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 radamczy
Joined: 04 Dec 2008
Posts: 3
2.59 Dollars($)
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Posted: Thu Dec 04, 2008 8:04 pm Post subject: House value problem
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OK, this will be long-winded, but please bear with me and offer any help you can!
I bought a house in Michigan for $152,000 four years ago (when I was 23). I got a fixed rate mortgage. I then had to switch jobs, which meant moving states (because the Michigan economy is HORRENDOUS).
The house has dropped in value to about $125,000, and I've been living in Kentucky for two years. I HAVE to get rid of the house in Michigan (I'm being drained on property taxes and house repairs).
My problem is this: I'm not in danger of foreclosure, as the $875 a month is not a problem for me. What IS a problem for me is that I've got a $25,000 debt hanging over my head, and I can't buy a house in Kentucky. Basically, my life is on hold because of this damn housing market in Michigan.
SO...does anyone know how I can get out of the mortgage in Michigan, even though I'm not in danger of foreclosure? Thanks so much. |
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smithsussane
Joined: 18 Sep 2008
Posts: 10020
Location: Alaska
917.78 Dollars($)
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Niicss
Joined: 03 Oct 2005
Posts: 4770
Location: New Jersey
499.28 Dollars($)
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bob1
Joined: 03 Dec 2008
Posts: 22
Location: Farmington Hills, Michigan
9.28 Dollars($)
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Posted: Fri Dec 12, 2008 1:45 pm Post subject: House value problem
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Whatever you do, do not look for a short sale or let it go to foreclosure. Protect your credit in all cases, it will take a long, long, time to rebuild it if you negotiate a short sale or let it go to foreclosure. As long as you are paying it on time, as you agreed to do when you obtained the mortgage, and you have the income to pay it, the current lender is not going to be very willing to negotiate a short sale, even if you threaten to walk away from it. And, you may incur an additional tax obligation if any portion of the principle balance is forgiven.
My recommendation would be to rent the property out, even if it is not enough to cover your monthly payment. You will have some of the payment covered, and will have someone living in the home who will likely take better care of it than if it was vacant.
In addition, most lenders will give you credit for some of the rent payment you are receiving, which will help you qualify for a mortgage where you are now living. For example, if you are now paying 875.00 per month, that will be deducted from your disposable income as a debt payment. If you find a tenant who would pay 650.00 monthly rent, your deduction would now be 225.00 instead of 875.00 when determining your debt ratios and qualifying for a mortgage. Generally, you'll need to have a renter in there for at least 6 months, paying with checks, no cash or money orders, and a signed lease agreement.
This is the short story, as you will also have depreciation and other expenses for your tax return that will have to be calculated to determine the exact numbers used for qualifying, but your accountant can help you with that. Being a landlord is not always easy, either, but this solution can help you move forward with what you want to do. Since you are in a position to continue to make the payments, and economics beyond your control have created the situation, the rental option could be the best solution today. |
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Posted: Mon Dec 15, 2008 7:14 pm Post subject:
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Thans for the advice, bob. I've been weighing the options...I have an excellent credit score now (around 780, I think). So...if I do the short sale and take a hit on my credit, is it really going to hurt me THAT much?
Right now I'm upside-down on the house about $25,000. I can't imagine higher interest rates (as a result of a lower credit score) costing me $25,000. Plus, Property taxes and repairs on the house are costing me about $6,000 a year out-of-pocket.
BTW, I have been renting it for a little over two years now, to the same tenant. |
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bob1
Joined: 03 Dec 2008
Posts: 22
Location: Farmington Hills, Michigan
9.28 Dollars($)
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Posted: Mon Dec 15, 2008 8:53 pm Post subject: House Value Problem
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Ok, so far, you are doing the right things.
I will tell you, yes, if you attempt a short sale, you will get hit hard on the credit report, and it will probably take 5 years, maybe more to recover. And, you'll pay higher interest rates on new loans for cars and credit cards, because of the lower credit scores that result from the short sale. And, most other credit card issuers will quickly raise your rates on current outstanding balances, because they have 'default' clauses that allow them to raise rates, sometimes to the limits, if debt is defaulted on other credit lines. It is very similar to a bankruptcy or a foreclosure, essentially you are stiffing a lender out of funds that you agreed to repay. I am not taking the lender's side here, just want to let you know how it is. I make mortgage loans, and there is a big difference in rates for borrowers with 650 scores and 780 scores. And you're going to have to explain the derogatory credit when you take out a new loan.
Right now, the house is not costing you 25,000, it is costing you 500 per month. If you can easily make the balance of the payment, I would suggest you ride it out for a while. Nobody says the market is coming back very soon, however, with the ability to carry the payment right now, you have some time to think about what you want to do.
Do what you gotta do, only you can make the decision that's best for your situation, but I always recommend protecting the credit if you are able to do so.
Have you been to a lender to find out what you can do today ? With the depreciation factored in, you shouldn't have a huge hot to your ability to qualify for a new mortgage. Rates are low, you'll qualify for more than you would have 6 months ago.
What city is the home located in ? |
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bob1
Joined: 03 Dec 2008
Posts: 22
Location: Farmington Hills, Michigan
9.28 Dollars($)
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