Author Topic: Terribly upside down mortgage :( help!  (Read 15757 times)

dorkus619

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Terribly upside down mortgage :( help!
« on: August 16, 2013, 12:39:44 PM »
Bought my house in August 2007 at age 19. Settled at $136k Of course I put 0% down, 7.25% interest - OUCH

In 2011 I refinanced (streamline?) to about 4-4.5%. I still owe $128k. Monthly payment is $961 - that includes mortgage, mortgage insurance, homeowners insurance/property tax escrow.

Zillow estimates it's worth about $70k now. Not a nice neighborhood. Close to the college but we have ridiculous rental laws-no more than 2 unrelated persons. Houses nearby are selling or foreclosing for 30k-60k.

What the heck do you suggest I do? I have just started working/planning on my money mustache.
ABOUT ME: Female, BFA-Graphic Design, No debt besides house, my $40k/year job is well above average in my area, just started my 401k in March, just started a mini stash - goal of $3k to start a Vanguard account.

If you need more info to help me, ask away. Any suggestions would be awesome.

totoro

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Re: Terribly upside down mortgage :( help!
« Reply #1 on: August 16, 2013, 12:50:09 PM »
What could you get per month if you rented it out?

Is your housing market starting to recover?

katheh

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Re: Terribly upside down mortgage :( help!
« Reply #2 on: August 16, 2013, 12:51:42 PM »
We have a similar situation with our house except we have 1 kid in community college & 2 still in high school.

It is stressful to "know" your home is "worth less" than you owe. However, my husband and I decided to simply think of our house payment as "affordable rent." We could not replace the space we have for the $ we pay in our area. Our youngest chick is a freshman this year, we will revisit the issue when he's graduated and off to college. We live in IL and do not plan to stay here when the baby is done with high school (moving to a lower COLA).

Nobody knows what tomorrow will bring, but homes are sporadically selling in our neighborhood for $50k or so (our mortgage is $160k and we did not overpay when we bought in 2005), so in 4-5 years we will probably be looking at applying for a short sale, then an eventual foreclosure. Our neighborhood of 100 homes is about 30% completely vacant, and about 70% of the occupied homes are renters. The only plus to our situation is that we were not married at the time of purchase and it is only in my husband's name. Our neighborhood is not the greatest but it's not what I would call dangerous or blighted either. Just a lot of homes that were either bought for rentals or had the equity sucked out multiple times (the average foreclosure balance in here is about $260k, redick for these houses, even at the height of the market).

Owning an underwater home these days (that you do not HAVE to leave, i.e. relocation for a job, etc) is kind of like being in the stock market on a bad day. There is no loss (or potential for loss) until you sell.

If $961 is an affordable housing expense and all other things considered the house works for you, an option is to just stay put. At some point the market may rebound.  Although if the husband and I were young and mobile, we might have considered calling the bank much earlier to start the give-back process, taking the haircut/credit hit much earlier, and just get on with our lives. As it stands for us, it made more sense to just live here and wait. We definitely are not paying anything extra, though, our particular corner of heaven is still depreciating and it would be good money after bad.

Good luck to you!

MoneyCat

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Re: Terribly upside down mortgage :( help!
« Reply #3 on: August 16, 2013, 12:57:38 PM »
How much do houses rent for in your area?  You might be able to turn it into a rental property.  If the area is going downhill so much that the mortgage cost isn't recoverable even long-term, you should think about walking away.  You would take a hit for a few years, but you wouldn't be stuck with massive debt anymore either.

Mr.Macinstache

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Re: Terribly upside down mortgage :( help!
« Reply #4 on: August 16, 2013, 01:09:26 PM »
Something to do is to analyze the market trends. Rents are going up, WAY up in certain areas. If you can rent it out, you may be able to turn into an income property.

I think the grim news is that housing is not going to change anytime soon. People aren't flipping now, they are buying new or renting. So if you can't get rental income, I would look into the giveback process. I think a good finance lawyer might be able to help with that. $2500 on a lawyer to get out of that mortgage would be money well spent.

Side issue, my wife filed bankruptcy before we got married. Fast forward now her credit score is 800+. So at your age I wouldn't be too concerned about a neg credit hit. It's always repairable.. the banks WANT you to borrow.

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #5 on: August 16, 2013, 01:11:07 PM »
The whole city I live in I would say is going downhill, esp in the crime department.

Closeby rentals similar to my house are posted at 850-1000/month. Considering landlord fees, the initial cost of lead paint inspection, lead remediation if found, the time it's vacant, any repairs I'll need to make as a landlord, any repairs needed to bring up to code... It just doesn't seem feasible

The market doesn't seem to be improving in my neighborhood

I just don't know what I should do:
Stay put (worry about crime, convenient location, terrible floor plan)
short sale?
foreclosure (seems like a bad choice)
"arson" (jk)

is it worth it to invest in this house any more? I'm afraid any improvements will not realize increased home value in this neighborhood.

Should I put my extra cash in Vanguard or pay down the mortgage?

....

