Op you are lucky your not dealing with a loan shark.
You agreed to a set value for your house. You have not lost your job. You have a home to live in that doesn't cost you anymore now then it did when you bought it. I don't see where the value in forclosure is. Yo are paying the exact amount you felt was right when you purchased it.
Are you moving out of town? Are you disappointed with the house (current value not withstanding)? Did you buy the house with a plan to sell it? How long was your plan?
I am sorry Sir while I think a house should hold equity it shouldn't be considered an investment. Much like a car you would not leave it on the side of the road just because this year its worth 10k less. Its an investment your family. Eventually you will pay it off and your family will have this nice paid off house to live in. It won't matter then if its worth a $1 or $10000000.
Now if to you it was always an investment. Fine cut your loses, while making it that much harder for legit home owners and tax payers around the US. I hope the person who buys your home gets its cheaper then the money you already put into it.
I think the part that strikes me as most absurd is that we aren't even talking about somebody who got nabbed by predatory lending. This isn't a matter of a bank railroading somebody into a mortgage they wouldn't be able to afford in a couple years. He fully admits he can afford it, he just doesn't want to because the value of his investment dropped.
Hey, can I buy $500K of stock on margin then walk away from the contract if the stock goes down? Because that seems like a sure-fire no-risk way to make bundles of cash, no?
Again: you're misunderstanding the situation. This isn't like skipping out on bail or alimony/child care payments or something and hiding out in a small down on the coast of Mexico where the drinks are cheap and the women are beautiful and easy. There will be substantial negative reprecussions. It's simply a matter of deciding what will hurt his family more.
Let's put it this way: I don't think it should be possible, legally, to get out of a mortgage that you can afford. Period. If you're in a financial situation where you can afford to pay your debts, you should be required to pay them. If you choose not to, they should take everything you own down to your daughter's Mary Janes. And hose your credit to boot.
He's trying to find a way to get off easy (easier, at least) on a debt he can afford to pay. That's the part that bothers me.
Actually, better way to ask it, what would you tell someone that has devoted 80% of their income towards an investment that has dropped 30% and does not necessarily look like it will recover. I agree that devoting a large chunk of your income towards an investment is already a bad idea, but that is not a reason to continue to make poor decisions.
Guess that's why we're coming at it from different angles, that's a bad financial decision waiting to happen.
I agree 100% with that. I also feel that if the bank convinced him this was a decent decision, regardless of if he can continue to do so for now, it was predatory. Now.... we don't have these details. Which is, again, why he should go seek legal advice with FULL disclosure.
And again, there is nothing moral about the way I am looking at it. So, if this is an argument about what is "right," I apologize. I'm saying that it is a very very bad financial decision to continue paying for a contract that is hurting you.
You're right. That doesn't absolve him from paying his debts though.
Nor does it mean he should not consider legal options available for him.
A similar question would be if he was renting for 1000 a month. Three blocks down someone opened a complex where the rent is 250 a month. The agreement signed said there is only a 500 penalty to break early. Would you seriously tell this person to stay in that apartment for the full 10 months left on the lease instead of moving?
No. But we're not talking renting which is a whole different ballgame than a drop in housing value that is most likely going to rebound.
If it was "$1000 a month and you have a $500 penalty and a chance of never being able to rent another apartment again as well as maybe having to pay the cost over the rest of the 10 months that you skipped out on" I'd seriously reconsider my decision.
Again, there is no guarantee housing will recover. That is just as much speculation as saying it will remain flat for the foreseeable future.
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
And in the case we've been discussing, he is still honoring his agreement. If the bank really did not get him to sign away that right, then they are to blame.
If it's a matter of state law they had no way to make him sign it away.
And earlier you said this wasn't predatory lending. If this person did not put down a ton of money upfront, I'd argue it is still predatory lending. Just because he is surviving the hit doesn't make it less of a predatory thing to do.
If he can afford the payments set, it's not predatory. He agreed to buy X for $Y. He can still afford $Y. The fact that he agreed to pay $Y is not the bank's fault...they still loaned him an amount of money he can afford to repay. He just doesn't want to anymore becuase X is no longer woth $Y.
Predatory lending is when they loan you $Y when they know you cannot afford it, or when the payments will become $Z at some point in the future, where $Z is also an amount you cannot afford.
I think the part that strikes me as most absurd is that we aren't even talking about somebody who got nabbed by predatory lending. This isn't a matter of a bank railroading somebody into a mortgage they wouldn't be able to afford in a couple years. He fully admits he can afford it, he just doesn't want to because the value of his investment dropped.
Hey, can I buy $500K of stock on margin then walk away from the contract if the stock goes down? Because that seems like a sure-fire no-risk way to make bundles of cash, no?
Again: you're misunderstanding the situation. This isn't like skipping out on bail or alimony/child care payments or something and hiding out in a small down on the coast of Mexico where the drinks are cheap and the women are beautiful and easy. There will be substantial negative reprecussions. It's simply a matter of deciding what will hurt his family more.
Let's put it this way: I don't think it should be possible, legally, to get out of a mortgage that you can afford. Period. If you're in a financial situation where you can afford to pay your debts, you should be required to pay them. If you choose not to, they should take everything you own down to your daughter's Mary Janes. And hose your credit to boot.
He's trying to find a way to get off easy (easier, at least) on a debt he can afford to pay. That's the part that bothers me.
Holy shit, you are that loan shark someone else was referring to. There is a reason that shit is illegal and that sort of attitude is highly frowned upon.
After all, you are effectively saying that nobody should be able to get out. If they are having a hard time paying, they should work harder. If they want more of their hard earned money, they shouldn't have entered into such an agreement. (All of those miners working shit hours for crap pay should suck it up or leave, right? )
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
And in the case we've been discussing, he is still honoring his agreement. If the bank really did not get him to sign away that right, then they are to blame.
If it's a matter of state law they had no way to make him sign it away.
And earlier you said this wasn't predatory lending. If this person did not put down a ton of money upfront, I'd argue it is still predatory lending. Just because he is surviving the hit doesn't make it less of a predatory thing to do.
If he can afford the payments set, it's not predatory. He agreed to buy X for $Y. He can still afford $Y. The fact that he agreed to pay $Y is not the bank's fault...they still loaned him an amount of money he can afford to repay. He just doesn't want to anymore becuase X is no longer woth $Y.
Predatory lending is when they loan you $Y when they know you cannot afford it, or when the payments will become $Z at some point in the future, where $Z is also an amount you cannot afford.
Have you read where I quoted the state law? It can be signed away.
Predatory lending does not have to be towards someone that can not afford it. Again, we don't know how much of his income is devoted towards the payments. If it is upwards of 60 to 80%, then I don't see how you could consider this not predatory. (Predators go for the week, yes. Week knowledge of the system is no less disastrous than week personal income.)
