Refinancing...

[ame]

So after a LOT of discussing, a lot of hemming and hawwing, a lot of talking to realtors and realizing we are not going to sell this house without a lot of work AND losing our butts entirely on top of that, that we will just refi, and put another 5 or more years into it and do the kitchen redo like I think we'd need to do anyway to sell. I don't think I want to bust out the back wall or tear through into the dining room but I think if we redo the cabinets the way I envision it will be a lot more useful and functional.

We are going to call the bank our mortgage is through, and discuss a modification with them, per the discussion with our financial advisor (not employed by a bank at all), as our first stop. The next option is another one of those refi jobs around here. A broker I guess.

My question is, how do we find out if we are truly underwater. And would it be possible even to get a refi/home equity (assuming we had any) or some kind of remodelling loan to allow us to do the kitchen without having to do it totally out of pocket?

If we just did a refi, our mortgage would stay the same, with a 15 year term vs a 30 (well 20 as we are now). But we would then have to pay for the kitchen or get the loan on that. I don't REALLY want to hit the savings for the kitchen if we can avoid it.

 

[Hera]

Off the top of my head what I know about a cash out type of refinance is this: It depends on a few factors. One of them is that the house must appraise less than the existing home loan (the bank sends an appraiser) and you must have some equity in the house to borrow against.

You can find out around what your house is worth by checking Zillow.com and checking what similar priced homes in your area have sold for on redfin.com. Those are not absolute though (sometime inaccurate) and really only a real estate appraiser can make that judgement.

 

[sonnyjane]

Ame, every situation is different, but here are some things to think about...

How much money have you put into the house?
What is the current value?
What do you think you could sell it for IF you put in the work?
What could you sell it for if you just dropped the price and said screw it, this house is sold AS IS NOW?
Is the amount you could sell it for more than the equity you have in it?
Is it even marginally close?
Do you have steady income so that if you had to short-sale and your credit score took a hit, you could still be ok and get a rental property for a while by providing your income information?

I'm sorry I don't know your personal situation... I'm sure it's been in tons of other threads it just escapes me now. But, I wouldn't suggest putting 5 more years of income into a home as well as taking out another loan (if you're even approved) to do more work on it all for the gamble that you'll be able to do better a few years down the road. If you could sell the house and take even a $20,000 or $30,000 loss on your equity, frankly I'd still do it. This could turn into a money pit and you'll end up in the same place 5 years from now that you are in now!

 

[ame]

Ame, every situation is different, but here are some things to think about...

How much money have you put into the house?
What is the current value?
What do you think you could sell it for IF you put in the work?
What could you sell it for if you just dropped the price and said screw it, this house is sold AS IS NOW?
Is the amount you could sell it for more than the equity you have in it?
Is it even marginally close?
Do you have steady income so that if you had to short-sale and your credit score took a hit, you could still be ok and get a rental property for a while by providing your income information?

I'm sorry I don't know your personal situation... I'm sure it's been in tons of other threads it just escapes me now. But, I wouldn't suggest putting 5 more years of income into a home as well as taking out another loan (if you're even approved) to do more work on it all for the gamble that you'll be able to do better a few years down the road. If you could sell the house and take even a $20,000 or $30,000 loss on your equity, frankly I'd still do it. This could turn into a money pit and you'll end up in the same place 5 years from now that you are in now!

If we sold as is we would lose at minimum 60K. At minimum.

We'd waterproofed the basement-something the previous owners lied about on the disclosure and we discovered too late after we could do anything about it. Also a new roof and remodeled the bath.

We have no equity, we're underwater. The market completely hosed us more than buying a house did. IF we did the kitchen over, finished the entire basement out, replaced all the windows and made this place a showplace, we MIGHT be able to list it for $25k less than we paid and hope someone would pay $40K less than we paid, and that's AFTER all the renovation and a really nice kitchen. Every agent has already told us it's not worth it, this area is just filled with foreclosures, and none of them are selling, even with many in great condition. If we listed as-is, it would be a huge loss. Like...astronomical.

We do have steady income.

