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I need a bigger house, but my condo is worth much less that I paid, what can I do?

I bought my brand new 3 bed 2.5 bath condo for $232k on a 0 down, 30 year fixed loan.  I don't have any problems affording the payments, which means I can't refinance or modify the loan.  My family is outgrowing the condo and I would like to move into something larger in about a year and a half.  We have paid down $12k and currently have about $10k in savings.  My house is currently worth roughly $180k.  My credit is in the high 700's and defaulting or walking away are not options. Assuming my house value doesn't change and if I save up another $15k-$20k, what are my options?

Thanks for any help!
  • January 12 2011 - Milton
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Answers (5)

Profile picture for Liberty Mortgage

You can easily get an FHA mortgage with 3.5% down.  The only caveat is that you must qualify with your current mortgage payment together with the Condo's taxes and monthly maintenance dues.  You correctly indicate that to walk away from your condo will ruin your chances of buying another home.  If qualified, I would by another home and rent out the condo to help mitigate that debt. 

  • January 13 2011
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Rent a bigger house to live in.  Chances are that renting may be the same or less than owning.  Getting into a rental is less expensive than buying and getting out is less expensive as well.  With a house you pay 10% of value to sell.  

Rent out your condo.  Make sure you can afford any shortfall between the rent you get from the condo and what you owe.  Be sure you can carry the condo for a few months to account for vacancy and non-payment.  Know how to evict people before you sign a lease.

You may be able to refinance the loan under either the Refi Plus program or the Relief Refinance program.  These programs are designed to help borrowers with good income & credit whose properties have gone down in value.  Ask your current servicer if they can help.  Fannie will buy loans up to 125% LTV but the lenders I just checked stop at 105%.  Just because Fannie will buy a loan doesn't mean a lender has to make a loan.

When the market improves think about selling.  Unless you like how it's performing as an investment.

If you turn the condo into a rental make sure to declare that rental income if you want the income to count towards an eventual purchase.

Check with your HOA before renting.  Most associations have limits on the number of units that can be rented at the same time.
  • January 12 2011
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Your situation has a few different parts.  First off if you bought without turning your condo to a rental then you would just have to qualify with both payments going toward your "debt to income" ratios.  If you turn your condo into a rental for even 1 month in 2011, then you can count 75% of that rental payment as income.  Then you could qualify for just the new house payment and 25% of the condo payment.  As far as a down payment, depending on where you are, you could go FHA with as little as 3.5% down.  You could not go USDA because you already own a property. 

  • January 12 2011
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where is the condo, have you talked to a realtor get an idea of the values in your area. You might have to take a small loss on the sale if anything and try to work with a realtor to find a bigger home for a competitive price.
  • January 12 2011
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Given that you have a year and a half or so, you might consider renting a house the next year or two and converting the condo to a rental until you can sell it for what you owe.  Once you can show the rental income from the condo on your tax returns, you will be able to use that as part of your income when you apply for a loan for the home purchase.
  • January 12 2011
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