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Help! Need a 2nd opinion....

Hi,

I have a single mortgage, ARM, set to adjust for the first time in Jan 2010, that is currently at 9.35%.  My house is in a fairly low end neighborhood and it is only 900 sq ft, 2 bd, 1ba.  I am paying $1800/mo.  The rate is high because originally the loan was 103% LTV.  Then right when our value caught up we did not have the money to refi and a few months later everything started going backwards.  Now we have about a 15-20,000 gap between what we owe and what our house is worth, with us on the losing end.  We have $20,000 cash from a settlement.  We are in the process of getting an appraisal and then we are going to put the $20,000 down on the new loan, FHA with a fixed rate, to get our payment lower and to have more of the money we pay actually eat into the principal instead of all interest.  Is this a good idea?  We did not know what else we could do, and we do not want to continue to throw money away on this loan where only $90 a month actually goes towards our house.  We do not plan to live here more than 2-3 years longer.  We have seriously outgrown this house.

Please advise, suggestions and ideas will be helpful.  Thanks! 

  • July 15 2008 - US
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Answers (75)

Hi Bugnjess, That might be a great idea, but then again, there might be some other ideas as well.  It all depends on a the answer to a few questions which will allow me to think out of the box for you and give you some options to choose from.  Please feel free to contact me so that we go over everything in greater detail.  My contact information is in my profile.

 

Kind Regards,

David Raff

 

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Hey bungjess.

 

On the surface of it , its an excellent deal.

 

Now, mind you, if housing prices tank much further, you could be kicking yourself, but even if they do, in the long term they will come around again.

 

In the meantime, you have a low fixed rate and sleep a lot better at night.

 

I like hearing stories like yours where you found a way out of your situatiion and kept your home !!!

 

Congrats and good luck.

 

8-)

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I think that under the circumstances, what you are doing is smart.  Unfortunately the only way to get some equity in order to sell it, is to put that money down on it.  Hopefully in the next couple of years, the market will rebound and you can get your money back, or at least a portion.

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Chicago.

 

He has a lender. Its uncool just to roar onto a thread and try to scam business.

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Am I missing something? How is plunking 20k into a house that they will be in less than 3 years a good idea? I'd need to know the difference in payment on the new loan versus what you have now and calculate the savings over the 3 years. What is the plan for the property in 2-3 years, that needs to be looked at. You have to decide what the market will be like in  3 years and if you could be at least in a position to get what you owe at that time. I'm not so sure I would sign off on this until a few more questions have been explored.

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We fix

 

He has to pay part of the 20k to get out from underneath even if he sells today.

 

We all know the house inst going to skyrocket in value in the next three years. What can he do? Keep the 20k and keep paying 9.35% ?

 

Unless he is prepared to simply sell out tomorrow, then his move is to stick down the 20k into the mortgage and refi into a far lower payment.

 

The guy is paying 9.3% ..........

 

Either way, he will have to part with that 20k now or when he sells the house in 3 years. If prices rise, then he gets a profit when he sells.

 

I think its the best thing to do.

 

 

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bugnjess,

 

I would not put the 20k down on the house either. That money would be better served elsewhere. The fact of the matter is that homes are no long appreciating. It could take you a LONG time to recover that money. If you invest the $20,000 wisely you may see better returns. I am not a financial advisor and won't give advice with what to do with your money. But the Government is passing the $300 billion housing rescue Bill that will allow lenders to write the loan down to 85% of the appraised value. It may be a gamble waiting since no one really knows who would qualify. If your rate does not go up until 2010, I would at the very least wait to see if you can get some of that help. I would hate to see you put all that money down if you can get your loan balance written down instead.

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my mistake **** appreciating like they were during the boom.

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FHA

 

Im sorry dude, but he would have to disclose he has 20k in order to get a reduction. You cant have a bunch of money in the bank then beg for a mortgage reduction.

 

Hes underneath his house. Unless he plans to default on the house, he will have to pay that 20k anyways.

