Should I walk away from my mortgage or not?

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I purchased my home 3 years ago in central Virginia for 216,000. We chose a (Combo Loan?) 1st and 2nd mortgage. Our 1st mortgage is for 75% of the loan (162,000) and at a rate of 6.125%, our 2nd mortage is for 25% of the loan (54,000) and at the rate of 8.875%. After living here for 3 years we currently owe about 209,000. I have made every payment on time, and have not paid any principal, just the house payment. I recently got a real estate assesment from my county saying the property/house is worth $ 166,600. We have tried to refinance but nobody will because we are so upside down in this mortgage. – Im good for the money, i just want a lower rate!!!!!! – It really makes me made that another young couple moved into a house across from us that was 1000 SF bigger than ours , 16,000 dollars less than ours, got a 8000 tax credit and a interest rate of 5%.
I guess my worry is that if i stay here and keep paying on this house, if in 5 years i go to put it up for sale what if i can only get what i paid for this place, or perhaps less? Ive also put at least $ 10,000 in this house in the last 3 years. New kitchen floor, landscaping, interior paint, all light fixtures upgraded and the list goes on. Im not sure what to do, would it be better to toss the keys to the bank and walk or just keep paying and “hope” the house will go back up in value.
Thank you both for your answers, im not having a hard time making my payments. In the end i doubt i will walk away from the house, but im doing some reading up on the idea and all.

My boryfriend and I are trying to refinance the condo in South Arlington Area in Virginia. We talked to a mortgage consultant from Well Fargo and everything was going well. We got the rate lock and had the appriaser came in. However, last week, his assitant called my boyfriend and told him that his re-finance application was rejected because the condo has high investor ratio. Nothing more and no more explanation from them.

Can anyone help me on this? The condo value is almost 80% and we are willing to put money down to get it to 80%. We are doing conventional loan and we have good credit. How can I find out if our condo has high investor ratio and can we try with different lenders? We already paid for the appraisal. I would think our mortgage consultant should tell us before we went this far.

Thanks so much for all your help.

  1. Reply
    January 23, 2011 at 4:35 am

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  2. Reply
    January 23, 2011 at 5:12 am

    I know it can be frustrating right now when looking at your homes value verses the loan balance(s). But understand there are two key considerations when making this decision (1) the financial, and (2) the moral.

    On the financial consideration, the good news is that there are many others who are more upside down that you are. Also, your “blended” interest rate is approx. 6.80% between the two mortgages. Yes, this is higher than today’s current mortgage rates. You have made all of the mortgage payments on time so your credit is still in good shape. So here is the reality, if you walk, your credit will plummet and it will stay on your credit report for 10 years. This will impact your ability to get new credit in the future. So if you have to buy a new car, want new credit cards, want to keep your current credit cards at their current rates, or want to buy another house in the next four years, than I would NOT walk. If this is not that much of a concern, then continue reading.

    On the moral side, I also had to face this same decision and I ultimately decided NOT to walk because the idea keeps me up at night and conflicts with my values. I made the decision to buy my house at the price I bought it at. And yes, times may be tough right now, but we fight thru them to come out the other side better.

    If you are struggling to continue to make the payments, by then all means, that is a different story and you should do what is you need to do to survive.

  3. Reply
    January 23, 2011 at 5:18 am

    I would not walk away from the house just because you can’t find a lower interest rate. You have already invested too much time and money. I suggest you do a little more research online, and consult a financial adviser to help you pay for the remaining balance on the house. If you toss in the key, it’ll be the same as if your house was foreclosed upon. Rather take this time to re-think your strategies in this time of need. Once the economy improves if you still want to sell your house you can. You won’t make much profit, but you will have broken even, that is better than giving away the house to the bank for free. I hope this helps answer your question.

  4. Reply
    January 23, 2011 at 6:12 am

    You are another of the gullible hundreds of thousands who bought a home with the idea that you would MAKE money on it. That isn’t what a home purchase is all about. You buy a place in which to live. If you are LUCKY, the value goes up or at least stays constant. There is no guarantee that home values won’t change downward as well as upward. If you can afford to pay the mortgage, you need to keep paying for it. The downside ? A foreclosure will trash your credit for at least five years preventing you from buying another house for at least five years. As well, if your financial situation is healthy, expect the lender to pursue a judgment against you to recover the amount it loses through the foreclosure. Take your choice.