I think the part that strikes me as most absurd is that we aren't even talking about somebody who got nabbed by predatory lending. This isn't a matter of a bank railroading somebody into a mortgage they wouldn't be able to afford in a couple years. He fully admits he can afford it, he just doesn't want to because the value of his investment dropped.
Hey, can I buy $500K of stock on margin then walk away from the contract if the stock goes down? Because that seems like a sure-fire no-risk way to make bundles of cash, no?
Again: you're misunderstanding the situation. This isn't like skipping out on bail or alimony/child care payments or something and hiding out in a small down on the coast of Mexico where the drinks are cheap and the women are beautiful and easy. There will be substantial negative reprecussions. It's simply a matter of deciding what will hurt his family more.
Let's put it this way: I don't think it should be possible, legally, to get out of a mortgage that you can afford. Period. If you're in a financial situation where you can afford to pay your debts, you should be required to pay them. If you choose not to, they should take everything you own down to your daughter's Mary Janes. And hose your credit to boot.
He's trying to find a way to get off easy (easier, at least) on a debt he can afford to pay. That's the part that bothers me.
Holy shit, you are that loan shark someone else was referring to. There is a reason that shit is illegal and that sort of attitude is highly frowned upon.
Because loan sharks charge much more interest than banks?
After all, you are effectively saying that nobody should be able to get out. If they are having a hard time paying, they should work harder. If they want more of their hard earned money, they shouldn't have entered into such an agreement. (All of those miners working shit hours for crap pay should suck it up or leave, right? )
Except the OP's issue isn't that he's having a hard time paying. It's that what he bought is no longer worth what he paid.
Have you read where I quoted the state law? It can be signed away.
I understand your frustration, mcdermott. I'm a little more forgiving because I understand that the OP is not solely responsible for driving up housing prices--yes, he overpaid, but so did everyone else, and the fact that so many other people are abandoning the housing market in his area is further supressing the value of his home which is eroding the equity he holds in his already-upside down mortgage further. And as I said earlier, he had two options at the time: pay what everyone else was paying for housing, or rent. He made a decision which was frankly irresponsible, but what if he has kids? Even if he has options (none of them pleasant) should he be forced to compound one irresponsible decision with a second one? Should he really allow his family to be punished for his mistake, or should he try and salvage what he can on their behalf?
Must the sins of the father always be revisted upon the son just because it makes us feel better?
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
Have you ever done the math? You are flat out wrong. I already showed where this is the case. I can run the numbers again right here real quick.
You buy a house for 200k at 6% interest on a 30yr fixed.
Over the life of the loan, you will pay roughly 400k in interest and principal. If that house goes down in value 30%, you spentt 400k to make 140k. If he forecloses now, and CAN GET SUED, the bank can come at him for the value of the house minus what they can sell it for. Are you seriously telling me that value will be more than 360k? (Not to mention, if he gets sued, he can setup a payment plan that combined with rent might be lower than what he is currently paying.)
What's irresponsible is not accepting the debt you worked yourself into if you can afford it because it isn't worth as much anymore. That is just all shades fucked up. He can rework it if they let him but if they don't I hope they do come after his ass and then make him pay more for it.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
I understand your frustration, mcdermott. I'm a little more forgiving because I understand that the OP is not solely responsible for driving up housing prices--yes, he overpaid, but so did everyone else,
Not everyone else. That's why I'm so royally pissed. Because I pay fucking taxes, and now my taxes are going to the people that I (among others) tried to warn. My wife and I would have loved to buy a house three or four years ago.
and the fact that so many other people are abandoning the housing market in his area is further supressing the value of his home which is eroding the equity he holds in his already-upside down mortgage further. And as I said earlier, he had two options at the time: pay what everyone else was paying for housing, or rent.
Yep, I had the same. I chose wisely.
He made a decision which was frankly irresponsible, but what if he has kids? Even if he has options (none of them pleasant) should he be forced to compound one irresponsible decision with a second one? Should he really allow his family to be punished for his mistake, or should he try and salvage what he can on their behalf?
Must the sins of the father always be revisted upon the son just because it makes us feel better?
If the "sins of the father being revisited upon the son" mean living in what is probably a perfectly decent house with a bit of negative equity, then YES.YES, YES, YES.
Especially when the alternative means taking my money, which maybe I'd like to use towards a house someday, and giving it to him to help pay for his fuckup.
EDIT: Which is to day, it's not just about making me "feel better." It's about a trillion dollars or so of tax money.
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
Have you ever done the math? You are flat out wrong. I already showed where this is the case. I can run the numbers again right here real quick.
You buy a house for 200k at 6% interest on a 30yr fixed.
Over the life of the loan, you will pay roughly 400k in interest and principal. If that house goes down in value 30%, you spentt 400k to make 140k. If he forecloses now, and CAN GET SUED, the bank can come at him for the value of the house minus what they can sell it for. Are you seriously telling me that value will be more than 360k? (Not to mention, if he gets sued, he can setup a payment plan that combined with rent might be lower than what he is currently paying.)
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
Did you miss where I said that combined with rent he should be paying less even if he has to pay off all of what he legally owes?
If you can not find a place to rent for cheaper than buying by a substantial amount, you should seriously consider what you are looking at. Move if you have to.
And as I said earlier, he had two options at the time: pay what everyone else was paying for housing, or rent. He made a decision which was frankly irresponsible, but what if he has kids?
Not sure you can say it was irresponsible if he can still afford it. An ill-timed bet possibly.
Must the sins of the father always be revisted upon the son just because it makes us feel better?
The reason the decision irks me and possibly others is that if everyone who could afford to make payments just bailed because they're upside down, they not only effect his kids (magicked up money comes from somewhere), but mine. It's not to make us feel better, it's just not being an opportunistic jerk.
What's irresponsible is not accepting the debt you worked yourself into if you can afford it because it isn't worth as much anymore. That is just all shades fucked up. He can rework it if they let him but if they don't I hope they do come after his ass and then make him pay more for it.
Yeah see you're being a moralist on behalf of a bank. I'm being a moralist on behalf of his family. Why is the OP more guilty than people who took out mortgages they couldn't afford? It's the subprime lenders and the people who defaulted out of necessity that caused the bottom to fall out on the housing market. If lenders hadn't flooded his market with money for people who couldn't afford their loans, housing prices wouldn't have inflated the way they did in the first place.
And incidentally, mcdermott: foreclosurers are helping to readjust the market right now so that you and I can afford to buy a house for what it's actually fucking worth. Let him ruin his credit for several years and take it on the chin as a lesson learned if that's what he thinks is best for his family. I'm sure there is a family like yours or mine in Arizona that's been renting and saving for several years and would love to take his home off of his banks' hands if that's what he thinks is best, and that family will get a great deal on it.