Thanks everyone

Mr.Macinstache

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Re: Terribly upside down mortgage :( help!
« Reply #6 on: August 16, 2013, 01:14:24 PM »
In a short sale, aren't you stuck paying the difference?

katheh

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Re: Terribly upside down mortgage :( help!
« Reply #7 on: August 16, 2013, 01:16:55 PM »
A short sale is just as bad a credit hit as a foreclosure. They are effectively equal. A short sale might actually be worse because the process takes longer, and often falls through and is followed by a foreclosure.

katheh

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Re: Terribly upside down mortgage :( help!
« Reply #8 on: August 16, 2013, 01:17:46 PM »
It depends on if she is in a recourse or non-recourse state (or even in the US, she didn't say).

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #9 on: August 16, 2013, 01:25:04 PM »
Oh. I must be wrong: from my understanding, I thought a short sale was where the bank agrees to allow me to sell it for as low as 75% what it's worth without me being responsible for the difference... Penalty to me being: 1- a big hit to my credit, but I thought it would be better than foreclosure/bankruptcy. 2- a slow daunting process

Boy I was dumb and I really got screwed on this house. I don't mind sticking around longer, but I just don't know if the situation will even recover to a break-even/loss (sell for what I owe)

From what I read most buyback/short sale/other govt programs are reserved for those who are behind on payments. I have never made a late payment. I have decent credit - B/C rating depending on which bureau you ask. And I have some (a little) cash.

From what I understand the govt is picky about people filing bankruptcy. If they think you can afford the debt, you stay in debt. Which I have demonstrated that I can afford the payments. Also with a $40k job I think I'd be denied bankruptcy?

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #10 on: August 16, 2013, 01:25:43 PM »
Katheh - Im in Maryland

smedleyb

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Re: Terribly upside down mortgage :( help!
« Reply #11 on: August 16, 2013, 01:27:29 PM »
If you were in Detroit, I'd tell you to burn it to the ground. 

Mr.Macinstache

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Re: Terribly upside down mortgage :( help!
« Reply #12 on: August 16, 2013, 01:30:38 PM »
Bankruptcy laws have changed since my wife did her's. There are different types and vary from state to state. I don't think you would need to go there though, to get the house foreclosed on.

katheh

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Re: Terribly upside down mortgage :( help!
« Reply #13 on: August 16, 2013, 01:48:00 PM »
A couple of different things:

1) Maryland is a recourse state. That means your lender can sue you for the difference between what you owe and what the house actually brings (probably at auction). That is the simplistic answer and I don't live in MD so that's as far as I will go with that. If you qualify you can file for bankruptcy and shed your liability for the shortfall.

2) If they do not sue you for the difference, they can issue you a 1099 for the difference which becomes income in the year it was issued to you so far as your federal taxes are concerned, unless you file a specific form stating you were insolvent at the time (Form 982). If you qualify you can file for bankruptcy and shed your liability for the 1099.

3) The point of a short sale is for the lender to "forgive" part of the loan so you can get out of the mortgage, and so can they, but in recourse states unless your contract states otherwise they can still sue you for the difference. Most short sales do not work out until attempt 3 or 4 or 5. Most of the problems are on the lender side.

4) Mortgage lenders won't let people apply for short sale until they are behind in their payments. 30 days after your first default is when the credit hit occurs, and it keeps hitting until you either: get through the short sale process, foreclose, or resume/catch up payments and make the loan whole again.

Basically the process is this:

Stop making payments for 3 months or so. You can tell the lender ahead of time you aren't going to pay any more.

Call lender, ask them to take the house back. Some lenders will, they will forgive the difference (in writing), and may even pay you to leave. Most commonly called "cash for keys." If that doesn't work-

Apply for a short sale. Here in IL where there is lots of inventory, the life cycle for a successful short sale is about 1.5 years. If short sale is unsuccessful-

Wait for the home to be foreclosed upon. This can take a LONG TIME, depending on the lender. The guys across the street from me lived there for 4+ years making no payments at all to their lender (Citi). They were eventually expelled from the house because they didn't pay their county property taxes, the home was sold at a sheriff's sale (for $19k by the way).

A good property attorney can make this process a lot smoother, but it is a process, and a pretty stressful one. I know lots of people who have done it without an attorney, they all have a big recourse-state debt cloud hanging over them, just waiting to be sued for it.

So the basic process is

Stop Paying->Short Sale->Foreclosure->Bankruptcy (if needed)

None of this is to say you should stop paying your mortgage. It may make sense to "shift your paradigm" and think of your current home in a different way. There is no real loss until you attempt to sell. But I myself would not pay extra on an unbalanced mortgage prior to funding my retirement accounts (especially if I was young).

If you are serious about wanting to get away from your house/mortgage, see a qualified property attorney. The sooner you start, the sooner you will be done. It may be to your advantage to not have investment accounts in place. Most attorneys will talk with you for an hour consultation either gratis or for a reasonable fee.