 

[sonnyjane]

We'd waterproofed the basement-something the previous owners lied about on the disclosure and we discovered too late after we could do anything about it. Also a new roof and remodeled the bath.

We have no equity, we're underwater. The market completely hosed us more than buying a house did. IF we did the kitchen over, finished the entire basement out, replaced all the windows and made this place a showplace, we MIGHT be able to list it for $25k less than we paid and hope someone would pay $40K less than we paid, and that's AFTER all the renovation and a really nice kitchen. Every agent has already told us it's not worth it, this area is just filled with foreclosures, and none of them are selling, even with many in great condition. If we listed as-is, it would be a huge loss. Like...astronomical.

We do have steady income.

So, it sounds like you just answered your own question, which is that fixing it up and doing a total renovation in order to HOPEFULLY add value to your home likely wouldn't be worth it and you'd still sell it as a loss. Is that correct?

I STRONGLY advise against putting more money into it. I mean... if you already regret buying the home, I think you will REALLY regret that.

I don't know how familiar you are with Suze Orman but I like her a lot, and while some might disagree, she gets this situation on her show a lot so I'll tell you what she has suggested before.

For people that are underwater, even by an amount like you mentioned, she has recommended that they sell it and walk away taking the loss. $60,000 is a lot,I'm afraid you'll lose that PLUS an additional several tens of thousands on the renovations!

Another thing she has frequently recommended which is controversial but makes sense is to just stop making house payments. That is usually recommended IF the bank won't refinance. Sometimes banks won't refinance if you aren't in foreclosure, so she recommends just going ahead and stopping payments to put you into foreclosure! It can take many months, even a couple of years for the foreclosure process to "kick you out" of your home. In the meantime, she recommends just saving that monthly mortgage payment into liquid savings so that you have tons and tons of cash. That way, even if your credit score is shot from the foreclosure, very few landlords would turn down a renter if they said "Hey, we can give you six months cash up front". Cash is gold nowadays.

Do you really WANT to stay in this location? I mean, if the bank approves your modification and you stay in the same place, just for less, is that really want you want? I guess I'm just trying to get you to see that there are justifiable losses, whether you do a short sale or a regular sale at a reduced price, is your sanity and happiness worth more than the money you'd lose? I know it's a LOT of money, but your options aren't appealing. Either sell for a loss, or take out even MORE money against your name, go through the absolute $hit show that is a home renovation, and then put your house up on the market against tons of other foreclosed houses and possibly still lose money on the sale as well as owing the money that you put into the renovation. I'd just walk away to be honest and take the hit. Sell for as much as you can, but be at peace with knowing that tons and tons of families are/were in the same boat and that you're not failures, just victims of unfortunate circumstances.

 

[diamondseeker2006]

What is your current interest rate?

 

[ame]

5.675.

We were already told that if we do that suze orman thing and we do have money and jobs we will be destroyed in lawsuits for diverting funds. So thats already been considered. Our only option is to live here longer and refi and make it livable to us and saleable later, or to lose more money and let it sit on the market for a long time. There is a house for sale on our street for $44,000. It's been on the market for over a year at that price, and it's in good shape. So, even selling at a 60k loss doesn't mean it's going to sell.

We'd be staying here for several more years if we refi and remodel.

 

[sonnyjane]

5.675.

We were already told that if we do that suze orman thing and we do have money and jobs we will be destroyed in lawsuits for diverting funds. So thats already been considered. Our only option is to live here longer and refi and make it livable to us and saleable later, or to lose more money and let it sit on the market for a long time. There is a house for sale on our street for $44,000. It's been on the market for over a year at that price, and it's in good shape. So, even selling at a 60k loss doesn't mean it's going to sell.

I do NOT want to stay in this location. It's nice for traffic to and from work, but generally not where I want to live.

Wow! I'm guessing you don't live in Southern California near me

I'm really sorry Ame. This is a total bummer. I am really against buying because my husband's job requires frequent and unexpected moves, so while we might be in the same spot for 3-4 years, there is NO guarantee that we won't be told that we have to move to Guam the next year. I've seen a lot of people get burned by figuring they would buy and if they got transferred, "no big deal, we'll just sell the house".... We know how that goes. I don't think I'll own a home until it's the home we retire in.

