Author Topic: Feeling Trapped in My Home- Help!  (Read 2297 times)

BigBank

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Feeling Trapped in My Home- Help!
« on: January 15, 2019, 10:56:24 PM »
Hi everyone,

So a little back story. I was young and thought I was making a great move. I live in a suburb of Los Angeles and in 2013 I came across what I thought was a steal at the time. A 2 bed 2.5 bath townhome central to freeways for $244k. The only caveat, you guessed it, was that for me to be able to purchase it I had to use a city HAP (Home Affordable Program) loan that the city was offering at that time. The program was you put down 5% of your own money ($12,500) and the city gives you a $40k silent second mortgage through HUD. There was no interest due monthly, the only hiccup was upon selling/refinancing the home to take cash out you would have to not only repay the silent second $40k but also give the city 16.3 percent as part of a “equity share” provision.

I thought this was all fine and dandy because I only planned on living in the home 5-7 years and figured me walking away with 84% of the equity gain was better than nothing, so I forged ahead.

Another caveat for me to qualify for the program was that my income had to be under a certain threshold to meet the low-mid range income guidelines for the area. In Dec. 2013 when I closed, me being single I had to make $48k or less. I qualified and went about my merry way. There was another stipulation that during the first 15 years after purchase you could only sell to someone else that could qualify under the HUD income guidelines

Fast forward to today and the home has appreciated via Zillow to around $410k, but the HUD income limits are only indexed to inflation. Meaning the max one person could make in 2019 is around $55k and a family of 3 around $70k. We have had it listed now on and off since June of 2017. We have it listed at $390k, but obviously trying to find a buyer that can qualify for a $390k home with the given limits has proven impossible.

After running several loan scenarios with loan officers we are pretty much looking for a unicorn of a buyer. They would have to not only make under the max limit, but would have to have no debt, and around $50k for the down payment if it was a family of 3. Probably pretty easy targets to hit for a mustachian, but in this area it seems impossible to find someone like that. Also keep in mind it’s only a 2 bedroom, so not too many young families would seek this place out as an option. I can only think of possibly a widow that maybe doesn’t make a lot, but has significant cash savings or a situation like that.

I’m looking to see has anyone else ever faced a situation like this and what did they do? I’m at my wits end. My family situation has changed and we’re needing more space. Should we just try to pay it off and rent it? We ideally want some of the equity from here to use on a single family home in the area. We’re just feeling really stuck.

dragoncar

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Re: Feeling Trapped in My Home- Help!
« Reply #1 on: January 16, 2019, 12:17:46 AM »
That sucks... I'm curious if you've talked to the people running the program to see what's being done about re-indexing the income limits.  In my area, it's more like "x percentile income" rather than a set number plus inflation.  So if the local economy grows faster than inflation, the limit does too.  I assume you've asked them.

It's a city program, so besides the people who are administrating the program directly, you're going to want to contact your council, mayor's office, etc.  It really sounds like a problem everyone in the program will have to deal with so it's something they need to fix on an administrative level (change the limits to reflect market values)

Consider, however, that you could sell it way cheaper and still come out ahead.  Try to calculate the selling price that would sill make you feel ok -- if you put down $12k, built 20k equity, and sell for $300k, you still earned a whopping 20%/year return on your down payment after sharing equity increase with HUD.  WOW.

ShoulderThingThatGoesUp

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Re: Feeling Trapped in My Home- Help!
« Reply #2 on: January 16, 2019, 05:51:41 AM »
It’s supposed to be below-market-rate housing. Drago car is right, just sell it lower than you would if it weren’t subsidized.

BigBank

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Re: Feeling Trapped in My Home- Help!
« Reply #3 on: January 16, 2019, 06:47:48 AM »
That sucks... I'm curious if you've talked to the people running the program to see what's being done about re-indexing the income limits.  In my area, it's more like "x percentile income" rather than a set number plus inflation.  So if the local economy grows faster than inflation, the limit does too.  I assume you've asked them.