And as I said earlier, he had two options at the time: pay what everyone else was paying for housing, or rent. He made a decision which was frankly irresponsible, but what if he has kids?
Not sure you can say it was irresponsible if he can still afford it. An ill-timed bet possibly.
Must the sins of the father always be revisted upon the son just because it makes us feel better?
The reason the decision irks me and possibly others is that if everyone who could afford to make payments just bailed because they're upside down, they not only effect his kids, but mine. It's not to make us feel better, it's just not being an opportunistic jerk.
A bet is irresponsible almost by definition. Some people just felt that real estate was not a bet.
And the part that irks me is that this sort of lending was widespread in the first place. The existence of 80/20 and people doing 100% financing is just a bad bad idea.
Again, I can not stress this enough, this all depends on many of the specifics of his case.
taeric on
0
Inquisitor772 x Penny Arcade Fight Club ChampionA fixed point in space and timeRegistered Userregular
edited November 2008
1. Making analogies between playing the stock market and a mortgage makes me want to stab my eye out. Big shout out to mcdermott for pointing out the blatantly obvious, which is that one of these is a loan to purchase something and the other is not.
2. You don't technically own the house. You own the loan that purchased the house, and the bank that gave you the loan is being nice enough to let you live in it while you're paying it off. Do not confuse the two. Ever.
3. If you purchased something, and the market price of that thing goes below your purchase price (note I said price and not value), you have not lost any money if you do not sell that item. OMGHUGEREVELATION.
4. Before any of you %#@$ try to qualify #3, let me point out the basic fact that you bought the item at the price it was originally because you thought it was worth that much. That's why you were willing to pay the price. Don't start bitching now just because a few years down the road you find out it's not worth what you thought. (Did I mention that you technically don't own the house, because you technically never bought the house? Just want to make sure we're clear on that.) And don't start talking about hypothetical future sale values when you can't predict what they will be. If we could predict that stuff, then I have a bridge to sell you across the street from the Treasury Dept.
5. PS - No one can tell the future. Making a decision on a long-term loan on something like a house and the land that it sits on based on short-term market fluctuations is patently absurd. If you aren't selling it, then you haven't lost a single penny. Maybe 10 years from now the market will rebound and the price of your house matches, in real terms, the price you paid for it when you got the initial mortgage. Then what? Then you will have been able to live, work, play, raise a family in, sleep under the roof of, have neighborhood barbecues in, obtained the tax benefits from, "owning" a house for 10+ years. And you would have the option of selling that house for exactly the price you paid for it. Given the state of the economy for the next several years, it may well be that not losing money would be a fantastic long-term investment (have you seen the interest rates on savings accounts lately?).
6. The truth of the matter is, if you're intent on doing something like walking away from the mortgage, then maybe you should visit a financial consultant or lawyer of some kind. Then they can map out for you your potential decisions and the possible/probable futures that will play out for each of them. But I would be remiss in pointing out the blatant, basic fact that no one can see the future (in case I haven't said it enough), so don't expect this next decision to "work the system" to turn out any better than your last decision to "buy a home".
7. The most sound decision is probably to just renegotiate the terms of your original mortgage. Please, I beg of you, start thinking of these decisions in real terms, and with the long view in mind. You were never planning on selling the house NOW anyway, so why are you making decisions based on its current value?
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
Did you miss where I said that combined with rent he should be paying less even if he has to pay off all of what he legally owes?
If you can not find a place to rent for cheaper than buying by a substantial amount, you should seriously consider what you are looking at. Move if you have to.
It's not though. At least around here houses and apartments are roughly equal to prices per month and the mortgage per month. Crazy.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
Have you ever done the math? You are flat out wrong. I already showed where this is the case. I can run the numbers again right here real quick.
You buy a house for 200k at 6% interest on a 30yr fixed.
Over the life of the loan, you will pay roughly 400k in interest and principal. If that house goes down in value 30%, you spentt 400k to make 140k. If he forecloses now, and CAN GET SUED, the bank can come at him for the value of the house minus what they can sell it for. Are you seriously telling me that value will be more than 360k? (Not to mention, if he gets sued, he can setup a payment plan that combined with rent might be lower than what he is currently paying.)
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
Ah. See, I knew it was you. Your "omg but you have no equity!" cry is the sort of thing that encourages people like the OP to purchase a house even when its price has been inflated by as much as 50% and causes people to default on mortgages they can't afford when the economy goes bad. It's the sort of mentality that fucked over the OP in the first place.
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
Have you ever done the math? You are flat out wrong. I already showed where this is the case. I can run the numbers again right here real quick.
You buy a house for 200k at 6% interest on a 30yr fixed.
Over the life of the loan, you will pay roughly 400k in interest and principal. If that house goes down in value 30%, you spentt 400k to make 140k. If he forecloses now, and CAN GET SUED, the bank can come at him for the value of the house minus what they can sell it for. Are you seriously telling me that value will be more than 360k? (Not to mention, if he gets sued, he can setup a payment plan that combined with rent might be lower than what he is currently paying.)
You have just proven a reason why it shouldn't make one damn bit of difference and why he should stay in the house. You are already spending more (as you pointed out double) If the house doesn't go up in value to 400k then he still threw an extra 200k at a house. Is it really that much different that he threw that much and the house is now worth less then 200k. Not really as it is a house one he has now that his family can live in, that he can die in. What if the lending market doesn't rebound. What if for the rest of his life they put a big red flashing light on his credit report, and he becomes marked as a deserter and can never purchase a home again. I know if I was a lender I wouldn't want to give money a lender that is willing to default on a home loan of all things in fear of some negative equity. Its house not stock. We need to get back to a time when things like a roof over your head was something to cherish.
I'm sure there is a family like yours or mine in Arizona that's been renting and saving for several years and would love to take his home off of his banks' hands if that's what he thinks is best, and that family will get a great deal on it.
Are you factoring my increased taxes (or possibly my childrens' increased taxes) into that deal?
Ah. See, I knew it was you. Your "omg but you have no equity!" cry is the sort of thing that encourages people like the OP to purchase a house even when its price has been inflated by as much as 50% and causes people to default on mortgages they can't afford when the economy goes bad. It's the sort of mentality that fucked over the OP in the first place.
Yeah, I don't entirely agree with him on this point. But I on the other hand do think renting is a viable option in some situations, and encouraged people to do so. Yet my taxes go up too.
EDIT: Or, alternately, my services go down. Or, as a government employee, my pay stagnates.