Another Reader

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Re: Terribly upside down mortgage :( help!
« Reply #14 on: August 16, 2013, 01:50:37 PM »
Long term you want to sell, but you may qualify for a low rate refinance under HARP.  The program is designed to help underwater homeowners.  The catch is that your loan must be owned by either Fannie Mae or Freddie Mac and they must have purchased the loan prior to June of 2009.  The lender that services the loan can tell you who owns the loan and if it is eligible for HARP.  Income requirements are minimal - do you have a job or some other type of income, that's all.  You should be able to get a HARP refi in the high 4 percent range. 

katheh

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Re: Terribly upside down mortgage :( help!
« Reply #15 on: August 16, 2013, 02:02:48 PM »
Here is the link to the page to find out whether your loan is eligible for HARP/HAMP: http://www.makinghomeaffordable.gov/tools/does-fannie-or-freddie-own-your-loan/Pages/default.aspx

Our loan is not owned by Fannie or Freddie or we would probably have done this. But if we had, we would still have been in the same problem (not able to sell). When comps are 50-70% less than what you owe, that's insurmountable in the short or medium term.

(PS - not advocating anyone stop paying their mortgage or not fulfill their obligations, etc.....) So many schools of thought on this issue...

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #16 on: August 16, 2013, 02:05:58 PM »
Call lender, ask them to take the house back. Some lenders will, they will forgive the difference (in writing), and may even pay you to leave. Most commonly called "cash for keys." If that doesn't work-
Boy wouldn't that be nice

Wait for the home to be foreclosed upon. This can take a LONG TIME, depending on the lender. The guys across the street from me lived there for 4+ years making no payments at all to their lender (Citi). They were eventually expelled from the house because they didn't pay their county property taxes, the home was sold at a sheriff's sale (for $19k by the way).
Which would be absolute murder on my credit for those years...?

None of this is to say you should stop paying your mortgage. It may make sense to "shift your paradigm" and think of your current home in a different way. There is no real loss until you attempt to sell. But I myself would not pay extra on an unbalanced mortgage prior to funding my retirement accounts (especially if I was young).

If you are serious about wanting to get away from your house/mortgage, see a qualified property attorney. The sooner you start, the sooner you will be done. It may be to your advantage to not have investment accounts in place. Most attorneys will talk with you for an hour consultation either gratis or for a reasonable fee.
Thank you for this advice. I had a gut feeling I shouldn't be paying extra. At this very point in time it *would be nice* to be elsewhere, but for now I'm okay. I have never had a break in, I live 4 miles from work, <2 miles from the grocery, bank, pharmacy etc.

But now should I ONLY contribute to a 401k thru employer then? As you said in the future it may be to my advantage to not have investment accounts in place? Should I contribute to an IRA or something else? I would love to retire in 15 years. I just started my mustache and have no idea if this is actually an option for me right now.


@Another Reader - thanks but I refinanced in 2011 I don't think my loan is Fred Mac or Fan Mae (Not 100% sure - it says FHA Residential/MIP on my account), and my current rate is 4.5% so I can't imagine that helping my situation... right?

Another Reader

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Re: Terribly upside down mortgage :( help!
« Reply #17 on: August 16, 2013, 02:26:51 PM »
Sorry, I missed that.  You probably did an FHA streamline.

Your choices are limited here.  I would look for a knowledgeable and experienced short sale agent to determine if one is feasible.   It does not sound like you have a demonstrable hardship, but the rules of short sales vary.  A good agent or agent/attorney combination will try to get you released without recourse.  I understand that in some circumstances with some servicers, you do not even have to miss payments.

Bankruptcy is probably not an option here, nor is it desirable.  You should be able to buy again with a short sale in three years, IIRC.  Short sales take less time to clear than foreclosures, and much less than bankruptcy.

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #18 on: August 16, 2013, 02:32:02 PM »
This will be a first that I even suggest this, but you might look to see if you can do a streamlined refi to a 40 year mortgage. Your interest rate might be higher and more of each payment will be interest instead of principal (and your PMI might be higher too) but if you can do it it would probably lower your total monthly payment so you can put more money into retirement. Definitely look closely at the numbers but it's a thought
I guess I could look into this, but as of right now I'm not struggling to make payments, and I'm going to be working on cutting costs elsewhere to allow me to save more for retirement.

Just not sure WHERE to stash my cash. 401k? IRA? Vanguard?

Maybe I can somehow raise my home's value by improving my neighborhood? Maybe eventually the possibility for renting it out will be more realistic? Not sure.... I feel I would have to rent it out for $1100-1200/mo to really cover my ass. Maybe I will bring this up in the Real Estate / Rental Thread....?

@ Another Reader - It seems like a toss-up whether or not a short sale would work. Esp the way katheh explained that the bank can sue me (eeps)

Another Reader

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Re: Terribly upside down mortgage :( help!
« Reply #19 on: August 16, 2013, 02:49:17 PM »
That's why you talk to an experienced agent and an attorney.  They have a better idea of what your options are and can talk to the lender on your behalf if it makes sense to do so. 

dobatseatcats

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Re: Terribly upside down mortgage :( help!
« Reply #20 on: August 16, 2013, 02:59:37 PM »
Income requirements are minimal - do you have a job or some other type of income, that's all.  You should be able to get a HARP refi in the high 4 percent range. 

I'm in a similar boat as OP and man, I wish the above were true. We're trying for a HARP refi and are having a hard time getting approved because they say our income from our day jobs is too low. I also own my own business but I'm having trouble getting them to count that income because I've only been in business for 3 years and was not profitable my first year due to startup expenses.