 

[ame]

I never plan to own again. Worst investment ever. We're in the midwest.

People keep saying "cash out" in refinance. What does that mean?

 

[NovemberBride]

Ame,

You cannot due a cash-out refinance if you are underwater. Cash-out refis are fairly rare these days because like you, many borrowers are underwater. Typically, you can do a cash out refi for the difference between the equity you have in the home and up to 80% of the value of the home. For example, if your home is worth $100k, and you owe $70k, you could do a cash-out refi to take out $10k and your new mortgage loan would be for $80k. There may be some lenders who will go above 80% LTV for a cash-out refi, but that's the general standard and there is no way you could take cash out of a home where you owe more than it's worth, that just doesn't make sense. In fact, if you are underwater, you will only be able to refi if either (i) you qualify for one of the modification programs (HARP, HAMP, etc) or (ii) you bring money to the table.

 

[ame]

gah

 

[rocks]

Unless you have mortgage insurance, a tornado will not terminate or forgive your mortgage.

Be careful what you wish for....

 

[Hera]

You may need to meet some parameters for a modification and you'll need to find out what those are. They usually have a requirement that the home is providing a financial hardship. Depending on the bank, you may need to be late on your payments in order to get a modification on your loan. You can always try searching your bank name and loan modification on google to see if you can find any info out on it. Please do good research on it, though, because becoming late on a mortgage is quite serious.

You can try a no cash out refinance but depending on the lender they may/may not be able to do one for you. Some require an appraisal and some don't. It's very much worth a try, though to see if you can get into a 4% ish loan.

If you can afford the payments then you can do a mini makeover on your kitchen. In stages, it can be done quite inexpensively.

 

[diamondseeker2006]

You do need to refinance if they will allow it. We refinanced in January at 3.5% for 20 years. I happened to talk to the lender yesterday about something else and he mentioned that the rate on that mortgage is now at 2.875%!!!!!!!! So if you are stuck in that house, you may as well benefit from not overpaying interest.

 

[ame]

Unless you have mortgage insurance, a tornado will not terminate or forgive your mortgage.

Be careful what you wish for....

No, itll be rebuilt and might actually be worth what was paid.

 

[partgypsy]

OK, this may be in past posts, but would you mind sharing why you want/need to move? It seems like you moved there within the last 10 years?
Do you or your husband need to move for job purposes? If so, I can totally understand wanting to get out there with the least amount of financial pain. I would run the numbers. Where would you live if you didn't live there, how much would it cost? what is the cross over point considering that you will have to pay X amount of money to get out of the house? I know this is not super comforting, but many people lost alot in the last few years. My father put a downpayment of 40K for his townhome, lived there for 4 years. He lost his businesses in the recession. So he stopped paying his mortgage. He did get to live there for "free" for a year (the mortgage holders actually asked him to continue to live there while they were attempting to sell it) but he lost the 40K plus all the mortgage payments he had made up until then.

If it is just a preference/esthetics thing, or it bothers you you overpaid, what I would do is fix up the house best you can within your means, and LIVE there. Basically not to look it as an investment, but simply as a place t live. I apologize in advance if I misinterpreted the situation, just my opinion.

 

[webdiva]

They were discussing a law that would allow underwater homeowners to refi at a lower rate - but that will not help you renovate. Not sure if that ever happened because we have enough equity to refi out of PMI, hopefully! We're doing a refi with Amerisave, friends gave it good reviews. Rates are around 3.5% right now - it'll save us $400/month.

I also advise you to start getting handy and DIY - get great low cost ideas from centsationalgirl.com and younghouselove.com. We redid our house with minimal contractor help, great friends, helpful blogs and youtube renovation videos. Short term pain, long term happiness with our house! There is NO way we could have afforded to pay someone to do everything we did. We're now fixing up my mom's new investment property, too.