1. Making analogies between playing the stock market and a mortgage makes me want to stab my eye out. Big shout out to mcdermott for pointing out the blatantly obvious, which is that one of these is a loan to purchase something and the other is not.
You are right, one is sensibly regulated and the other not so much.
2. You don't technically own the house. You own the loan that purchased the house, and the bank that gave you the loan is being nice enough to let you live in it while you're paying it off. Do not confuse the two. Ever.
This point will come back to bite you.
3. If you purchased something, and the market price of that thing goes below your purchase price (note I said price and not value), you have not lost any money if you do not sell that item. OMGHUGEREVELATION.
But they didn't purchase the house. They signed a contract to pay for the house. See your point 2.
4. Before any of you %#@$ try to qualify #3, let me point out the basic fact that you bought the item at the price it was originally because you thought it was worth that much. That's why you were willing to pay the price. Don't start bitching now just because a few years down the road you find out it's not worth what you thought. (Did I mention that you technically don't own the house, because you technically never bought the house? Just want to make sure we're clear on that.) And don't start talking about hypothetical future sale values when you can't predict what they will be. If we could predict that stuff, then I have a bridge to sell you across the street from the Treasury Dept.
Again, you never bought anything. You agreed to buy something via a contract that you are not legally held to stick to for the lifetime of the loan. (Because banks are not loan sharks. )
5. PS - No one can tell the future. Making a decision on a long-term loan on something like a house and the land that it sits on based on short-term market fluctuations is patently absurd. If you aren't selling it, then you haven't lost a single penny. Maybe 10 years from now the market will rebound and the price of your house matches, in real terms, the price you paid for it when you got the initial mortgage. Then what? Then you will have been able to live, work, play, raise a family in, sleep under the roof of, have neighborhood barbecues in, obtained the tax benefits from, "owning" a house for 10+ years. And you would have the option of selling that house for exactly the price you paid for it. Given the state of the economy for the next several years, it may well be that not losing money would be a fantastic long-term investment (have you seen the interest rates on savings accounts lately?).
Agreed almost 100%. The point that I'm making is you can choose how to lose money. It can either be by paying the life of the loan, or by looking for other options now.
6. The truth of the matter is, if you're intent on doing something like walking away from the mortgage, then maybe you should visit a financial consultant or lawyer of some kind. Then they can map out for you your potential decisions and the possible/probable futures that will play out for each of them. But I would be remiss in pointing out the blatant, basic fact that no one can see the future (in case I haven't said it enough), so don't expect this next decision to "work the system" to turn out any better than your last decision to "buy a home".
Again, I've given this advice throughout the thread. I just acknowledge that walking away may be an option. (I stress may.)
7. The most sound decision is probably to just renegotiate the terms of your original mortgage. Please, I beg of you, start thinking of these decisions in real terms, and with the long view in mind. You were never planning on selling the house NOW anyway, so why are you making decisions based on its current value?
You have just proven a reason why it shouldn't make one damn bit of difference and why he should stay in the house. You are already spending more (as you pointed out double) If the house doesn't go up in value to 400k then he still threw an extra 200k at a house. Is it really that much different that he threw that much and the house is now worth less then 200k. Not really as it is a house one he has now that his family can live in, that he can die in. What if the lending market doesn't rebound. What if for the rest of his life they put a big red flashing light on his credit report, and he becomes marked as a deserter and can never purchase a home again. I know if I was a lender I wouldn't want to give money a lender that is willing to default on a home loan of all things in fear of some negative equity. Its house not stock. We need to get back to a time when things like a roof over your head was something to cherish.
This just gets back to why 100% financing is a foolish idea, period. If he put 20% (or more) down, then he has already significantly altered the equations I put up. He should have also done a 15 yr fixed, if possible. And still payed off fast.
Ah. See, I knew it was you. Your "omg but you have no equity!" cry is the sort of thing that encourages people like the OP to purchase a house even when its price has been inflated by as much as 50% and causes people to default on mortgages they can't afford when the economy goes bad. It's the sort of mentality that fucked over the OP in the first place.
No, just in the face of "well you own a home" and someone who wants to default because it's worth less now than it was.
If we're going to point fingers, you made it by telling someone they should desert their home if the equity doesn't match the original price.
It will always be worth it to go for equity over renting if you're getting more space, for the same cost, and you know, building equity.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
You have just proven a reason why it shouldn't make one damn bit of difference and why he should stay in the house. You are already spending more (as you pointed out double) If the house doesn't go up in value to 400k then he still threw an extra 200k at a house. Is it really that much different that he threw that much and the house is now worth less then 200k. Not really as it is a house one he has now that his family can live in, that he can die in. What if the lending market doesn't rebound. What if for the rest of his life they put a big red flashing light on his credit report, and he becomes marked as a deserter and can never purchase a home again. I know if I was a lender I wouldn't want to give money a lender that is willing to default on a home loan of all things in fear of some negative equity. Its house not stock. We need to get back to a time when things like a roof over your head was something to cherish.
This just gets back to why 100% financing is a foolish idea, period. If he put 20% (or more) down, then he has already significantly altered the equations I put up. He should have also done a 15 yr fixed, if possible. And still payed off fast.
And... you're value of your house still went down. What did he gain? That he paid it off faster?
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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Inquisitor772 x Penny Arcade Fight Club ChampionA fixed point in space and timeRegistered Userregular
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
Have you ever done the math? You are flat out wrong. I already showed where this is the case. I can run the numbers again right here real quick.
You buy a house for 200k at 6% interest on a 30yr fixed.
Over the life of the loan, you will pay roughly 400k in interest and principal. If that house goes down in value 30%, you spentt 400k to make 140k. If he forecloses now, and CAN GET SUED, the bank can come at him for the value of the house minus what they can sell it for. Are you seriously telling me that value will be more than 360k? (Not to mention, if he gets sued, he can setup a payment plan that combined with rent might be lower than what he is currently paying.)
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
You also don't have to:
1. Pay property taxes
2. Pay for repairs/maintenance
3. Pay for insurance
4. Live in/maintain/be tied to the same location for the next 15-30 years
5. Have huge amounts of money locked in a single property (really, a long-term loan on a property) for decades
6. Etc. etc. etc.
The truth of the matter is that owning your own house isn't all that it's cracked up to be. If you wanted to you could just shop for good renting/leasing deals and invest your money elsewhere. Even if you don't turn out "ahead" after 30 years of paying a mortgage and finally selling the house (closing costs, anyone?), perhaps the other benefits, such as flexibility of location/lifestyle, etc. more than made up for it.