It doesn't help that the unit below us got foreclosed on and sold for $100k less than we paid, of course.

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Re: Terribly upside down mortgage :( help!
« Reply #21 on: August 16, 2013, 03:11:41 PM »
Is it just you living there right now? I know you said the rental laws are bad but maybe you could rent out one room to a local student and that would at least help you feel like you weren't paying so much towards housing.

If you rent out an extra room below market rate, you can be picky with who you choose while still offsetting some living costs and helping you save more towards 401k/Roth/etc.

I don't have any experience with owning so I can't offer advice about the big picture of staying vs. selling.

katheh

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Re: Terribly upside down mortgage :( help!
« Reply #22 on: August 16, 2013, 03:33:31 PM »
Don't get me wrong - one can negotiate with a lender in a short sale situation (to negate the issue of a difference in price that they could sue you for), but you must meet "need" criteria, and you MUST MUST MUST have qualified representation looking out for your interests.

There are lots of people in this situation. Almost none of us have a great idea of what to do about it. What to do? Ride it out? Take the loss now and get over it that much sooner? What do to? What to do?

In our particular situation it hurt everything the least to simply stay and defer the decisionmaking until "later." "Later" for us is when our youngest graduates high school. Perhaps by then the neighborhood will have stabilized and we may be able to sell for what we owe, or sell for enough that we can afford to pay whatever shortfall there is, or maybe we can keep it as a long-term rental. I am at the end of my smarts on the issue, so it is helpful to see what other people have to say about it.

I just wanted to chime in to say that lacking a concrete direction to take, it helped us immensely to change our attitude about it. My husband was quite depressed over it for a while, especially because in the past 5-6 years most of our peers have "upgraded" to mini-mansions for about what we are paying, but encouraging him to change his thinking - that we don't really want or need a mini-mansion, our house is OK, and trading one mortgage for another in a place we don't want to stay in long term would be counterproductive, really helped him get some peace with it. We have taken the Scarlett O'Hara method and will think about it another day. It made our lives better to put the daily worry of what do to out of our thinking and planning for a set period of time.

katheh

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Re: Terribly upside down mortgage :( help!
« Reply #23 on: August 16, 2013, 03:45:47 PM »
PS - 401k, IRA, and most other retirement funds are safe from bankruptcy/foreclosure proceedings so long as you leave them in their retirement accounts until your proceedings are completely over/discharged.

(again, seek qualified advice...)

Another Reader

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Re: Terribly upside down mortgage :( help!
« Reply #24 on: August 16, 2013, 04:55:04 PM »
Dobatseatcats:

Are you working with the current servicer of your loan?  You must work through them to get the most liberal loan qualification standards.  Their approach should be different than another lender, because they have less liability for the loan - fewer requirements to buy it back if you default.  You do need to show some form of steady income.  I recently refinanced two investment property loans under HARP and the current servicer wanted three months of deposit receipts from any of my pensions.  Even if the pension did not cover the mortgage.  A friend of mine was offered a HARP refi on her owner-occupied house with a Social Security payment of less than half her mortgage payment.  The assumption for HARP, at least with the servicers with whom I have worked, is if you are making the payments at the higher amount, you can continue making the payments at a lower amount.  It's all about "representations and warrants," whether Fannie/Freddie makes them buy back the loan.

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Re: Terribly upside down mortgage :( help!
« Reply #25 on: August 16, 2013, 08:21:28 PM »
Another Reader - unfortunately, that is not an option. Our loan was sold to Cenlar, which is a loan servicer but does not write new mortgages. So they cannot refinance us because they don't do refinances at all.

We do have steady income.... just not enough, according to the lender we are working with. (who was the only lender who did not run away screaming and immediately refuse to work with us when I mentioned that I was also self-employed in addition to my Day Job.)

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Re: Terribly upside down mortgage :( help!
« Reply #26 on: August 16, 2013, 08:47:43 PM »
That's the unfair part of HARP.  If the random servicer that ends up with the servicing rights does not make mortgage loans, you are SOL.  I have two investment properties serviced by Nationstar.  They do not write new mortgages and partner with Quicken Loans, one of the more expensive "direct" lenders.  Quicken flat out refused to do the loans because I have more than the maximum number of mortgages.  The loans held by lenders that write new business sailed through the process. 

If you can't work with the servicer, then it's a new loan with all the underwriting overlay requirements of that lender on top of the Fannie/Freddie requirements.

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Re: Terribly upside down mortgage :( help!
« Reply #27 on: August 16, 2013, 08:54:40 PM »
If you were in Detroit, I'd tell you to burn it to the ground.

From what I've seen in movies and TV, this is effective nearly 99% of the time.

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #28 on: August 17, 2013, 04:26:30 PM »
Is it just you living there right now?
I have had a steady roommate for a while. He is okay.
I also had 2 students here just for the summer. UGH! They really tested my sanity. Leaving windows on while AC running, leaving lights on, late rent payments, dirty dishes everywhere, hogging my 1 bathroom, etc. NEVER AGAIN.
My boyfriend of 1.5 yrs just moved in and is helping with rent so once these girls are gone, it will be me + BF + roommate who will likely move out in the next year (more privacy for my blooming relationship)

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Re: Terribly upside down mortgage :( help!
« Reply #29 on: August 19, 2013, 12:51:07 PM »
Okay so after thinking about this more...and trying to simplify the question and advice...

