Sell at a loss or hang on?
This homeowner is still paying the mortgage on a home that has lost most of its equity. Does it make more sense to take a loss and move on?
Q: In 2005, I bought my first home in Lowell, Mass., for $400,000. I borrowed $360,000 using a 4.75% 5/1 ARM and made a down payment of the remaining $40,000. I now owe the bank $328,000, but the value of my property has fallen to $350,000, wiping out most of my equity.
I have moved to an apartment in Connecticut and am renting out my Massachusetts house. The rent covers 80% of my monthly mortgage payment. I have an excellent credit rating and can easily afford the current payments. But I am concerned that my 5/1 ARM will reset in October 2010 and my payments will increase. Does it make sense for me to continue to own this property, or should I sell it, take a loss and end the monthly mortgage payments?
— Shelton, Conn.
A: I can understand your nervousness, since most economists expect that the current low-interest-rate climate won't last forever. On the other hand, neither will home price declines, especially now that Congress has extended the first-time homebuyers $8,000 tax credit, and added a $6,500 credit for existing buyers, for homes that are purchased by April 30, 2010, and closed on by June 30. So I would advise that you stay the course until prices are on the upswing.
- Video: Obama's new mortgage push
Even before the extended and expanded credit passed, First American CoreLogic was predicting that home prices nationwide would bottom out in the spring and then begin to bounce back. In Massachusetts, the mortgage database company projects that by August 2010, prices of single-family homes (not including foreclosures and short-sales) will have risen 3.97% from a year earlier. If they're correct, that means your home will be worth $363,895. That won't recoup your lost equity, but it will be a much less painful bite than you'd take right now.
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According to Zillow's handy adjustable-rate mortgage calculator, you're currently paying about $1,878 a month for your mortgage. If your rate jumps 0.25% at the end of five years, your payment would rise to $1,926 in the 61st month — a difference of only $48 a month that you could pass along to your tenant when the lease is renewed.
In the meantime, as home prices recover, you will continue to pay down your mortgage, though those gains will be offset somewhat by routine maintenance and other expenses of ownership. If you decide that you want to keep the home for a few years as a long-term investment, you could, of course, refinance to a fixed-rate mortgage — but that doesn't make much sense if you're planning to sell within the next year or even two.
I asked New York real-estate attorney Pierre E. Debbas for his opinion on your case, and he suggested another option: Offer the tenant a rent-to-own deal. This, I agree, is a win-win solution for both of you. The tenant gets a portion of the rent applied to the purchase, and you get a price (agreed on when you write the contract) that recoups at least some of your lost equity. Plus, you can be confident that the renter will take excellent care of your property, lessening your overall fix-up costs. And when the time comes to sell, you won't have to pay a real-estate broker.
Regarding what the writer said, I have mixed emotions. There are definite costs that go along with converting a owner occupied property into a rental house. Taxes are higher because you lose your owner occupied credit, little things you could live with need to be fixed, and the possibility of the renter breaking more than the deposit will cover.
I was unaware you could do a contract sale (rent to own) on a property that you do not hold the deed on. Are there banks out there that will actually let their lendees sell on contract? Seems to me that banks would be taking the risk along with their customer.
We had to move out of state because I lost my job and could not find another in the same area. After 6 months we got an offer on our house for what we paid for it. From what I can tell most markets are still stagnant despite the buyer tax credit. Financially, we could have rented for longer, but because our house is in a small town I don't anticipate housing prices to raise much in the next few years. At this point we are just looking to break even and move on with the money we have in savings.
Did any of you who are critisizing this person's comment think that maybe english is not this person's first language and they are typing the best they can-maybe it is a fake, but at least don't be so ignorant and rude without knowing for sure.
DO NOT HIRE AN ATTORNEY! THEY ARE ALL PROFESSIONAL RIP OFF ARTISTS BACK BY LICENSE WI THE STATE BAR OR INTERNATIONAL BAR! LOOK WITHIN YOURSELF AND THE RIGHTEOUSNESS OF YOUR OWN COMMON UNDERSTANDING OF THE CLAIM AND PROCEED IN FAITH! STUDY THE UCC (UNIFORM COMMERCIAL CODE) LAW ESTABLISHED FOR THE PERFECTION OF INTERNATIONAL COMMERCIAL CONTRACTS BETWEEN THE FOREIGN DE FACTO SYSTEM (OUR GOVT) AND COMMON PEOPLE (ONE OF WE THE PEOPLE OF THE THE UNITED STATES OF AMERICA). IN THIS CAPACITY, YOU ARE THE LAW!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
IF YOU ARE HASSLING WITH BANKS, FORECLOSE ON THEM BEFORE THEY FORECLOSE ON YOU!
back to my story.........
THE ATTORNEY HIRED, ALSO DONE NOTHING TO HELP US CARRY OUT OUR DEAL WITH THE CITY. i HAD ALSO DONE ALL OF THE WORK TO REMOVE THIS INDIVIDUAL FRO THE DEED. BY THE TIME THIS TOOK PLACE, I MISSED THE SHIP! THE BANK WAS READY TO FORECLOSE; THEN THE ATTORNEY HIT MY SIGNIFICANT OTHER WITH THE OFFER. YOU CAN SELL TO ME AT A SHORT SALE FOR 135K. WHEN THE PROPERTY SELLS AGAIN WE WILL SPLIT THE PROCEEDS. WELL THAT SOUNDS GOOD. WHEN IT CAME DOWN TO IT SHE PROCESSED A CONTRACT BETWEEN US WITH NO OFFICIAL AFFIRMATION (NOTARY) AND PUT THE PROPERTY INTO A TRUST BETWEEN HER AND HER BOYFRIEND WHEN THE TRUST SHOULD HAVE BEEN WITH US. RIGHT NOW WE ARE STILL IN OUR HOME. BUT SINCE THEN I'VE BEEN DOING A TON OF HOMEWORK.