If you're going to be smart and responsible with your money, it doesn't matter if you get a mortgage or if you decide to be a lifelong renter. As long as you are consistently making smart, responsible decisions, the benefits and costs of this major, major choice will probably wash out. Did I mention that it was a major choice? And that you shouldn't be thinking about whether or not to spend hundreds of thousands of your own money for the next several decades over a single decision point, such as the potential long-term value of the house if and when you finally decide to sell it?
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
Did you miss where I said that combined with rent he should be paying less even if he has to pay off all of what he legally owes?
If you can not find a place to rent for cheaper than buying by a substantial amount, you should seriously consider what you are looking at. Move if you have to.
It's not though. At least around here houses and apartments are roughly equal to prices per month and the mortgage per month. Crazy.
I have a feeling you aren't looking close enough. There will be apartments going for about the same as a mortgage. They are overpriced, though. The only catch, is if someone had 30% downpayment, they can work out a mortgage that is about the same as someone else renting. If you have that much downpayment, it can make a significant difference on how much your credit matters. (Don't forget that Trump fucked his credit by going bankrupt. Hasn't stopped him from recovering nicely.)
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
Did you miss where I said that combined with rent he should be paying less even if he has to pay off all of what he legally owes?
If you can not find a place to rent for cheaper than buying by a substantial amount, you should seriously consider what you are looking at. Move if you have to.
It's not though. At least around here houses and apartments are roughly equal to prices per month and the mortgage per month. Crazy.
It's not crazy. It's bad. It means your market hasn't actually readjusted yet. It means that you can't buy a house and rent it to make a profit anymore, which is part of why there aren't any buyers on the market. As I mentioned earlier, the market value of the home compared with the cost of renting should be about 14:1, historically speaking. Sounds like you are at a 30:1 ratio still, which is where it was for all of these other housing markets before they completely crashed.
You have just proven a reason why it shouldn't make one damn bit of difference and why he should stay in the house. You are already spending more (as you pointed out double) If the house doesn't go up in value to 400k then he still threw an extra 200k at a house. Is it really that much different that he threw that much and the house is now worth less then 200k. Not really as it is a house one he has now that his family can live in, that he can die in. What if the lending market doesn't rebound. What if for the rest of his life they put a big red flashing light on his credit report, and he becomes marked as a deserter and can never purchase a home again. I know if I was a lender I wouldn't want to give money a lender that is willing to default on a home loan of all things in fear of some negative equity. Its house not stock. We need to get back to a time when things like a roof over your head was something to cherish.
This just gets back to why 100% financing is a foolish idea, period. If he put 20% (or more) down, then he has already significantly altered the equations I put up. He should have also done a 15 yr fixed, if possible. And still payed off fast.
And... you're value of your house still went down. What did he gain? That he paid it off faster?
He could have only lost 30% of the capital he put towards the house. Instead, he is looking at losing 75%.
Edit: This is the crux of it. You all are trying to say this guy should take a 75% hit to prevent the bank from taking a 30% one. I can not agree with that.
A bet is irresponsible almost by definition. Some people just felt that real estate was not a bet.
Semantics? Please.
Timing real estate purchases play a big role on how long it takes you to net a gain. And different from stocks (which is essentially time arbitrage of securities) you actualy have something when you buy a house. That thing you live in.
Things get bad sometimes (80's post oil boom real estate bust in Texas), so long as the city you're living in has industry and draws immigration, then things will stabilize towards an upward trend eventually.
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
Have you ever done the math? You are flat out wrong. I already showed where this is the case. I can run the numbers again right here real quick.
You buy a house for 200k at 6% interest on a 30yr fixed.
Over the life of the loan, you will pay roughly 400k in interest and principal. If that house goes down in value 30%, you spentt 400k to make 140k. If he forecloses now, and CAN GET SUED, the bank can come at him for the value of the house minus what they can sell it for. Are you seriously telling me that value will be more than 360k? (Not to mention, if he gets sued, he can setup a payment plan that combined with rent might be lower than what he is currently paying.)
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
Ah. See, I knew it was you. Your "omg but you have no equity!" cry is the sort of thing that encourages people like the OP to purchase a house even when its price has been inflated by as much as 50% and causes people to default on mortgages they can't afford when the economy goes bad. It's the sort of mentality that fucked over the OP in the first place.
I am not sure he is saying that. Its just you can't legitly claim that someone is better off defaulting on their loan because their 200k house is only worth a 140k now, then turn around and suggest renting.
He rents a house even for 80% for 7 yrs. Your still looking at throwing 80K away. that more then he would lose by staying in his house. Eventually he will work through the negative equity and generate positive equity. That's without an upward trend happening.
Even if he can get back to the point of owning a new home.whats to stop him from jumping ship the next downturn.
Ah. See, I knew it was you. Your "omg but you have no equity!" cry is the sort of thing that encourages people like the OP to purchase a house even when its price has been inflated by as much as 50% and causes people to default on mortgages they can't afford when the economy goes bad. It's the sort of mentality that fucked over the OP in the first place.
No, just in the face of "well you own a home" and someone who wants to default because it's worth less now than it was.
If we're going to point fingers, you made it by telling someone they should desert their home if the equity doesn't match the original price.
It will always be worth it to go for equity over renting if you're getting more space, for the same cost, and you know, building equity.
That last bit is problematic, because it downplays the very real risk in buying over renting. Because unless you're actually buying a house with the intent of keeping it for the life of the loan (uncommon nowadays, people just change jobs too often) there's no guarantee you'll build equity before needing to sell. Or, rather, that you may build negative equity, as in the OP's case (though he's not in a need-to-sell position at the moment).
Whether it's a good idea or not varies based on individual circumstances, of course...in my case, we were going to need to move in 4-5 years and while the conventional wisdom was that this was more than enough time to build some amount of equity, I knew that housing values were inflated (and we'd be looking to sell, well, in about six months or so from now...so I made a wise choice).
If you're intending to stay for 15+ years, and you really are paying the same monthly for roughly equivalent space, then yeah buying is a no-brainer. Otherwise it's a risky proposition...or, more accurately, an investment...and like most investments it has the possibility of losing value.
So yeah, I'd agree that your attitude probably did contribute to at least some people buying homes when it was grossly unwise to do so. That still doesn't change the fact that the OP is essentially asking me to give him some money to settle up his negative equity, when I've been renting for the past few years (well, actually since before leaving high school, so much longer...but I made the "real" rent/buy choice a few years ago).
Even if he can get back to the point of owning a new home.whats to stop him from jumping ship the next downturn.
Us lobbying our Congressmembers to ensure that this doesn't happen again, and that in the future people who can afford to pay their debts, like, do.
He rents a house even for 80% for 7 yrs. Your still looking at throwing 80K away. that more then he would lose by staying in his house. Eventually he will work through the negative equity and generate positive equity. That's without an upward trend happening.