I am not having trouble paying my mortgage. I'm just really mad that I was taken advantage of by the bank/made a poor choice purchasing my house.

Is it my fault? Is it the crooked banks and highly inflated costs or 2007?

I just want to know if you think I should wait it out - will my house EVER reach its 2007 value again? Should I just jump to sell at a break even loss (sell for what I owe + fees)?

Should I try to jump ship/cut my losses? Whatever that entails.


Are any banks doing loan modifications like: Ok we know you got screwed, let's just say your house is ACTUALLY worth x dollar amount, lets refi at that amount (partial debt forgiveness)???

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #30 on: August 19, 2013, 12:56:09 PM »
Another thought. Should I attempt to jump ship ASAP while I have little to no assets - <$2k 401k and little in cash? I'm afraid if I wait 5yrs, 10yrs, more and my house is still under water and I need to jump ship or something that they will sue me for my savings (which I'm about to put into over drive)

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Re: Terribly upside down mortgage :( help!
« Reply #31 on: August 19, 2013, 12:59:06 PM »
I may have missed something.

What exactly are you worried about?  Do you need to move?

If no, keep living there.  Appreciation and principal paydown will eventually dig you out.

If yes, why exactly did you dismiss renting it?

Are you just upset that the paper value is underwater?  If so, who cares?  That paper value doesn't matter unless you need to sell.
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Re: Terribly upside down mortgage :( help!
« Reply #32 on: August 19, 2013, 01:08:39 PM »
2nd Areblespy.

You didn't buy the house as an investment to begin with, did you?  You bought it to have a place to live.  You felt it was worth what it cost when you bought it, and nothing has changed since then.  It's still the same house.  You still have a place to live.  The payments haven't changed.

Its just like buy and hold dividend investing, once you have your shares, it doesn't make any difference what the share price does.  What it is "worth" is somewhat of a fiction.

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Re: Terribly upside down mortgage :( help!
« Reply #33 on: August 19, 2013, 01:24:41 PM »
It seems like you're only concerned because the house is underwater, not because you need to relocate or sell, you also have your boyfriend and roommate helping with the mortgage so the payments aren't an issue. Stay where you are, pay down your mortgage, if the prices can drop that much in a few short years they surely can rebound as well. You're not out any money until you sell and it seems like there is no rush.

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #34 on: August 19, 2013, 03:13:58 PM »
What exactly are you worried about?  Do you need to move?

If no, keep living there.  Appreciation and principal paydown will eventually dig you out.

If yes, why exactly did you dismiss renting it?

Are you just upset that the paper value is underwater?  If so, who cares?  That paper value doesn't matter unless you need to sell.

No I don't need to move right now.
I'm afraid I will need/want to move in the future and I will be in trouble having waited. Above responder has now worried me that in the future if I have to bail out that the bank will come after my stash. Right now my stash is tiny in a 401k. But I'm inspired now to really start saving a ton and I don't want the bank taking it away.

Yes. I think I am mostly upset that the paper value is underwater. Maybe because I'm afraid it will never recover and that I'm just losing money daily in interest, mortgage insurance, property taxes etx etc. MMM mentions moving in order to save more. I'm wondering if there is a situation where it makes sense to try to get out of this house, even if it means cutting losses, so that I can save better/faster.

For reference I paid 136, zestimate now 74 (down 45%!) The average fall in my zip code is down 38% So I see I got myself into a particularly shitty situation.

*sigh*

Overall I'm trying to overcome bad choices I have made ASAP.

Thanks for the advice everyone I'm soaking it all up like a sponge

Sweet Betsy

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Re: Terribly upside down mortgage :( help!
« Reply #35 on: August 19, 2013, 03:27:38 PM »

Are you just upset that the paper value is underwater?  If so, who cares?  That paper value doesn't matter unless you need to sell.

Seriously, stop checking Zillow and just enjoy your very affordable home.  You are going to have to get used to this when you start investing as well.  Just like the stock market the housing market can go up and down, the only time it should concern you is if you need to liquidate your assets. 

arebelspy

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Re: Terribly upside down mortgage :( help!
« Reply #36 on: August 19, 2013, 04:35:24 PM »
I'm afraid I will need/want to move in the future and I will be in trouble having waited. Above responder has now worried me that in the future if I have to bail out that the bank will come after my stash. Right now my stash is tiny in a 401k. But I'm inspired now to really start saving a ton and I don't want the bank taking it away.

In a recourse state, the bank can come after you, if that's what they decide to do, years later.

There are times they waive that right in a short sale, but if you let it go to foreclosure or give the keys back, they still have that option in recourse states.

So whether you get out of it now or later, they can come after you, better to wait if you don't have to get out now, because you might not even be in that situation later due to appreciation, ability to bring money to the table at closing, etc.
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Daleth

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Re: Terribly upside down mortgage :( help!
« Reply #37 on: August 19, 2013, 05:42:24 PM »
Zillow is notoriously off-base. Its estimates can be tens of thousands of dollars off actual sale prices, in my experience. Don't worry about it.