It's a city program, so besides the people who are administrating the program directly, you're going to want to contact your council, mayor's office, etc.  It really sounds like a problem everyone in the program will have to deal with so it's something they need to fix on an administrative level (change the limits to reflect market values)

Consider, however, that you could sell it way cheaper and still come out ahead.  Try to calculate the selling price that would sill make you feel ok -- if you put down $12k, built 20k equity, and sell for $300k, you still earned a whopping 20%/year return on your down payment after sharing equity increase with HUD.  WOW.

Yea, we have talked with city attorney and economic director for the city. Both said their hands are tied because the funds came from federal government and not the city. City was just an “administrator” for the loan. Other issue is their are only 10 homes total on this particular 15 year plan in my building (out of 30 total) and the others are older and aren’t planning to ever leave at the moment.

I will definitely have to consider selling for much lower it just really puts a damper on plans to use the equity to move up in home.


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BigBank

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Re: Feeling Trapped in My Home- Help!
« Reply #4 on: January 16, 2019, 06:51:40 AM »
It’s supposed to be below-market-rate housing. Drago car is right, just sell it lower than you would if it weren’t subsidized.

Yea that is why I’m now starting to realize. Summer of 2017 we initially had it listed for only $367k because market value then was about $390k and we had a couple of hits, but when it came down to the city signing off on it they wouldn’t do it. Reason was the DTI was too high for the individual. Even though he got approved for the actual loan through the bank with his and his & his fiancées income, the city would only consider his income for the down payment assistance program since their incomes combined put them over the limits.


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AMandM

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Re: Feeling Trapped in My Home- Help!
« Reply #5 on: January 16, 2019, 07:53:30 AM »
I will definitely have to consider selling for much lower it just really puts a damper on plans to use the equity to move up in home.

Well, with all due respect, it's a program designed to help low-income people become homeowners, not real estate speculators. It produced the intended benefit for you.  You're already ahead of where you would have been without it, right?  So now let the benefits pass to someone else.

slappy

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Re: Feeling Trapped in My Home- Help!
« Reply #6 on: January 16, 2019, 08:11:30 AM »
I imagine the program would not allow to pay it off and rent it. Is the "second mortgage" a lien on the property? If so, paying  it off would not discharge the lien. Can you ask if it is possible for you to just pay them back the amount they paid plus whatever extra they would require and then be out of that program?

Bracken_Joy

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Re: Feeling Trapped in My Home- Help!
« Reply #7 on: January 16, 2019, 08:40:37 AM »
Does the program allow renting it out?

Dicey

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Re: Feeling Trapped in My Home- Help!
« Reply #8 on: January 16, 2019, 09:02:32 AM »
Drop your price, find a buyer and move on. You got a gift, please don't cry now that it should have been bigger. You bought it, knowing it had restrictions, because that's what you could afford. Pass that benefit on to the next person who needs it.

Our kids have a similar situation where they live. However, their gains are capped at 3% per year, plus 50% of any improvements they make. Sounds like you have a much better upside opportunity,  even if it is less than what the open market has done. Comparing your unit's value and appreciation to the open market is a thief of joy. Be happy for the opportunity and be happy that you no longer need any subsidies.

mozar

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Re: Feeling Trapped in My Home- Help!
« Reply #9 on: January 16, 2019, 12:00:51 PM »
Do you really have to move? If the only reason to move is to "move up" I doubt it.

BigBank

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Re: Feeling Trapped in My Home- Help!
« Reply #10 on: January 16, 2019, 12:09:36 PM »
I imagine the program would not allow to pay it off and rent it. Is the "second mortgage" a lien on the property? If so, paying  it off would not discharge the lien. Can you ask if it is possible for you to just pay them back the amount they paid plus whatever extra they would require and then be out of that program?