Even if he can get back to the point of owning a new home.whats to stop him from jumping ship the next downturn.
If you can afford X payment now, then making Y payment (where Y < X) you should be able to put aside the difference. Odds are, especially for the next 10 years (if not longer) that difference will be larger than the amount of principle he is paying off each month.
And again, this all goes back to the specifics.
taeric on
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Inquisitor772 x Penny Arcade Fight Club ChampionA fixed point in space and timeRegistered Userregular
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
Have you ever done the math? You are flat out wrong. I already showed where this is the case. I can run the numbers again right here real quick.
You buy a house for 200k at 6% interest on a 30yr fixed.
Over the life of the loan, you will pay roughly 400k in interest and principal. If that house goes down in value 30%, you spentt 400k to make 140k. If he forecloses now, and CAN GET SUED, the bank can come at him for the value of the house minus what they can sell it for. Are you seriously telling me that value will be more than 360k? (Not to mention, if he gets sued, he can setup a payment plan that combined with rent might be lower than what he is currently paying.)
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
Ah. See, I knew it was you. Your "omg but you have no equity!" cry is the sort of thing that encourages people like the OP to purchase a house even when its price has been inflated by as much as 50% and causes people to default on mortgages they can't afford when the economy goes bad. It's the sort of mentality that fucked over the OP in the first place.
I am not sure he is saying that. Its just you can't legitly claim that someone is better off defaulting on their loan because their 200k house is only worth a 140k now, then turn around and suggest renting.
He rents a house even for 80% for 7 yrs. Your still looking at throwing 80K away. that more then he would lose by staying in his house. Eventually he will work through the negative equity and generate positive equity. That's without an upward trend happening.
Even if he can get back to the point of owning a new home.whats to stop him from jumping ship the next downturn.
I'm getting kind of annoyed at the whole "throwing away money" nonsense. Because that's what it is. Nonsense. If you were really throwing away money, then no one would rent or lease, ever. The market price for renting/leasing also takes into consideration of the market (or current lack thereof) for purchasing homes/units.
If someone is willing to pay to live in a place on a monthly or yearly basis, then they are obviously getting something out of it. Namely, somewhere to live. You aren't "throwing money away" by paying rent. You're buying a place to live for a set period of time. That's what you're freaking paying for. And if it wasn't worth it, no one would do it. But it is obviously worth it, which is why the majority of people in this country do it.
Furthermore, this is a blatant oversimplification of the issue, and if there's anything we've learned from dumbass market "managers", blatant oversimplification is fucking stupid when you're talking about major financial transactions, let alone major, life-altering decisions such as whether to buy a home or just rent. "Building equity" only works if the thing you are paying into will actually increase in value and you are planning on selling it after a set period of time with that return in mind. Otherwise, you are potentially also "throwing money away" by putting it into something which may, gasp, lose all of its value.
Try telling an 80-year-old woman who bought a house, paid off the mortgage responsibly 30 years ago, and is now looking to sell it so that she can afford to live in an assisted-living facility that it was a good idea to "build equity" instead of put the difference in something like an assisted-living insurance fund, or bonds.
Try telling an 80-year-old woman who bought a house, paid off the mortgage responsibly 30 years ago, and is now looking to sell it so that she can afford to live in an assisted-living facility that it was a good idea to "build equity" instead of put the difference in something like an assisted-living insurance fund, or bonds.
I'm getting kind of annoyed at the whole "throwing away money" nonsense. Because that's what it is. Nonsense. If you were really throwing away money, then no one would rent or lease, ever. The market price for renting/leasing also takes into consideration of the market (or current lack thereof) for purchasing homes/units.
If someone is willing to pay to live in a place on a monthly or yearly basis, then they are obviously getting something out of it. Namely, somewhere to live. You aren't "throwing money away" by paying rent. You're buying a place to live for a set period of time. That's what you're freaking paying for. And if it wasn't worth it, no one would do it. But it is obviously worth it, which is why the majority of people in this country do it.
Well, that and the fact that getting a loan large enough to buy requires pretty decent credit, unless you want to pay rape rates.
There do exist people who intend to stay in the same area long term but simply can't get a loan to buy, you know.
Furthermore, this is a blatant oversimplification of the issue, and if there's anything we've learned from dumbass market "managers", blatant oversimplification is fucking stupid when you're talking about major financial transactions, let alone major, life-altering decisions such as whether to buy a home or just rent. "Building equity" only works if the thing you are paying into will actually increase in value and you are planning on selling it after a set period of time with that return in mind. Otherwise, you are potentially also "throwing money away" by putting it into something which may, gasp, lose all of its value.
Well, the odds of it losing all its value are slim outside of events you can insure for. It may lose some, but at the end of the day it's still a house in a location and that will have a value to somebody.
And apparently the risk in it losing some of its value isn't as great as you might think...deal with a little bad credit, let the taxpayers cover the loss, and you're golden.
And apparently the risk in it losing some of its value isn't as great as you might think...deal with a little bad credit, let the taxpayers cover the loss, and you're golden.
The root of that is not this person taking out the loan, though. This is all because banks were able to turn people owing them money into collateral for debts that they made at a secured value that grossly over estimated the actual chance of getting the debt collected. Since they got more and more fancy about finding ways they said guaranteed they were safe, we are in our current financial mess.
Edit: TO be clear, if the bank had not managed to say that someone owing them 6% on a house was something they could use to secure credit to invest a ton of money elsewhere, this would not be a concern. They would lose 30% of the house at worst and find ways to reinvest. As it is, they are losing the ability to pay loans that they took using these loans as collateral and are sharing the hurt with other financial systems. Basically. So, why aren't people more upset with the bank?
And apparently the risk in it losing some of its value isn't as great as you might think...deal with a little bad credit, let the taxpayers cover the loss, and you're golden.
The root of that is not this person taking out the loan, though. This is all because banks were able to turn people owing them money into collateral for debts that they made at a secured value that grossly over estimated the actual chance of getting the debt collected. Since they got more and more fancy about finding ways they said guaranteed they were safe, we are in our current financial mess.
Oh, I think it's a little of both though. Plenty of blame to go around.
And for the individuals that can still afford to pay for their mistakes? I think they should have to, not me.
I'm all for a little dab of socialism here and there, but it should go to those that need it, not those that are still doing okay overall but made a poor decision.
But seriously, to the OP: do what you need to do. Look out for yourself. I got your back. Because I have no choice.
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You agreed to a set value for your house. You have not lost your job. You have a home to live in that doesn't cost you anymore now then it did when you bought it. I don't see where the value in forclosure is. Yo are paying the exact amount you felt was right when you purchased it.