How many bedrooms does your house have? Nearby colleges and universities are a GODSEND from a landlord's perspective. A friend of mine takes on boarders, generally foreign grad students at local universities, and they pay $400-$500/mo. for a bedroom and access to the kitchen, living room etc. So that could cut your monthly payment in half, without running afoul of the local "no more than 2 unrelated people" laws and probably without requiring anything along the lines of a lead inspection/remediation.

My take on zoning laws of all kinds, including the "no more than X unrelated people" laws, is this: Zoning laws do not exist unless your neighbors complain. Unless some busybody neighbor calls the local zoning office, you can do whatever you want. So if you're in a chi-chi neighborhood with a homeowner's association, you can bet someone will complain... but the further down the "status pole" your neighborhood is, the less likely you are to ever come to the attention of the local zoning office, especially if what you do is discreet (e.g., renting a room to a grad student).

That said, if you take on only one boarder you're not even violating the local zoning law you described, since there are only two of you in the house. Also, most housing laws do not apply to you if you're continuing to live in the house and are just renting out a room or two; they apply to actual landlords (people renting out houses or apartments that they don't live in), not to people taking in boarders. So I'd be very surprised if you had to do anything along the lines of a lead inspection. If your personality is such that you want to make 100% sure to follow all rules, you can consult a local real estate/zoning lawyer to make sure taking on a boarder would be okay, but personally I would just do it.

mcsemike99

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Re: Terribly upside down mortgage :( help!
« Reply #38 on: August 19, 2013, 05:59:51 PM »
I agree that Zillow is off base.  I work with a person trying a short sale on her house and the difference on what the bank asked for and what Zillow says it is worth is $35,000.  She paid $189K and the bank is settling for $125K.  Zillow says it is only worth $80k-$90K.  She has a buyer at the $125K the bank wants.  She is just waiting for the paperwork to go through.

If you really want to do a short sale, you could get dinged on your taxes if the bank does not give you the 'forgiveness' paperwork, which is only good through the end of this year, unless the govt extends it again for next year.  But paying taxes on the amount the bank got and what your mortgage is may be a small price to pay if you can and really want to get out of your house.

May want to look in to getting a lawyer to handle the paperwork, get references and how may cases have gone in their favor first.

My coworker is paying about $1500 for the lawyer.

Hope this helps.
 

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #39 on: August 20, 2013, 08:17:21 AM »
How many bedrooms does your house have? Nearby colleges and universities are a GODSEND from a landlord's perspective. A friend of mine takes on boarders, generally foreign grad students at local universities, and they pay $400-$500/mo. for a bedroom and access to the kitchen, living room etc. So that could cut your monthly payment in half, without running afoul of the local "no more than 2 unrelated people" laws and probably without requiring anything along the lines of a lead inspection/remediation.
That said, if you take on only one boarder you're not even violating the local zoning law you described, since there are only two of you in the house. Also, most housing laws do not apply to you if you're continuing to live in the house and are just renting out a room or two; they apply to actual landlords (people renting out houses or apartments that they don't live in), not to people taking in boarders. So I'd be very surprised if you had to do anything along the lines of a lead inspection. If your personality is such that you want to make 100% sure to follow all rules, you can consult a local real estate/zoning lawyer to make sure taking on a boarder would be okay, but personally I would just do it.
House has 3 bedrooms. Currently has 5 4 residents - I have been renting out the spare rooms to various people. It's been a nightmare nearly every time.
Big Room - Me and my BF (things are getting serious) - BF is contributing financially
Mid Room - Male roommate been there 2 years @ $325 + equal share utilities, always a few days late with rent but lets me know, just announced last night he found a cheaper place and moving out in 11 days
Sm Room - 2 1 female roommate - undergrad girls at the university were here for the summer. $250 each flat rate. 1 just moved out, the other moves out next weekend. They were a NIGHTMARE! always late rent/partial payments, leaving windows open while AC on (despite my constant bitching!!!!!), hogging the single bathroom, bitching about everything, no space in the fridge, immature, leaving food out on the counters, dishes everywhere, etc.etc....on and on. They didn't care about the skyrocketing electric bill ($220 past 2 months) b/c they had a contract for flat rent.
[[Small room before these 2 girls I had a long time friend in there. She was always late, then stopped paying. I had to take her to court, evict her, and lost a friend. Plus I lost a lot of money in the whole process]]

I have tried renting out rooms in the past (before above roommates moved in) and when students would come look at the house they would walk away "No Thanks" - the small room is TINY and the neighborhood is really not good, people are always concerned about safety - even though i've never personally had any issues in 7 years, nearby shootings and robberies really detract. Seems the only price I can rent for where people will overlook the neighborhood is about $300-$350.

So at the end of the month it will be just me, my BF, his dog and my 2 cats.
Also as I said, things are getting serious with my BF, privacy would be nice. He has agreed to contribute $400/month + 1/2 utilities. We plan to drastically cut electricity consumption. Also w/o roommates I'm cancelling TV. Without roommates the water/sewer bill will drop dramatically too.