  5. Reply
    January 23, 2011 at 6:24 am

    I work in the mortgage industry. If you just walk away, not only do you ruin your credit, but the bank can slap a deficiency judgment against you for the difference between the the loan balance what what they net selling the house. That is they can garnish your wages. Banks are doing this especially against people that can afford to pay. If you decide that this is what you want to do, talk to a lawyer.

    You do have another option, you can request the bank to allow a short sale. This is where you sell the house for less than the loan balance. This is still a hit on your credit report, but not as bad. However you have to request a release so the bank will not hit you with a deficiency judgment. Again seek legal advice.

    However you do have one more option. Call the bank and ask for a loan modification. You have one thing going for you, if you are current you have a performing loan. Your bank may find it better to keep you by lowering your interest rate a bit than take a potential loss of $ 60,000 on foreclosing on the house.

    Give your bank a call. Discuss with them. You may be surprised at what they will do.

  6. Reply
    Eskimo Mom
    January 23, 2011 at 6:40 am

    It seems like you are putting the cart before the horse. If you like your home & neighborhood, stay put & do your best to keep paying on your mortgage. Millions of other homeowners (including myself) are in your shoes. We bought when housing prices were inflated & credit way too easy. As long as your interest rates are fixed & you can make the payments, you are in good shape. In 3yrs you have paid 7K on the mortgage, so it appears you are paying it down. Most traditional mortgages start as little principle & lots of interest. As you pay the interest down, you will pay more on the principle.

    Don’t envy that couple that got a seemingly better deal. The bank may have wanted to get that house off of their hands or the couple has access to other resources, such as a rich relative. Worse yet, they may have an adjustable mortgage that will reset in a few yrs.

    If you decide to walk away, your credit score can get trashed & any new loan will be denied or have sky high interest rates. If you have the resources, add extra on your mortgage payment & designate it for the principle. Be realistic! Until the markets reset & the economy improves, we won’t see any increase in housing prices. Good luck!!

  7. Reply
    January 23, 2011 at 7:28 am

    I’m going to answer from a different point of view. You bought the house, and were happy to get it at the time. You used a 75/25 loan because you didn’t have a down payment or didn’t want to use your cash. You had other options, like buyer a less expensive house. 3 years ago we had a strong market for housing and you thought you got a good deal.

    A lender (or maybe 2) made a contract with you, to lend you a certain amount of money for a certain amount of time at a certain rate of interest. You agreed to pay them a certain amount of money every month in return.

    If you walk away, not only will you have lost your home, the money you’ve already invested in it and your credit rating, but you will have done something dishonorable. A lot of people are doing just that, but not only are they making it hard for them to get another loan in the future, but they’re diminishing themselves in the process.

  8. Reply
    Mortgage Guru
    January 23, 2011 at 8:28 am

    What Wells Fargo means is that your condo project has a high investor concentration. Translated: a large % of the units are owned by non-occupants that are likely renting out the units as investment properties. They would have received this information based on the Condo Certification completed by your HOA. Ask for a copy of that document as well as a copy of your appraisal. Are you currently on an FHA loan? Wells Fargo and the other large banks have very strict requirements regarding condo projects above and beyond what Fannie Mae and Freddie Mac have.

    If you can find out this information, I’d like to discuss it with you. I can close loans on condo projects with higher than normal investor concentration in all 50 states.

  9. Reply
    January 23, 2011 at 9:21 am

    Most lenders would require that a minimum of 10% of the condo units be rented to tenants. If more than 10% are rented then most lenders will not lend in a condo complex until that figure is below 10%. I understand that this percentage might go down to approximately 5% in the near future.

    As an experienced loan officer should have obtained a copy of the CCR’s and HOA by-laws prior to issuing a rate lock and loan approval.

    The Loan-to-Value at 80% or your willingness to pay it down to this percentage did not come into making this decision.

    This is a FHA requirement that lenders go by. If they fail to observe the occupancy rule they can not sell the mortgage notes to Fannie Mae or Freddie Mac and FHA would not underwrite these type loans with the cond’s being offered as collateral.

    I hope this has been of some benefit to you, good luck.

    “FIGHT ON”

  10. Reply
    Rose Smith
    January 23, 2011 at 9:23 am

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