Are you moving out of town? Are you disappointed with the house (current value not withstanding)? Did you buy the house with a plan to sell it? How long was your plan?
I am sorry Sir while I think a house should hold equity it shouldn't be considered an investment. Much like a car you would not leave it on the side of the road just because this year its worth 10k less. Its an investment your family. Eventually you will pay it off and your family will have this nice paid off house to live in. It won't matter then if its worth a $1 or $10000000.
Now if to you it was always an investment. Fine cut your loses, while making it that much harder for legit home owners and tax payers around the US. I hope the person who buys your home gets its cheaper then the money you already put into it.
Let's put it this way: I don't think it should be possible, legally, to get out of a mortgage that you can afford. Period. If you're in a financial situation where you can afford to pay your debts, you should be required to pay them. If you choose not to, they should take everything you own down to your daughter's Mary Janes. And hose your credit to boot.
He's trying to find a way to get off easy (easier, at least) on a debt he can afford to pay. That's the part that bothers me.
I agree 100% with that. I also feel that if the bank convinced him this was a decent decision, regardless of if he can continue to do so for now, it was predatory. Now.... we don't have these details. Which is, again, why he should go seek legal advice with FULL disclosure.
Nor does it mean he should not consider legal options available for him.
Again, there is no guarantee housing will recover. That is just as much speculation as saying it will remain flat for the foreseeable future.
As for your changing of my scenario. Where do you get that this will happen? Again, if he approaches the banks for legal options, he may have a bad tick on his credit for 7 years. That is much better than throwing away hundreds of thousands of dollars over 30 years.
If it's a matter of state law they had no way to make him sign it away.
If he can afford the payments set, it's not predatory. He agreed to buy X for $Y. He can still afford $Y. The fact that he agreed to pay $Y is not the bank's fault...they still loaned him an amount of money he can afford to repay. He just doesn't want to anymore becuase X is no longer woth $Y.
Predatory lending is when they loan you $Y when they know you cannot afford it, or when the payments will become $Z at some point in the future, where $Z is also an amount you cannot afford.
Holy shit, you are that loan shark someone else was referring to. There is a reason that shit is illegal and that sort of attitude is highly frowned upon.
After all, you are effectively saying that nobody should be able to get out. If they are having a hard time paying, they should work harder. If they want more of their hard earned money, they shouldn't have entered into such an agreement. (All of those miners working shit hours for crap pay should suck it up or leave, right? )
Better to have done that and have what little equity he theoretically has, than to do it and have none whatsoever. He may not be eligible for a loan. Or maybe the loan he does get is going to actually make him pay close, if not more, than what he is going to lose by dropping this just from the interest payments. All of this is better than paying the same amount of your mortgage into renting, by long and far.
But yes, speaking with an advisor is the best possible scenario.
Have you read where I quoted the state law? It can be signed away.
Predatory lending does not have to be towards someone that can not afford it. Again, we don't know how much of his income is devoted towards the payments. If it is upwards of 60 to 80%, then I don't see how you could consider this not predatory. (Predators go for the week, yes. Week knowledge of the system is no less disastrous than week personal income.)
Because loan sharks charge much more interest than banks?
Except the OP's issue isn't that he's having a hard time paying. It's that what he bought is no longer worth what he paid.
Ah, must have missed that. My bad.
Must the sins of the father always be revisted upon the son just because it makes us feel better?
Have you ever done the math? You are flat out wrong. I already showed where this is the case. I can run the numbers again right here real quick.
You buy a house for 200k at 6% interest on a 30yr fixed.
Over the life of the loan, you will pay roughly 400k in interest and principal. If that house goes down in value 30%, you spentt 400k to make 140k. If he forecloses now, and CAN GET SUED, the bank can come at him for the value of the house minus what they can sell it for. Are you seriously telling me that value will be more than 360k? (Not to mention, if he gets sued, he can setup a payment plan that combined with rent might be lower than what he is currently paying.)
Not everyone else. That's why I'm so royally pissed. Because I pay fucking taxes, and now my taxes are going to the people that I (among others) tried to warn. My wife and I would have loved to buy a house three or four years ago.
Yep, I had the same. I chose wisely.
If the "sins of the father being revisited upon the son" mean living in what is probably a perfectly decent house with a bit of negative equity, then YES. YES, YES, YES.
Especially when the alternative means taking my money, which maybe I'd like to use towards a house someday, and giving it to him to help pay for his fuckup.
EDIT: Which is to day, it's not just about making me "feel better." It's about a trillion dollars or so of tax money.
And if you spent $1200 a month on an apartment over the course of 30 years? You just threw away that $400,000 into nothing.
You have no equity. Nothing, not even $1.
Did you miss where I said that combined with rent he should be paying less even if he has to pay off all of what he legally owes?
If you can not find a place to rent for cheaper than buying by a substantial amount, you should seriously consider what you are looking at. Move if you have to.
Not sure you can say it was irresponsible if he can still afford it. An ill-timed bet possibly.
The reason the decision irks me and possibly others is that if everyone who could afford to make payments just bailed because they're upside down, they not only effect his kids (magicked up money comes from somewhere), but mine. It's not to make us feel better, it's just not being an opportunistic jerk.
Yeah see you're being a moralist on behalf of a bank. I'm being a moralist on behalf of his family. Why is the OP more guilty than people who took out mortgages they couldn't afford? It's the subprime lenders and the people who defaulted out of necessity that caused the bottom to fall out on the housing market. If lenders hadn't flooded his market with money for people who couldn't afford their loans, housing prices wouldn't have inflated the way they did in the first place.
And incidentally, mcdermott: foreclosurers are helping to readjust the market right now so that you and I can afford to buy a house for what it's actually fucking worth. Let him ruin his credit for several years and take it on the chin as a lesson learned if that's what he thinks is best for his family. I'm sure there is a family like yours or mine in Arizona that's been renting and saving for several years and would love to take his home off of his banks' hands if that's what he thinks is best, and that family will get a great deal on it.
A bet is irresponsible almost by definition.
And the part that irks me is that this sort of lending was widespread in the first place. The existence of 80/20 and people doing 100% financing is just a bad bad idea.
Again, I can not stress this enough, this all depends on many of the specifics of his case.
2. You don't technically own the house. You own the loan that purchased the house, and the bank that gave you the loan is being nice enough to let you live in it while you're paying it off. Do not confuse the two. Ever.
3. If you purchased something, and the market price of that thing goes below your purchase price (note I said price and not value), you have not lost any money if you do not sell that item. OMGHUGEREVELATION.