Not sure where the balance lies, but he is rejoicing that the roommates will be gone and we can be together and have privacy. I'm nervous because I liked the extra cash, even though the roommates drove me crazy too. I mean they just sit around all day and watch TV or play video games or stalk facebook.

frugaldrummer

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Re: Terribly upside down mortgage :( help!
« Reply #40 on: August 21, 2013, 12:02:20 PM »
Quote
Maybe I can somehow raise my home's value by improving my neighborhood?


I LOVE this approach!

Dr.Vibrissae

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Re: Terribly upside down mortgage :( help!
« Reply #41 on: August 21, 2013, 12:54:20 PM »
Just a thought on renting, since you are near a University.  Our department frequently has visitors/interns who come for 2-8weeks at a time throughout the year, and there are often requests for short- term housing, or a single room to rent for these people.  A couple of people routinely rent a room for these guests.  Typically they are professional +\- foreign students who are there to study and have a guarantee of payment or pay up front.

If you know people on campus, or could get on a list to call for these types of short-term visitors, it would be a way to make some money off the extra room, with less risk/hassle than a long- term roommate.

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #42 on: August 22, 2013, 11:53:05 AM »
Quote
Maybe I can somehow raise my home's value by improving my neighborhood?
I LOVE this approach!
Any ideas? I've been thinking of this a lot but I'm just not sure where to start. Esp since I live 1 block from an Elementary school, it's really important that it's a safe area!

Just a thought on renting, since you are near a University.  Our department frequently has visitors/interns who come for 2-8weeks at a time throughout the year, and there are often requests for short- term housing, or a single room to rent for these people.  A couple of people routinely rent a room for these guests.  Typically they are professional +\- foreign students who are there to study and have a guarantee of payment or pay up front.

If you know people on campus, or could get on a list to call for these types of short-term visitors, it would be a way to make some money off the extra room, with less risk/hassle than a long- term roommate.
WOW! This is a great idea. I will talk to my BF about this! I'll try to set up one room as a nice furnished guest room and see if that would work out. Thanks so much for this idea.
Dorkus Bed and Breakfast ;)

mustacheme

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Re: Terribly upside down mortgage :( help!
« Reply #43 on: August 22, 2013, 02:01:43 PM »
It does sound like most of your worry is due only to the housing market, which as long as you don't have a need to move is a bit like fretting over the shifts in the stock market.

Of course, that said, I completely get it. I purchased a condo in 2006, and once prices plummeted I was in a sad state of affairs. I am just now mentally recovering. My lowest point was when my immediate neighbors did what other's above had detailed by strategically stopping mortgage payments, forcing short-sale, and then went out and bought a much nicer (and twice as expensive) house under the husband's credit since the condo had been only in the wife's name. Not to mention that a few years prior they had refinanced and took more money out on their house and purchased a brand new SUV... but I digress...

I felt awful and trapped, and that purchasing my condo had been the worst financial mistake I'd ever made. It seemed insurmountable. In the year or so since the neighbor incident though I was able to refinance using HARP, and the housing prices seem to be coming back up. At my lowest of lows I was about $60k underwater on my mortgage (original $122k purchase). Now I'm to about $5k underwater thanks to the market coming up a fair bit and prepayments I've been making. The refinance also made me take a bit different view of my mortgage amount vs rent. Before I was horribly upset that people were renting units in the condo for $750/mo while my mortgage payment was $987 plus HOA of $240. When I refinanced though I could have gone with a 30 year mortgage which would have made my payment around $400/mo. I opted instead to reduce to a 15 year, which still dropped my monthly payment slightly. So really if I compared the 30yr mortgage to renting I'm really not too bad off.

My point in saying all this is that it can rapidly change due to the market as well as your continued payments. In the end, as long as you don't have to move, and your mortgage is affordable, try to not let the ups and downs of the market get you too down. I do think you're financially smarter to put the extra money in your retirement accounts rather than paying down as I have - but for me it was a mental/emotional comfort level to pay down to try to get 'above-water'.

I love your idea of having renters. Of course, it's been a hassle, but that hassle sure does give you a good chunk of change each month! You and your boyfriend might want to re-consider if the additional privacy is worth the loss of that money which you could be funneling into your retirement accounts. Maybe you could have a few month's of newly living together bliss and then rent out rooms again?

catmustache

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Re: Terribly upside down mortgage :( help!
« Reply #44 on: August 22, 2013, 02:14:47 PM »
Airbnb if you think there are enough parents/visiting students to make a difference.

dorkus619

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Re: Terribly upside down mortgage :( help!
« Reply #45 on: August 23, 2013, 11:13:25 AM »
I felt awful and trapped, and that purchasing my condo had been the worst financial mistake I'd ever made. It seemed insurmountable.
Yes, this is how I feel; This is the biggest financial mistake I've made. I feel it's more than just the market crash (though that is majority). I also just plain think I got ripped off! Now that is due to my ignorance. I wonder how my dad let me do this! Not only let me, helped even, cosigned the mortgage! I think the house was WAY overpriced and I made a poor investment. I'm afraid the value won't come close to what I paid for it in the next 10 years (I am still young and ignorant, but seriously think it was that bad of a deal).
When I refinanced, I did another 30 year. The purpose was to get the payment lowered a little. 7.25% down to 4.5% lowered my payment about $237/month which I needed that relief to make ends meet at the time.
Haven't had a professional appraisal done, so I guess I don't even really know what it's worth. But my optimistic guess is 90k. I bought for 136k, owe 127k now. So I'm currenly under water maybe 40k, still at a loss from my initial "investment".

