savagebasher

My Situation, Want to buy bigger home

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Greetings all! I am looking to sell my townhome in order to purchase a larger place. I currently owe $192k. Similar units in my development are going for $165k-$185k. I have not received an appraisal, but we have put significant money into upgrades. My buddy works for Wells Fargo and says my home is worth about $178k based on his valuation report.

My problem is trying to determine the best way to cover my negative equity. Worst case scenario I would need to come up with $20k-30k to make up the difference. My FICOs are 720+ and I have $0 CC debt. Total DTI is about 40% (student loans, car payments, and a $5k personal loan). Unfortunately, I don't have any extra cash to work with right now. I understand it is not possible to roll neg equity into a new house like one would for an automobile. It appears my only options are:

- 125% Mortgage

- LOC

- Personal Loan

- Short Share (doubt I would do this as my credit would be destroyed)

Opinions?

Thanks!

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I am upside down because the last company I refi'd with screwed me. We bought the place for $162,000 in 2003. We took a 2nd mortage out for $15k in 2004. In 2005 we rolled the first\second mortgage into one and took a little cash out (like an idiot). So now we owe $192,000.

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I am upside down because the last company I refi'd with screwed me.
Not sure how they screwed you. You asked them to consolidate your loans and extract some cash. They delivered.

I suggest you stick around. Even if you have top notch credit, a HELOC is not an option nor is a 125% mortgage. Especially now. Maybe a personal loan could occur to cover the difference but you'll pay through the nose and this will have a serious effect on your DTI and credit score going into the next home. You'll then have a sizable unsecured loan and you'll be asking for a 105%ltv loan on a bigger house. That's a lot to ask of a lender.

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A mortgage guy, who is a friend of a friend, sent me the following:

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Okay

Just running the numbers real quick and hoping that it will allow a FULL 65% DTI here is what I come up with.

First to not count that car payment you have to prove that someone else is making the payment.

Not counting that and assuming $1200 a month rent (if it is more that will help)

2658 – 900 (1200 x 75%) = 1758 DTI 29%

Leaving roughly 2140 for new mortgage

Now that would MAX you at 65% and there is no guarantee that the underwriting system would approve to that level but it would be worth a shot.

It would make thing tight but you have to decide if it is doable.

Now going back to the new home 225k would look roughly like this

Assuming approve eligible

Todays pricing would be around 6.875 (one loan 30 year fixed)

225k @ 6.875 1478 (Principal and Interest)

Taxes Not sure of your states calculations but will use CA for a ballpark

Taxes $235

Insurance $50-$75

PMI $180 - $200

Total

Approximately $1943 - $1988 per month

This is just a Ball Park and it does assume a few things. It should give you an idea of what it would look like

The only way to know for sure would be to get a full application and run it through.

The big question I still have is regarding reserves

They require 2-6 months (the more the better)

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I also asked if he had a guesstimate what my rate on a 125% loan might be (I am just trying to weigh my options):

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It's a volatile market right now, and the 125% program guidelines can sometimes change monthly; but with atleast a 680-700 credit score and income to suffice; could be anywhere from low 7's to 8's for interest rate on the first(fixed); and the 2nd (over equity) could be anywhere from 11-15% depending on guidelines/disposable income/credit, etc.

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I am not sure who that would compare to paying the difference via personal loan, LOC, or credit cards.

thoughts? Seems staying where I am might be best afterall.

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Everyone's situation is different, but this looks like financial suicide to me. You are already overextended and underwater. You are going to take on the thousands of dollars in transactional costs to get out of the home you are currently in, thousands of dollars in costs of getting into your next home, a much higher payment, and then "embellish" your situation to get it underwritten.

Worse, you'll be maxed out to the point where a minor hiccup will make your world fall apart. Being that leveraged is very dangerous.

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Agreed.

At the very least, keep the property and turn it into a rental. Personally, I'd evaluate very honestly how bad you need a larger home. I'd probably stick in the townhome for several more years to at least break even.

I've never sold a home, but don't you usually have to pay 5-10% to the person that sells it? There's another $10K loss. I guess you could sell it by owner, if you know what you're doing. That could take a lot of time, and if you don't know what you're doing, you'll probably lose the $10K anyway.

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Here is another problem that you may not know about.

When loan officers/banks consider DTI it is based on pretax income. So 65% DTI is probably close to 100% DTI if you assume that you are in the 30% tax bracket.

AND

All that is considered is the bills that are shown on your credit report and your proposed housing costs. No utilities. No cell phone. No food, gas, car insurance etc.

AND

For good reason lenders only allow 75% of the rental income to be counted as income. Even in places where the rental market is very strong, it does take more than a few hours to get one renter out of the home and another person in. AND you may need to paint and fix a few holes in the walls and clean the carpets. Probably none of that is considered.

All in all from what you have said in the post you are courting disaster. Foreclosures don't just hurt the borrower going through the situation. They have an effect on what others pay for loans and as everyone knows at this point, enough of them can cause harm to the whole market liquidity.

So, my advice.

DON'T DO THIS.

And the Loan officer that is suggesting that you do this should realize that he is pushing you to do something that is not in your best interest. He just may need to get paid on another loan this month and that is all he is thinking about

Charles

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