Stuck with a mortgage I can't afford - Posted by Scott Swinney

Real Estate Investing Real Estate Financing
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Posted by David on June 08, 2003 at 09:16:45:

I wouldn’t be so hard on yourself. It sounds like the property is quite nice and perhaps will increase in value. I would do anything to hold onto it and not foreclose. I had a house in Calif and I remodeled the garage into a studio apartment and was able to get $750/month that was critical to keep me from the doghouse. Think of creative approaches to get more money each month…in a few years you could refi at a better rate when your bankruptcy is farther away. Any family money that can help you? Try to stick it out.

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Stuck with a mortgage I can’t afford - Posted by Scott Swinney

Posted by Scott Swinney on May 31, 2003 at 17:17:14:

Can someone suggest what I can do? I just bought a new 4/3/2 on a zero down deal. Appraised at $325,000. Loan amount is $ 292,000 but there’s a pre-payment penalty of about $11,000 if the loan is refinanced or paid off before February 14, 2005. The interest rate is 7.9% with a P&I of $2130 per month. Taxes and insurance are $608 and $150 respectively. I could have gotten a 6.6 % interest rate but they were going to charge me $300 extra for PMI. What can I say, the mortgage company screwed me because I had a bankruptcy in '98. All payments are current but there’s nothing left at the end of the month. The mortgage co. told me all along that the PITI would be approx $2000 but unfortunately the loan was not finalized until the builder pushed me to close. The house is 3,034 SF in a gated neighboorhood on .82 acres in San Antonio. I’m not an investor but maybe one of you guys out there can tell me what to do. One investor guy came by and said that if I pay him $ 8,000 and the next 3 months payments he’d take it off my hands. Well, I’d probably be better off just foreclosing.

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Re: Stuck with a mortgage I can’t afford - Posted by Linda - CA

Posted by Linda - CA on June 01, 2003 at 02:56:36:

Is it feasible to rent your rooms out to a roommate? If you keep up with the payments and eventually get an interest only loan? Anything but bankruptcy. Good luck.
Linda

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Re: Stuck with a mortgage I can’t afford - Posted by Alex F. (CA)

Posted by Alex F. (CA) on June 01, 2003 at 01:57:14:

Do not foreclose. If you do, you will not be able to buy conventionally for a while. One thing you can do if you need quick money right away is to get an equity line of credit. Wells Fargo offers up to 100% LTV on owner occupied homes. This could give you quick cash and buy you some time to sell, although with your previous BK, I’m not sure you will get approved. Just do whatever you can to avoid foreclosure.

Alex F. (CA)

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Re: Stuck with a mortgage I can’t afford - Posted by REI Mentor

Posted by REI Mentor on May 31, 2003 at 23:31:19:

Scott,

You said you are considering foreclosure on this thing. Out of curiosity, your difference in PITI from what they told you it was going to be and what it actually is comes out to only $130. I’m not sure how this is a hardship on you but I don’t know your exact situation. I suspect you jumped into something that there was no way you could afford.

I have a technique that I’ve used before that requires a very creative mortgage broker. It’s a touch complicated to explain but e-mail me if you’re interested. I’d be happy to give you the step-by-step.

Best regards,

REI Mentor

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Kind of skinny…but - Posted by Jim FL

Posted by Jim FL on May 31, 2003 at 17:37:16:

Scott,
Well, this is kind of skinny, and frankly, I’m somewhat amazed there was an investor who wanted to buy the place.
There might be some things you can do, and by all means, give something a try before just allowing the house to go to foreclosure.
You certainly don’t want or need that, especially after a BK.
At this point, sounds to me like you need debt relief.

So, let’s find out some info first.
You said the house is worth $325k now?
How accurate is this? Where did this come from?
I’d run some comps on the house, and nail down a good solid value.

Your payments are what? Total, including taxes and insurance per month?

Since the house is new, there probably are not too many repairs needed, if any, but if there are, what are they?

Now, what is market rent for the house? Is it even rentable? (Meaning, do you live somewhere with a strict HOA, since it is a gated community, and do they allow rentals?)

You might offer the house for sale “Owner financing” and collect say 10% on a $335k price, maybe less down, and just make the interest on the seller carried note higher than the interest on your underlying note.
Put a prepayment penalty in your note with your buyer to cover the penalty you have and then some.
You should be able to sellthe house to someone else, with seller financing, for more than the house is worth, or at least close to full value now, and not lose anything, perhaps even making a dime or two.

Gather some numbers for us, like the actual value, and market rents, the HOA rules regarding rentals etc.
Surely with more info someone here can guide you on a possible course of action.

What ever you do, keep the payments up, and market to sell the house HARD!
Do NOT let the house go to foreclosure, trust me, not a good thing at all.

Good luck,
Jim FL

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Re: Stuck with a mortgage I can’t afford - Posted by Scott

Posted by Scott on June 02, 2003 at 19:56:29:

Linda , thanks for the idea, but my wife would never go for renting out a room to anyone.

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Re: Stuck with a mortgage I can’t afford - Posted by Scott S.

Posted by Scott S. on June 02, 2003 at 19:37:35:

Linda, Thanks for your advice but my wife wouldn’t go for renting out a room.

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Re: Stuck with a mortgage I can’t afford - Posted by Tim Thomas

Posted by Tim Thomas on June 03, 2003 at 02:18:32:

You situation sounds pretty serious but, if you are willing to go into foreclosure (and you have a previous bankruptcy) it sounds like you are either not too savvy or just not meant to own property. Maybe you would be better off lossing it - and just RENT for the next 40 years!

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Re: Stuck with a mortgage I can’t afford - Posted by Scott S

Posted by Scott S on June 02, 2003 at 18:57:43:

Thanks Alex, but if I got another loan it would just get me in debt even deeper. I have the income but there’s nothing left after I pay the bills. Fortunately, I don’t have any credit card bills. Anyway, I probably couldn’t get the loan you’re talking about.

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Re: Stuck with a mortgage I can’t afford - Posted by Scott S

Posted by Scott S on June 02, 2003 at 19:52:28:

REI Mentor, I’m sorry to get you confused. My wife just got me straightened out on the tax situation. It’s P&I=2137.00 , taxes=625.00 ,insurance =150.00. this totals 2912.00 PITI. During the construction process I was being told the PITI would be no more than 2,100. Thanks, Scott S.

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Re: Stuck with a mortgage I can’t afford - Posted by Lyal

Posted by Lyal on June 01, 2003 at 08:04:25:

If I read his post correctly, the total PITI is 2838 as opposed to the original projected 2000.
Lyal

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Re: Stuck with a mortgage I can’t afford - Posted by Scott

Posted by Scott on June 03, 2003 at 22:52:44:

Dear Tim, Gosh you make me feel bad. No I don’t want to foreclose. I guess after that investor told me to pay him 8000 and then the next 3 payments of 3,000 plus leave him my brand new refrigerator in the house it just left me feeling hopeless. But, I’m not faulting him for that. He’s just being a good businessman. But, you don’t know the whole story. The mortgage people were assuring me that my payment would be around 2100 PITI per month. Plus I told them that I did not want a prepayment penalty. Well, I have a prepayment penalty and the interest rate is not near what they promised me. I’m humbled by your comments, but I’ll come through this. Thanks for your help. I’ve only gotten wiser through this ordeal. Scott S.

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Re: Stuck with a mortgage I can’t afford - Posted by Scott

Posted by Scott on June 02, 2003 at 20:05:35:

To Lyal, Sorry, I messed up. It’s P&I=2137.00, taxes= 625.00, insurance=150.00. Thanks, Scott S.