Basically I feel like I have actually lost a wad of cash of $46,000. I know that all these numbers shouldn't be so important to me but....I just can't seem to look past this huge financial blunder! grr

frugaldrummer

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Re: Terribly upside down mortgage :( help!
« Reply #46 on: August 23, 2013, 03:20:55 PM »
A few things to remember:

 - you are currently enjoying living in your own place - no landlord hassling you
 - your payment after renters is low compared to what you might have paid to rent a home during this time
 - if you make extra payments on your mortgage, you'll speed up the time to get to the point where the mortgage is less than the home market value
 - you might also be able to raise the value of the home by gardening, painting, inexpensive remodeling etc.

And then there's:
Quote
Quote from: frugaldrummer on August 21, 2013, 12:02:20 pm

    Quote

        Maybe I can somehow raise my home's value by improving my neighborhood?

    I LOVE this approach!

Any ideas? I've been thinking of this a lot but I'm just not sure where to start. Esp since I live 1 block from an Elementary school, it's really important that it's a safe area!

Why not pass out flyers on your block inviting people to a coffee klatch to discuss ways to improve your block?  Maybe contact the city and see if there are any city programs?  Maybe contact the PTA president at the local school?

lhamo

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Re: Terribly upside down mortgage :( help!
« Reply #47 on: August 23, 2013, 08:16:41 PM »
Just a thought on renting, since you are near a University.  Our department frequently has visitors/interns who come for 2-8weeks at a time throughout the year, and there are often requests for short- term housing, or a single room to rent for these people.  A couple of people routinely rent a room for these guests.  Typically they are professional +\- foreign students who are there to study and have a guarantee of payment or pay up front.

If you know people on campus, or could get on a list to call for these types of short-term visitors, it would be a way to make some money off the extra room, with less risk/hassle than a long- term roommate.

Go in and talk with the international students/scholars office and see if you can get on their radar as a possible housing option, either short term or long term.  I work on an international exchange program and know that one of the biggest headaches for our participants going both directions is arranging housing.  You can offer to be a temporary place for people to stay when they first arrive, and then if you like them after the first few days, offer to extend longer term.  International scholars tend to be a pretty serious/quiet bunch and won't likely demand TV or spend their days sitting on the couch doing Facebook.

Another option would be to approach graduate programs for either the short term arrangements noted above OR as a part-time arrangement for any grad students they have who are commuting long distances.  Law, business and medical programs often have people in this situation -- they are on campus 2-3 days a week for classes but may live a long way away.  you could have a room for someone who stays Tu-thurs, but goes home on the weekend.  If the university has a teaching hospital this can work well for residents, etc. too.  Or doctors/nurses who work long shifts a few times a week.

Read MMM's post today.  You are spending a lot of unnecessary mental energy on worrying about something you can't control.  Since you don't need to sell now, don't.  You would be locking in a loss.  Focus on continuing to control your costs, bring in more income, and yes, definitely try to improve the neighborhood.  Do try to meet the neighbors.  If there isn't a neighborhood watch program, look into starting one.  If there is a local park, try to get people involved in sprucing it up.  If you like gardening, see if there is a place you could start a community garden.  Start an end of summer neighborhood potluck as a way of getting people together.  All kinds of things you can do to raise the profile and community spirit of the neighborhood. 

Peony

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Re: Terribly upside down mortgage :( help!
« Reply #48 on: August 24, 2013, 02:48:43 AM »
Regarding your beating yourself up for having made a bad money decision (which may not turn out to be so bad in the end), you were only 19! NINETEEN! That is kind of an absurdly young age for anyone to buy a house on one's own. Whether your dad should have steered you away or not is another question (he must've thought it was a decent idea at the time, since he was willing to put his own credit on the line by cosigning your mortgage), but I, personally, am willing to forgive you for your mistake, since most 19-year-olds do not have the life experience to understand the workings and risks of the housing market.

That said, I think the readers have offered some excellent suggestions for making lemonade out of lemons. You may very well turn this situation around and you will learn a ton (as you already have). I look forward to hearing about your progress in improving your 'stache, your house and your neighborhood. Please keep us posted!

pbkmaine

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Re: Terribly upside down mortgage :( help!
« Reply #49 on: August 24, 2013, 05:33:32 AM »
It's a sunk cost. Do not worry about it or beat yourself up about it or get angry about it. We all make financial decisions that are not so wise in hindsight. When you bought, there was a buying FRENZY and people went insane trying to get into real estate before it was "too late". The experience may make you more of a contrarian, unwilling to follow the crowd. If so, it will be money extremely well spent. I like the suggestions of the other posters for short-term rentals or AirBnB. And I love the idea of getting involved in your neighborhood to make it better.