I did a refi on it about a year ago to pull equity thinking we would want to just stay in it and also payed the program back all the money plus their “equity share”. So they have been paid in full. I did this to lock in the equity share amount at an amount that I wanted instead of a higher amount down the road when we do eventually sell it. I will have to revisit with the city if we are allowed to rent it now that they have their funds back.


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BigBank

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Re: Feeling Trapped in My Home- Help!
« Reply #11 on: January 16, 2019, 12:14:27 PM »
So it seems like my options are really:

1.) Cut the price to $325k or something like that and lose about $85k of potential equity if I stayed for the next 10 years.

Or

2.) Stay in place for the next 10 years and be able to sell to any buyer at that time. Won’t lose any equity because I can sell at prevailing market rate at that time.

Or

3.) Find out from the city that now since they have full repayment of the loan if I am able to rent the home out.

Am I correct with these being the only options? And what would use guys choose knowing that you wanted to expand your family and move somewhere bigger.

Thanks


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former player

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Re: Feeling Trapped in My Home- Help!
« Reply #12 on: January 16, 2019, 01:36:29 PM »
2 beds and 2 1/2 bath townhouse sounds reasonable for a young family, unless you have scads of kids.  Babies should be in the same room as their parents for the first six months, and children of opposite sexes can share until the eldest is 10 - which would take you close to your 15 years of not paying back equity.  Mainly what you would have to do is limit the amount of stuff you have in the house to make room for the people.

Otherwise, yes take the hit on equity.  The current value of $85k in 10 years' time is about $55k.

mm1970

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Re: Feeling Trapped in My Home- Help!
« Reply #13 on: January 16, 2019, 01:47:37 PM »
That sucks... I'm curious if you've talked to the people running the program to see what's being done about re-indexing the income limits.  In my area, it's more like "x percentile income" rather than a set number plus inflation.  So if the local economy grows faster than inflation, the limit does too.  I assume you've asked them.

It's a city program, so besides the people who are administrating the program directly, you're going to want to contact your council, mayor's office, etc.  It really sounds like a problem everyone in the program will have to deal with so it's something they need to fix on an administrative level (change the limits to reflect market values)

Consider, however, that you could sell it way cheaper and still come out ahead.  Try to calculate the selling price that would sill make you feel ok -- if you put down $12k, built 20k equity, and sell for $300k, you still earned a whopping 20%/year return on your down payment after sharing equity increase with HUD.  WOW.

Yea, we have talked with city attorney and economic director for the city. Both said their hands are tied because the funds came from federal government and not the city. City was just an “administrator” for the loan. Other issue is their are only 10 homes total on this particular 15 year plan in my building (out of 30 total) and the others are older and aren’t planning to ever leave at the moment.

I will definitely have to consider selling for much lower it just really puts a damper on plans to use the equity to move up in home.


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I think that's not the point of the whole program.  Either keep living there (sounds like a reasonable sized place, bigger than where I live with a husband and 2 kids), or sell lower.

I live in So Cal and we have similar programs here - as a  comparison, one of my engineers got a 2 BR condo for about $220k, but he had to be making less than $57k to do it.  So he did it.  It was considered "moderate income housing" and you needed to be part of a lottery to get it, and you had to qualify.  Run by our city.

The rules for selling, however, are that you have to sell it to someone who also qualifies AND the price cannot go up more than X% a year (math tells me 1.5%).  So in any event, he lived there for less than 10 years before he left town.  Has to be owner occupied, no renting.  He did find a buyer, looks like the sales price was $246k, 8 years later.   It's purchase stabilized for 40 to 45 years, at which point it can be sold for market rate.


as an aside, I feel trapped in my home too.  It's only 2BR, 1BA, no garage, <1150 sf.  If I wanted to sell and "trade up" it would cost me $50,000 in realtor's fees, and any bigger place would land me with a $600k mortgage.  At our age, that's just folly.
« Last Edit: January 16, 2019, 01:49:29 PM by mm1970 »

BigBank

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Re: Feeling Trapped in My Home- Help!
« Reply #14 on: January 16, 2019, 02:04:24 PM »
That sucks... I'm curious if you've talked to the people running the program to see what's being done about re-indexing the income limits.  In my area, it's more like "x percentile income" rather than a set number plus inflation.  So if the local economy grows faster than inflation, the limit does too.  I assume you've asked them.

