Another House Finance Question

Updated on April 11, 2012
J.G. asks from Chicago, IL
10 answers

Hubby and I decided not to refinance our house. Our ARM is set to go down, and we did some calculations and figured we'd save a lot more by putting the savings at the lower interest rate towards the mortgage than paying to refi.

Since making this decision, I have learned that there are TWO foreclosures next door to me! (one across the street, one on the street behind). I was crushed when I heard this. We had three foreclosures back in 2008, all big box houses that builders and thieves made a killing on. The asking price for one of the current foreclosures makes me sick inside. It is almost 100k less than the current value of our home, and yes, it would be a comparable, though our house has a lot more (furnished basement, extra bath, another 200 square feet).

In any case, hubby still thinks we do nothing, and just stash as much cash aside as we possibly can. I think we should sell and buy now. We need a bigger house. We can come up with a 5% down payment, we have excellent (920) credit, and our home is a lovely starter house. I have no doubt we could sell and not lose our shirts (I have some friends that recently sold their houses). In short, we aren't underwater yet, but we would have a hard time coming up with 20% to refi without PMI.

However, with these new foreclosures, I am worried that by next year we will be even worse off. I can't imagine our property values going down even more than they already have, but it is looking that way (So much for buying in a solid, middle class burb of Chicago).... Our plan was to do a big addition to our house in 3 years. Hubby thinks we just stash as much cash away, and then, if we have no equity in three years, we just buy another house and rent this one out. It is realistic financially, we are frugal, he makes good money, but I can't help but wonder if this is the best exit from our current nightmare (why o why didn't we buy a bigger house to begin with! We could have afforded one!)


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So What Happened?

I hadn't had my first cup of tea when I wrote this! My credit score was 847 last month. Th score I gave this morning is how our credit union does it.

Our current mortgage is with a credit union, so we don't have access to any govt programs.

We have a bunch of cash but not enough if we are underwater, we're about 15k short. Thus why I was thinking we could just go buy something else.

I think we I'll just build up a war chest of money.

More Answers



answers from Las Vegas on

HI, Well I hate to burst your bubble on the credit scores. You might be looking at what is called the Vantgage credit score.. Fico scoring is what all lenders for Mortgage companies use. The highest possible score you can have is a 850. Now it is hard to help you without knowing if you home if a Fannie Mae or Freddie Mac or FHA. New laws going into effect on FHA home purchased prior to May 31 2009, to refi, that MI will be so low, that it will benefit anyone who could or should refi with rates as low as they are. If you have a Fannie Mae home, you could refi with the Harp 2.0. Something to take into consideration is, if you plan on buying a 2nd home, an investment home or another primary home, you will need 10-20% down anyway. Your DTI (debt to income) will include all your current debt, plus the mortgage on your current house, since it is not rented or will not be rented prior to buying another home, and the current mortgage, you will have to meet the DTI guidelines. So depending on who owns your current Mortgage, will depend on if it is beneficial for you to refi. The harp is in effect now, but the new changes to FHA do not go in effect until June. If you home is an FHA, by all means refi that home in June when the new MI for refi's will be very low (if you bought your current home prior to the above mentioned date). Find yourself a good Loan officer with a Mortgage broker company. Not a bank, they only offer what products they have. A mortgage company which is a Broker, have many different companies, which would be into your best interest. Of course the higher the scores you have the better chance you have getting a better rates.. Rates are very very low right now and can be as low as 3.5. Dont let people run your credit until you shop around. This is my industry, but I only work in Nevada. Good luck to you.. By the way you can google about the Harp 2.0 program, or go to the HUD website, the FHA website, and you can even google is my home a fannie mae or freddie mac in case you dont know.

4 moms found this helpful


answers from Columbia on

Husbands plan.

We're moving and renting the old house for exactly the same reasons.

But if you can sell where you're not losing money, then I'd consider it. But the market will return, just takes time.

2 moms found this helpful


answers from Atlanta on

Might want to recheck the credit score. 850 is the highest possible. Not sure if it was a typo, or if you got your score from a non reputable company. You wouldn't want surprises when you actually start applying.

My 2nd question - how do you know the current value of your home? Are you guessing or have you had someone in to assess? Most homeowners over value their home, especially with the down turn of the market. (Hubby thinks our home is worth about 10 - 20% more than I bet it is - he's going to be in for a rude awakening when we sell ;-)).

With a 5% down payment, you may have a difficult time getting a mortgage - and definitely not going to happen without PMI. Though the interest rates right now are mightly tempting. Unless you have the money now to move - hubby's plan is probably best. You could always bring a realtor in and have them tell you what they think you could get for the house. Then take out the realtor fees, moving costs, etc. And see where you really stand and if buying now is even a possibility.

2 moms found this helpful


answers from St. Louis on

Impressive credit score since 850 is the highest possible. :p

You need to relax about the foreclosures. Unless the people who were foreclosed on did major damage to the homes those homes are being sold for what they are worth. Lenders and appraisers are already aware of this fact so it would have been taken into account in an appraisal. So if you have had a recent appraisal that is what your home will still appraise for.

Oh keep an eye on when your ARM adjusts next. If the republicans take the senate it will not matter who the president is, the interest rates will go up because the budget will be cut.

1 mom found this helpful


answers from Washington DC on

We bought a bigger house 2 yrs ago and rented out the old one. The old neighborhood has had alot of forclosures and we are upside down waiting for the market to even out so we can sell. I hate being a landlord! If you are able to sell I would do this, if not find out the comp rentals and add the property manager fees to your mortgage to see if it is worth it to you before deciding. Good luck

1 mom found this helpful


answers from Minneapolis on

Everyday on the national news web sites, they feature "housing deals." The trend is alarming. Homes that were once in the hundred-thousands range now as low as $35 thousand and less!! And many of these homes are NOT foreclosures and this trend is in every all type of neighborhoods.