 

He should pay the 20k and get it over with. He will also get a lower payment while he sits there for 3 years.

 

 

 

 

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If he puts the 20k in even a basic online savings plan he can get 3% so the 9% isn't really 9%. Throwing good money after bad is never a good idea. Paying a 1.5% funding fee for the FHA refi plus MI plus the cost of the refi is not doing anything to help him. It's a bad financial plan.

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So you suggest he keeps paying the 9.3 , with the looming arm coming due in a year and a half, when who knows what the rates will be , and if hes 30k underneath he cant refi anymore.

 

You can also take that 20k to vegas and quadruple it, then pay off the whole mortgage.

 

Better yet , STASH the 20k and sucker the guv into giving you a mortgage reduction.

 

You guys are making this far more complicated than it needs to be IMHO.

 

 

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Hi,

We were told that since we owe betwen 15,000 and 20,000 more than our house is worth we cannot do anything except foreclose it or keep paying the current mortgage, which is going to adjust in January, or this option.

 

Our new payment will be at or under $1400, which will save us $400 a month now and more probably when it would have adjusted.  Also, our new payment has more money going to principal and our current loan has only $90 a month going to principal. 

 

Our house loan is paid on time always, as is all our bills, so we did not want to do the foreclosure thing, and we cannot sell the house right now because the market continues to fall in our area, and if we put the money onto the house to sell it we would not have any money for a down payment on a new house. 

 

I do not understand about the $300 billion housing rescue thing, how does that work?  Our current lender said we could not be helped unless we had missed payments or were having trouble making our payments, which is not the case, and is not a chance we want to take.

 

Any ideas are helpful.  Thank you to everyone for your input. 

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I agree with Greg, we don't have enough info to determine if this is a good idea or not.  What is the current loan balance, current value, the proposed terms on the new loan, in addition to the questions he asked.

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And what happens is he pays the 20k and his house value drops more? Tom, you are also acting like the 20k is going direcly to principal, it won't. I would bet half will be eaten up with costs. If he left it in the bank the 3% (at minimum) would offset the high interest and he would still have the 20k available to pay it at closing if and when he sells. Wasting that money now leaves no options. If the property drops in value more he would have wasted that money. If you say he has to pay it anyway, in what financial scheme is it better to give away 20 and 3 years worth of interest? Keep it until you have to make a decision.

 

My $.02

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Bugnjess

 

I think we know more than we need to know sometimes.

 

My friends on here have hearts in the right place, but in my honest opinion, they are making it far more complicated than it needs to be.

 

If you want to do the right thing and honor your mortgage, then pay the 20k and refinace into an FHA loan.

 

You will save a lot of money, and will always have the OPTION of staying in that home. You may even decide to stay in the home after 3 years.

 

I would not suggest monkeying around with the situation and trying to keep the money .

 

Either you put your house up for sale right now and eat the loss, or refinance and stay there. Either way, you lose the 20k.

 

 

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Hi again,

In 2-3 years we hope to be able to sell the house or have enough saved to keep it as a rental if we cannot sell it and then buy a new house.  We can afford the second house payment at that time if it is a payment of $1400, but not at $1800 plus more when it adjusts.  We owe $191,000 and our house will appraise for probably $175-$180. 

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Tom they said they outgrew the home. They said they are leaving. It's not complicated at all. What amortization table have you seen that makes it even a reasonable move to start a new FHA loan and try to pay down principal in 3 years? It makes no sense. Not overcomplicated, it's very simple.

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Bugnjess, you posted while I was writing my post.  Presumably your new loan has closing costs, how are those being paid?  This is an easily solved math problem, but to come up with the solution we need the numbers for the current loan, and the proposed loan.  After that it will be fairly simple to tell if you should do this or not.