It's a city program, so besides the people who are administrating the program directly, you're going to want to contact your council, mayor's office, etc.  It really sounds like a problem everyone in the program will have to deal with so it's something they need to fix on an administrative level (change the limits to reflect market values)

Consider, however, that you could sell it way cheaper and still come out ahead.  Try to calculate the selling price that would sill make you feel ok -- if you put down $12k, built 20k equity, and sell for $300k, you still earned a whopping 20%/year return on your down payment after sharing equity increase with HUD.  WOW.

Yea, we have talked with city attorney and economic director for the city. Both said their hands are tied because the funds came from federal government and not the city. City was just an “administrator” for the loan. Other issue is their are only 10 homes total on this particular 15 year plan in my building (out of 30 total) and the others are older and aren’t planning to ever leave at the moment.

I will definitely have to consider selling for much lower it just really puts a damper on plans to use the equity to move up in home.


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I think that's not the point of the whole program.  Either keep living there (sounds like a reasonable sized place, bigger than where I live with a husband and 2 kids), or sell lower.

I live in So Cal and we have similar programs here - as a  comparison, one of my engineers got a 2 BR condo for about $220k, but he had to be making less than $57k to do it.  So he did it.  It was considered "moderate income housing" and you needed to be part of a lottery to get it, and you had to qualify.  Run by our city.

The rules for selling, however, are that you have to sell it to someone who also qualifies AND the price cannot go up more than X% a year (math tells me 1.5%).  So in any event, he lived there for less than 10 years before he left town.  Has to be owner occupied, no renting.  He did find a buyer, looks like the sales price was $246k, 8 years later.   It's purchase stabilized for 40 to 45 years, at which point it can be sold for market rate.


as an aside, I feel trapped in my home too.  It's only 2BR, 1BA, no garage, &lt;1150 sf.  If I wanted to sell and "trade up" it would cost me $50,000 in realtor's fees, and any bigger place would land me with a $600k mortgage.  At our age, that's just folly.

That program sounds very similar with the exception of the % increase max. That makes the terms of the deal very defined. Yea prices in our area are insane which is why I thought I could participate in the broader market run up, but I guess it’s just not feasible based on the terms of the agreement I signed up for. Tough pill to swallow because of course it was sold to me implicitly as a starter place for someone my age (23 at the time), but my fault for not realizing the same “great deal” I was getting would be passed along upon selling. No complaints there. Mortgage was only $1,450 for the first 4 years before I paid the money back.


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dragoncar

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Re: Feeling Trapped in My Home- Help!
« Reply #15 on: January 16, 2019, 03:11:35 PM »
If the funds were federal, you can also contact your congressperson.

However, the more I thought about it, the stronger I agree with others in the "pay it forward" camp.  As I concluded in your other thread, "You were in need and now you can sell it to another person in need at a price they can afford.  That's the point of these programs."

Even if someone with a $50k salary could get a loan that big, would you want to saddle them with such crippling debt?

BigBank

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Re: Feeling Trapped in My Home- Help!
« Reply #16 on: January 16, 2019, 03:17:13 PM »
If the funds were federal, you can also contact your congressperson.

However, the more I thought about it, the stronger I agree with others in the "pay it forward" camp.  As I concluded in your other thread, "You were in need and now you can sell it to another person in need at a price they can afford.  That's the point of these programs."

Even if someone with a $50k salary could get a loan that big, would you want to saddle them with such crippling debt?

Exactly. That’s very true. I appreciate everyone giving me a different perspective.


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