What can someone do when they can’t afford the house payment?
December 17, 2008 · Print This Article
PrettyWifey asked:
My friendand her husband bought a house last year and the monthly payment was high but they were told to refinance it to a lower payment in a year when they built equity.
My friendand her husband bought a house last year and the monthly payment was high but they were told to refinance it to a lower payment in a year when they built equity.
Well, they never built equity and their savings is gone because they used money from savings every month to make their house payment even though they are both working.
So next month and every month after they will be short $600/month on their house payment. They cut back on their spending, but they still can’t make the high payments.
What options do they have?
Sell it? Rent it out? Can they refinance for a 40 year loan?
Any ideas? If they sell it then they will take a loss since the market slowed down in their city.
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Josh Dunaway has been a certfied Realtor in the suburban Chicagoland area for over 20 years. Aside from starting his own real estate company, he also owns a mortgage company as well.
Have them check out Fed. Gov. Home Loan programs. If they are in a designated Rural Area (they can still live in a city and qualify), the can refinance at a reduced interest rate and for a longer than average mortgage period. This will help them keep the house.
Your friends are the typical victims of lenders who gave ARM’s to such buyers with the notion that they would build equity and then refinance conventionally. Of course, the lenders NEVER imagined that housing values would head ’south’ instead of continuing to increase.
If they took a 100% LTV loan at the time of purchase, chances of them refinancing the entire amount are slim, since the house will no longer appraise at the value it did when they purchased it.
They are not in a pretty situation here.
They can TRY to rent it out, but generally speaking, rent values follow home values, so the amount of rent they obtain may not cover their monthly outlay, which lets them in the same boat.
Basically, they either have to come up with some cash. If not, they can speak to the lender about a short sale to get out from under the payments, but they will remain financially liable for any amount owed which is not covered by the proceeds from the sale.
Basically they are in a no win situation, cannot sell it, if they do they will still be responsible for the difference, If they try to refinance their credit has already taken another hit so the rates will be even higher. THis is what is happening all over the country with low credit 100% financing. (ps there are no 40 year mortgages) Declaring bankruptcy might help but will not necessarily mean the do not lose the home. Best bet is to call the mortgage lender, they possibly will accept interest payments only for a few months in order for them to get back on they’re feet again. Whatever they decide they’re credit is going to, if it has not already, take a big hit.
If they dont have the equity in this market it might be hard to sell. They could possibly rent it, but normally you will make negative cash flow. They can do a 40 year loan. They have to get out of their high payments.
I agree with ACE *thumbs up* this is happening because of lies that some loan officers sold. Its becoming a major issue.
Im sorry I dont have alot of solutions, I dont know the loan, but there are solutions. Just tell them not to go back to the same company/loan officer that got them into this.
I would talk to a broker about refinancing it….but in my opinion RENT it until they can refinance it. Most of the time they can charge 200.00 to 300.00 above what there mortgage is for rent. Which could help them dramatically either with rent somewhere else or to pay some off on their mortgage. I was in that situation and I rented it out for 2 years making an additional 7,500.00 over my house payments and applied that towards my mortgage and then refinanced it and saved ALOT of money. My house payments dropped big time.
if 40 years lower their mortgage significantly and enough so they can live comfortably then that would be what i would suggest.
selling it would get back most of the cash they put into the house depending on some locations because some housing markets too a hit.
they probably been swindled by their financial advisor, because in any case a house mostly never builds any equity the first year. most of the money is put to paying the interest off. take like 15 years to build up a few double digit thousands so if the house wasnt bought that long then your friend probably got swindled unless the refi lowered their payments significantly because they rolled it up all debt such as credit cards to a new mortgage.
if they can rent it out for an amount that would help reduce their own out of pocket significantly, that could be the way to go.
the other option is to have a forclosure expert help structure a deal with the bank. so you have many options that you can offer your friend.
They can try to rent it out or refinance the current
mortgage.But if there is no down payment on the house
and no equity they may not get better deal .(lower payment)
Refinance depends of the credit score and Loan To Value ratio,employment history.
Contact the mortgage broker or local bank in their city and find out.
Maya Ivanoff