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Tom,

 

I think it is too early for any of us to know who would qualify for the write down. You could very well be right that they would not qualify because of the money from the law suit. However, I think it may be possible since this is really for those who are upside down on the house. This is not for those who can't make their payments, but for those who CAN make their payment but can't refi due to the negative equity. I don't think HUD will disqualify someone because of money they won from a law suit. If anything, HUD would want these loans to perform and with the $20,000 in the bank would make the loan more likely to perform. If the borrower is forced to put the money down on the house to reach a 97.75% rate and term, their situation really does not change other than they dumped $20,000 to be almost at 100%. Three years from now they could be in negative equity again and they are back where they started. I am just saying, they are going to get the money regardless. The housing Bill will be coming very soon. There should not be much of a difference in waiting to see since they can still put the money down at the later date if they don't qualify for the write down. There is no harm done in waiting to find out if it can be done. If it can't be done, then yes, you put the money down and get it over with.

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Hi,

The paperwork says closing costs of $2400, PMI/MIP/Funding Fee of $2600, with a Lender Credit of $2000.  7.0% interest.  97% LTV.

 

I hope this helps.  Thanks again.

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7% Geez, apologies if i missed it but whats your credit score? 

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So from the $2600 funding fee, if my math is correct, you are looking at a 173k loan amount at 7% on an FHA loan with 20k down.

 

I would take a pass on that.

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Bugnjess

 

Tell your broker or lender to do a 'no closing cost loan' . You will probably end up with 6.75% interest. But you will not add to your mortgage balance.

 

Its well worth it.

 

 

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Hi,

Maybe it is around 650???  I am not sure exactly.  We have a copy of our report that shows all of our accounts as paid as agreed always, but we have probably too many open accounts and too many inquiries.  Also we have a bankruptcy from July 1998 that may or may not be off the report yet.  Hopefully if it is not off the report they will run another one in August because it was supposed to fall off in 10 years????  Thanks!

 

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GVD,

 

Why are you so against the FHA loan? Whats the deal? I'm not saying it's for everyone, but come on. The 1.5% funding fee is what makes FHA self sufficient. There are no tax dollars involved. That money does go to good use. Since you work with all 720 plus credit scores, it may not be right for them, but FHA really is the loan of choice right now. Honestly, how many loans are you doing with 720 scores and under 70 LTV? If that is all you do, then you are the man. I must not be doing something right. But you know, a lot of people out there aren't in the perfect situation. Most people are struggling to make their payments and even with the monthly MI, a lot of people are thankful for being able to get a low competitive rate that they can't get with Fannie or Freddie. If rates drop, guess what? You streamline them and save the borrower more money. If you can write down your loan from being negative equity to 85 LTV, I don't see how the 1.5% should be questioned. If I were in their situation, I would let them charge me whatever they wanted. Remember, no LTV, credit score, cash out, or LPMI adjustments. The rates are better than conforming. Even the ARM's have a 1/1/5 cap with a 2.0% margin. The rates on those are lower too. So while you say FHA is not worth the funding fee or monthly MI, I beg to differ. Again, it is not for everyone. But for the vast majority of homeowners during the credit crisis, FHA is the route most homeowners are going for safety.

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Ya G---Unless the credit score is 500 somebody saw em coming!!

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Hi,

I found the credit scores.  Me - 660, 699, 674, & Spouse 681, 689, 671.  Loan amount is $174,600 on the paperwork.  We are in Washington state. 

 

Thank you all again!

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I'm kinda late to the party but from what i can ascertain so far that interest rate is high.  Either beat your guy up for a lower rate or find another broker.

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When did your loan officer lock the rate ?

 

I would strongly consider a no closing cost loan.

 

This means you take a higher rate to encompass the closing costs.

 

I did this for a client recently. He had a 6.5 thirty and I got him a 5.875% 20 year  with no closing costs. However, i made 300 bucks on the deal. (was a repeat customer)

 

If you are dead set against staying in the home longer than 3 years, then its the way to go.

 

 

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If you put up a loan request you will probably find someone willing to do it around 6.5% with the credit. I would not go through with that at a 7.0%. That is normally what you get for "manual underwriting".

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