I think if you sell now, you're going to find yourself upside down if you still have a balance on your mortgage. Housing values are plummeting and there seems to be no end in sight. It sounds like this trend might be here to stay if employment rates don't improve. One article I read forecasted a second wave of people losing their homes...this time due to unpaid property taxes as a result of long term unemployment.

Sure there are alot of deals out there, but it's only a deal if you don't already have a mortgage. Chances are very low you'll break even or make a profit from the sale of your home right now.

If you can make your payments and there are no forseeable layoffs in your future, I'd stay put. You'd probably not find a better deal right now without taking a loss.

Good credit is a plus, but only if you need to refinance or take on a new mortgage. Considering the shakiness all around, why would you do that unless it was to get a lower interest rate, or you absolutely needed to do so for an emergency-like your roof is leaking or the furnace needs replacing. So, you mention you want to do an addition... I say refinancing for an addition right now, might not be a wise move. I'd wait and save...not spend.



answers from Oklahoma City on

Selling will get you penny's on the dollar. It may be feasible for you to buy a new house and rent this current one out until the higher selling prices come back.

It may take 10 years to get housing costs back up. They may never go up either. You might want to consider selling the current house on a lease purchase too.

There are so many different ways to do this.

When we bought a house on lease to own we paid $1000 down and agreed to pay $375 per month for 18 years. Period. No interest, no negotiating, etc...we had the option to buy it for cash for the price...12 months per year times $375 times 18 years. No interest no questions.

$375 X 12 months = $4500 X 18 years = $81,000.

The sale price of the house was $81,000. That's it. There was no equity, no interest, nothing. Either we made the payments, paid it off with cash, sold it and paid him off for the remainder, or asked him to take it back with us loosing nothing.

Hubby lost his great paying job and we lost everything. The house, the vehicles, the credit scores and cards, insurance, everything. We walked away with no gains or losses on this house.

The paper work was filed in the county court house with us listed as the owners, we were responsible for home owners insurance, he was basically our bankers, we were homeowners and responsible for all repairs and maintenance. The paperwork had a lien against it to make sure it was paid off if something happened.

It was very easy and stress free. Either we paid or moved out. No worries, everything was written down so everyone knew exactly what was expected.

He had over 50 houses in our town that he did this with, it was his hobby. He was the city inspector and would bid on the houses that were still usable and if he won the bid he would take time and refurbish the home and sell it for a reasonable price. It was his retirement income.

He never had anyone able to cheat him out of anything either. He still does this. Some houses have been through several owners but some of them still have the original family in them and have paid them off.

I would not even begin to think about selling a home in these times. I would get a Realtor to come and give an expected selling price then take off a few thousand to give room for the buyers to try to get your price down, that would be the MOST you could expect. I would also expect a house selling now for full price to be on the market for at least a year.

I had some friends get transferred to another town. They owned their home, had lived in it long enough to pay it off. They ended up selling their huge home that had excellent upkeep and updating for almost what they paid for it in the beginning, after 30 years. That was crazy. A few years ago it had been appraised and had been told it would list for over $300K. It sold for about $120K...there are more and more stories like this too.

One of my parents at the studio is a Realtor and she is nearly at the point of losing her own home due to not making any sales. She has had to completley drop her kids from dance and gymnastics. She is about to lose her own lifestyle.



answers from Springfield on

If there are a couple of foreclosures in your neighborhood, I would think this is a terrible time to try and sell. I suppose the market in your area could get worse, but more than likely it has nowhere to go but up.

Are you thinking about selling because you just really want a bigger house right now or because you're scarred that you need to get out now? If you're more motivated by fear, all the more reason to wait it out, especially if your ARM is going down.

I'm curious about your 5% down. How long have you lived in this house? Do you have any equity, assuming the value of your house is what it was when you bought it? If the 5% you are thinking of is cash that you have, the equity in your house would also be considered if you were to refi.

We had 20% down when we bought our house. We are in the process of doing a refi, and the only cash we're bringing to the table is the closing cost, as we now have more than 20% in equity. We are fortunate that our house appraised for exactly the purchase price.

I really think your best bet is to make an appointment with a loan officer. You won't have to make a commitment. You also might be able to simply ask all the questions you have without running a credit check. If you want to begin the process of a refi, they will want to run your credit, but if you let them know you are just asking questions, they won't need to. Also, they should be able to answer questions you have about selling/buying. You might need to talk to a realtor to get a good estimate on both a realistic asking price and a realistic selling price for your house.

There are just so many factors involved in this decision, and you really want to make sure you have all the information. Good luck!



answers from Cleveland on

Our house just dropped in value because of about 3 forclouses plus a few more in the neighborhood... all the house need lots of work that sold, where as our has new roof, siding, heater, water heater, fenced yard, front porch, & redone bath. We also have more bedrooms them most in our area - but we have lost value for almost 3 years now... we were appraised in 2007 for $68,000 (sure your is worth more, but it what we could afford) now it is only worth $53,000 & yes we owe $62,000 on it :( - but we want to hold on to it, so we will be fine in the end. We do have house in our neighborhood selling for $3,000 - $10,000 now. Which sadly everytime one sells our value goes down.

Do what you think is right... but remember you will have to price to compete with the forclosures which are most likely priced way under value inorder to sell. You can always call an agent to get the price it could list for if hubby agrees and then make a choose from them.

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