One option is to demo the kitchen yourself and get an IKEA credit card at no interest for 1 year - and pay it off with your steady income. Ikea cabinets are awesome - the hardware is the same as the $50k kitchens (blum hinges). Another option is to paint the cabinets and get new countertops. I love this example so much I want to go paint someone else's kitchen for fun - hehe
http://moderncountrystyle.blogspot.com/2011/01/anne-turners-cottage-livign-kitchen.html

You may not love the area - but maybe sticking it out another with a nicer place will help you be happy.

Or can you rent it out to cover your mortgage and rent somewhere you like better in the meantime?

Personal rant: Suzi Orman's advice to dump the house is TERRIBLE and why this country is in bad shape. People need to take responsibility for their actions - dumping a house just because you're underwater yet have the means to pay the mortgage is ridiculous. Plus, getting another loan within 7-10 years will suck with that on your record. The banks are already
pretty lending shy.

Good luck!

 

[ame]

OK, this may be in past posts, but would you mind sharing why you want/need to move? It seems like you moved there within the last 10 years?

Because I don't want to live in this suburb anymore, I don't want a house with plaster walls anymore, and I dont want a house at all anymore. I want to live in a condo/villa/apartment something that requires that I essentially do ZERO maintenance period ever besides clean my messes up. We have been here less than 10 years, and I am mad that we've been here any years. The longer we're here the more I hate it actually and the more I despise myself for allowing my family to convince me home ownership was ever a good investment or idea. I actually resent my family and my husband for convincing me to 1) buy and 2) buy a house.

Our credit is perfect, and we have zero debt, and we can pay our mortgage, we just can't sell it in this market or this area. We qualify fine. Its just trying to deal with the value of the house. No one wants to live in this area anymore, ourselves included, and the area pros know it. But we have no equity due to the market, and the only way to get any is to refinance somehow and pay a lot of principle. We just have to hope that an appraisal isn't as bad as we think it truly is.

But I will not risk my credit or risk getting sued or prosecuted for abandoning a house I can afford to make my mortgage on because Suze Orman thinks committing a felony is the only option.

We will redo the kitchen mostly ourselves. I just think the cabinets and counters need to be done by a pro. I have an almost scale layout of the current config and the planned config and measurements to take to the contractor my brother used/uses. We can and will take the plaster walls down and the tile down and put drywall up, and will rip the floor up and put tile down on that. We know how to do all that, well, my dad, brother and brother in law do and I can tile very well. DH and I are just muscle.

 

[ruby59]

Just a suggestion, but have you thought about renting the home out? You say that you have no big bills and both of you have great jobs. Is there any way you could use the money you take in rent to meet your monthly morgage payments? Then would you have the means to rent an apartment?

This way you could wait until you have built up more equity in your home and the housing market gets a little better before you try and sell your house.

 

[ame]

Just a suggestion, but have you thought about renting the home out?

yes and that's out of the question. I refuse to be a landlord.

 

[webdiva]

Just a suggestion, but have you thought about renting the home out?

yes and that's out of the question. I refuse to be a landlord.

Property management companies charge about 5-10% of the rent to handle that for you. Just an FYI.

Sounds like you're covered in the reno dept! great!

 

[ame]

My brother bought a foreclosure in a FANTASTIC part of town (near where we really want to be) and has made that thing pretty fantastic. A lot of the work was done by my parents (dad mostly) bec my brother works out of town at the moment and comes home on weekends. We've all pitched in and we did the same with my sisters, which also was a foreclosure (her's was absolutely disgusting and landed my mom in the hospital with a lung infection!). I am hoping that my brothers being on the tail end right now will free up some time for my brother in law, parents and I and occasionally my brother to work here. Our priority before the kitchen is the basement, and hopefully the waterproofing is done to a point we can refinish it AGAIN, and reframe the bathroom to be larger, and not just a toilet in a closet which you cannot use without the door wide open. It's comical. And amazing that the tax assessor considers it a 3/4 bath since there's not a shower OR a sink in there, just by the washer (the shower head thing is hysterical).