HOW CAN A CITIZEN OF THE UNITED STATES NOT BE RIGHTFULLY PROTECTED UNDER THE THE 14TH AMENDMENT FOR THE US CONSTITUTION WHICH CLEARLY STATES THE RIGHT TO THE LIFE, LIBERTY, PROPERTY, AND THE PURSUIT TO HAPPINESS FOR THEMSELVES AND THEIR POSTERITY. NO PERSON SHALL LOSE THESE RIGHT WITHOUT DUE PROCESS OF LAW.
HOW MANY PEOPLE OUT THER EVEN CARE TO SEARCH FOR THE TRUTH IN ALL THIS? FAR TOO FEW! IF YOU WERE TO SCRUTINIZE DUE PROCESS, THE INITIAL STANDARD PROCESS TO OWNING PROPERTY IS USUALLY A LOAN APPROVAL. YES PEOPLE ARE APPROVED, BUT WHAT IS IT THE BANK IS APPROVING? THE MONEY TO PURCHASE YOUR PROPERTY? NO!!!!!!!!!!!!!!!
THE BANK ARE APPROVING PEOPLE FOR AVAILABLE CREDIT. I HAVENT FOUND A LAW YET THAT STATES THAT BANKS ARE LICENSED TO LEND CREDIT. BUT THEY ARE LICENSED TO LOAN CASH. SO LOOKING AT DUE PROCESS, THE BANK IS IN DEFAULT FOR DEFRAUDING THE PEOPLE THROUGH OUR UNALIENABLE RIGHT TO PROPERTY. ITS THE DEBT WE INCUR THAT ALLOWS THE BANKING INSTITUTIONS, LAWYERS, AND GOVERNMENT TO SUBJECT US TO THEIR UNETHICAL DEEDS TO CONTROL OR ENSLAVE THE PEOPLE. OUR GOVT ALONG WITH INTERNATIONAL BANKING ASSOCIATIONS, AND LAWYERS ( ALL LICENSED THROUGH THE BRITISH ACCREDITED REGISTRY - BAR) THAT CREATE STATUTES AND CODES TO CONFUSE THEIR SUBJECT CITIZENS. FROM THIS HORRIFIC NIGHTMARE, I HAVE FOUND THE WAY TO FREEDOM. UNDERSTANDING THE SYSTEM AND ITS MOTIVES IS A NECESSITY TO FREE YOURSELF FROM THIS ESTABLISHED OPPRESSIVE SYSTEM. IN DOING SO I COME TO REALIZE THAT I AM A NATURAL/COMMON MAN OF THE LAND OF WHICH I AM DOMICILE (LIVE), NOT RESIDE (TEMPORAL WORD FOR CURRENT LIVING ARRANGEMENT BUT RETURNING HOME TO WASHINGTON DC). WE ARE ALL LIVING IN A SUPER DEBTOR SYSTEM AT WHICH IT SEEMS TO BE DEVELOPED IN A WAY TO FORCE THE PEOPLE INTO DEBT AS A STANDARD OF SURVIVAL. MY SUGGESTION TO ALL YOU INTERESTED DEBTORS IS TO INTRODUCE THE LAW (NOT STATUTES OR CODEFIED INFO) FOR COMMON PEOPLE WITH COMMON ISSUES. WITH THIS SAID I RECOMMEND YOU ALL RESEARCH AND EXAMINE YOUR CLAIMS CLOSELY! APPLY THE UNIFORM COMMERCIAL CODE TO YOUR AFFAIRS, IT WILL HELP ELIMINATE THESE DILAPIDATED SITUATIONS FROM OCCURING IN YOUR COMMERCIAL AFFAIRS. I AM NOW A SECURED PARTY CREDITOR AND WILLING TO FACE ANY CLAIM AGAINST MY PROPERTY FROM A BANK/LAWYER/GOVT/ETC. I CURRENTLY OPPERATE IN MY SOVEREIGN CAPACITY IN WHICH I HAVE NO SUBJECTS ONLY EMPLOYEES ERECTED FROM THE EXISTENCE OF THE GOVT IN WHICH WE THE PEOPLE HAVE CREATED FOR THE SOVEREIGN BIDDING. UNDERSTANDING THIS, I HAVE 2 LAWYERS, 3 JUDGES, 7 LOCAL GOVT OFFICIALS ALL IN THE FRYING PAN. FOR ANYONE LACKING THE CONFIDENCE IN THIS SYSTEM, THE OATH OF OFFICE FOR THESE GOVT EMPLOYEES/JUDGES/LAWYERS/ETC. IS THE KEY FOR SUBJECTING THEM TO YOU FOR THE ACCOUNTABILITY OF THEIR PUBLIC RELATIONS IN COMMERCE, ENFORCED BY THE MARITIME LIEN (THE IRON MAIDEN FOR THESE TYPES OF PEOPLE.
Yeah, it's a fear that occupations aren't safe. I agree with that completely. Teaching, nursing, and engineering have taken hits (jobs considered to be safe)...not to mention manufacturing!
Yeah, if it is cheaper to build a house then by all means...it's good to build! I only hope that I have the financial ability to purchase a house when the prices are low :)