stabilizes.
Breathe. I left San Diego in 2005 and sold at the peak. I know what's going on. Don't panic, things are not going to hell in a handbasket.
I have an arm as well resetting in 2012. Right now my house would sell for what I bought it for or maybe $25k more. Basically I'd be breaking even with closing costs.
But in 2012, couple of things will happen. Our mortgage amount will be conforming, right now it's jumbo. That can make a huge difference in rates.
I also bought a townhouse not a SFH and plan on having kids and buying SFH eventually. A townhouse was a nice compromise. And thus logically the right step.
By the way, I can refinance right now with my bank for 5% on a 30 year but it's still higher than what I'm paying. I'm waiting because until my rate can be beat I'm staying put.
Worse case is I stay put and my rate goes up, or I refinance in 2012 to a new arm with a reasonably low rate. What sort of place you have and what is the potential for moving?
This is a scary situation, but as others have said, not insurmountable. I made mistakes too when purchasing my first home. I have a fixed rate mortgage, but my housing costs amount to between 35-40% of our household income. We simply bought too much house. Now it's limiting our ability to pay down student loan debt and save, so our only option is to cut costs and increase our income. As much as it sucks, a lot of people are in worse situations than yours or mine. I sure hope it all works out for you!
Where the heck are you living that you can be $150,000 in the hole on a "small starter home?" Good Lord!
If I'm understanding your info correctly, a 20% shortfall equaling $153,000 means you bought this home for more than $750,000!
Am I just not understanding the figures?
By the way, the possible effect of your adjustable rate going up illustrates why buyers should always ask for full details and NEVER trust the "Sure, you can afford this" pitch of homelowners. Thousands of people all over the country are finding out that if their "it can only go up 3%, max!" mortgages rates actually go up that 3% their payments can easily increase by 34%per month...or more. Ouch!
Cathy from
MoneytoSpare.net
@Sarah - I'm definitely ramping up my savings in the next few years, but not $1100 month! At least a good portion of the increase would be tax deductible, making it a little easier to meet.
@LAL - sold at the peak, that's a great place to be. I have a 2+1 house, would love to add on but it's cost prohibitive. I live on a hill with an amazing view of downtown LA, hillside construction is expensive. Selling would mean short sale, supposedly I wouldn't qualify since I have a good income and credit.
@Fit Wallet - Thanks, hopefully a solution presents itself.
@CS - Hmm, most of the backstory is in another post. I live in Los Angeles, in the heart of the city not the far flung suburbs. I paid $345k for a 2+1, median price at the time was over $500k so this was comparatively cheap and modest! You wouldn't believe the number of people who congratulated me on a great buy - I know a lot of people in worse shape than me. I owe $325k, I put minimal down and refi'd out of some bad loans. I haven't gotten to that post yet, a cautionary tale about mortgage brokers. The online estimate from my lender was $216k, $130k less than what I paid! 80% of $216k is $172k, which is $153k less than what I currently owe. Hence $153,000 is the amount I would need to refinance.
Miss M,
What a story! I published a post on my other site "The Smarter Wallet" on this topic: it's about getting housing assistance.
The issue with housing assistance is that it can also become a wild goose chase as many times the lenders aren't very cooperative despite government intervention. I believe that requirements for eligibility are also quite strict.
Anyway, just thought to share this bit for extra ideas. I cannot vouch for how well it works though. From the post itself, seems like there are issues with dealing with housing assistance. But it's good to be aware of options regardless.
Loan modification was the other thing I heard about, but seems like it's a tough nut to deal with too.
Well...in the "try not to panic" department:
First off, interest rates are likely to stay down for quite some time. Second, we at least have a chance that the Obama administration will do something for homeowners rather than just throwing cash at the rapacious institutions that helped get us into this mess. Third, you paid $345k for a house with a view in the central part of LA? Hey...if it's not in a war zone, sooner or later the value will rebound. That is incredibly cheap. And finally, I wouldn't put much credence in an online home valuing program. Realtors will give you a believable estimate of your home's value, for free--call two or three and ask. This will give you a clearer idea of what the house is worth.
Remember: you don't realize loss in real estate until you sell. Hang in there. It's really unlikely that rates will adjust upward to the maximum any time in the near future. If that happens, the economic situation will have changed and your equity position may have recovered, at least to the point where you can afford a refinance.
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