4. Before any of you %#@$ try to qualify #3, let me point out the basic fact that you bought the item at the price it was originally because you thought it was worth that much. That's why you were willing to pay the price. Don't start bitching now just because a few years down the road you find out it's not worth what you thought. (Did I mention that you technically don't own the house, because you technically never bought the house? Just want to make sure we're clear on that.) And don't start talking about hypothetical future sale values when you can't predict what they will be. If we could predict that stuff, then I have a bridge to sell you across the street from the Treasury Dept.
5. PS - No one can tell the future. Making a decision on a long-term loan on something like a house and the land that it sits on based on short-term market fluctuations is patently absurd. If you aren't selling it, then you haven't lost a single penny. Maybe 10 years from now the market will rebound and the price of your house matches, in real terms, the price you paid for it when you got the initial mortgage. Then what? Then you will have been able to live, work, play, raise a family in, sleep under the roof of, have neighborhood barbecues in, obtained the tax benefits from, "owning" a house for 10+ years. And you would have the option of selling that house for exactly the price you paid for it. Given the state of the economy for the next several years, it may well be that not losing money would be a fantastic long-term investment (have you seen the interest rates on savings accounts lately?).
6. The truth of the matter is, if you're intent on doing something like walking away from the mortgage, then maybe you should visit a financial consultant or lawyer of some kind. Then they can map out for you your potential decisions and the possible/probable futures that will play out for each of them. But I would be remiss in pointing out the blatant, basic fact that no one can see the future (in case I haven't said it enough), so don't expect this next decision to "work the system" to turn out any better than your last decision to "buy a home".
7. The most sound decision is probably to just renegotiate the terms of your original mortgage. Please, I beg of you, start thinking of these decisions in real terms, and with the long view in mind. You were never planning on selling the house NOW anyway, so why are you making decisions based on its current value?
It's not though. At least around here houses and apartments are roughly equal to prices per month and the mortgage per month. Crazy.
Ah. See, I knew it was you. Your "omg but you have no equity!" cry is the sort of thing that encourages people like the OP to purchase a house even when its price has been inflated by as much as 50% and causes people to default on mortgages they can't afford when the economy goes bad. It's the sort of mentality that fucked over the OP in the first place.
You have just proven a reason why it shouldn't make one damn bit of difference and why he should stay in the house. You are already spending more (as you pointed out double) If the house doesn't go up in value to 400k then he still threw an extra 200k at a house. Is it really that much different that he threw that much and the house is now worth less then 200k. Not really as it is a house one he has now that his family can live in, that he can die in. What if the lending market doesn't rebound. What if for the rest of his life they put a big red flashing light on his credit report, and he becomes marked as a deserter and can never purchase a home again. I know if I was a lender I wouldn't want to give money a lender that is willing to default on a home loan of all things in fear of some negative equity. Its house not stock. We need to get back to a time when things like a roof over your head was something to cherish.
Are you factoring my increased taxes (or possibly my childrens' increased taxes) into that deal?
Yeah, I don't entirely agree with him on this point. But I on the other hand do think renting is a viable option in some situations, and encouraged people to do so. Yet my taxes go up too.
EDIT: Or, alternately, my services go down. Or, as a government employee, my pay stagnates.
You are right, one is sensibly regulated and the other not so much.
This point will come back to bite you.
But they didn't purchase the house. They signed a contract to pay for the house. See your point 2.
Again, you never bought anything. You agreed to buy something via a contract that you are not legally held to stick to for the lifetime of the loan. (Because banks are not loan sharks.
Agreed almost 100%. The point that I'm making is you can choose how to lose money. It can either be by paying the life of the loan, or by looking for other options now.
Again, I've given this advice throughout the thread. I just acknowledge that walking away may be an option. (I stress may.)
Same as above.
This just gets back to why 100% financing is a foolish idea, period. If he put 20% (or more) down, then he has already significantly altered the equations I put up. He should have also done a 15 yr fixed, if possible. And still payed off fast.
No, just in the face of "well you own a home" and someone who wants to default because it's worth less now than it was.
If we're going to point fingers, you made it by telling someone they should desert their home if the equity doesn't match the original price.
It will always be worth it to go for equity over renting if you're getting more space, for the same cost, and you know, building equity.
And... you're value of your house still went down. What did he gain? That he paid it off faster?
You also don't have to:
1. Pay property taxes
2. Pay for repairs/maintenance
3. Pay for insurance
4. Live in/maintain/be tied to the same location for the next 15-30 years
5. Have huge amounts of money locked in a single property (really, a long-term loan on a property) for decades
6. Etc. etc. etc.
The truth of the matter is that owning your own house isn't all that it's cracked up to be. If you wanted to you could just shop for good renting/leasing deals and invest your money elsewhere. Even if you don't turn out "ahead" after 30 years of paying a mortgage and finally selling the house (closing costs, anyone?), perhaps the other benefits, such as flexibility of location/lifestyle, etc. more than made up for it.
If you're going to be smart and responsible with your money, it doesn't matter if you get a mortgage or if you decide to be a lifelong renter. As long as you are consistently making smart, responsible decisions, the benefits and costs of this major, major choice will probably wash out. Did I mention that it was a major choice? And that you shouldn't be thinking about whether or not to spend hundreds of thousands of your own money for the next several decades over a single decision point, such as the potential long-term value of the house if and when you finally decide to sell it?
I have a feeling you aren't looking close enough.
It's not crazy. It's bad. It means your market hasn't actually readjusted yet. It means that you can't buy a house and rent it to make a profit anymore, which is part of why there aren't any buyers on the market. As I mentioned earlier, the market value of the home compared with the cost of renting should be about 14:1, historically speaking. Sounds like you are at a 30:1 ratio still, which is where it was for all of these other housing markets before they completely crashed.
He could have only lost 30% of the capital he put towards the house. Instead, he is looking at losing 75%.
Edit: This is the crux of it. You all are trying to say this guy should take a 75% hit to prevent the bank from taking a 30% one. I can not agree with that.
Semantics? Please.
Timing real estate purchases play a big role on how long it takes you to net a gain. And different from stocks (which is essentially time arbitrage of securities) you actualy have something when you buy a house. That thing you live in.
Things get bad sometimes (80's post oil boom real estate bust in Texas), so long as the city you're living in has industry and draws immigration, then things will stabilize towards an upward trend eventually.
I am not sure he is saying that. Its just you can't legitly claim that someone is better off defaulting on their loan because their 200k house is only worth a 140k now, then turn around and suggest renting.
He rents a house even for 80% for 7 yrs. Your still looking at throwing 80K away. that more then he would lose by staying in his house. Eventually he will work through the negative equity and generate positive equity. That's without an upward trend happening.
Even if he can get back to the point of owning a new home.whats to stop him from jumping ship the next downturn.
That last bit is problematic, because it downplays the very real risk in buying over renting. Because unless you're actually buying a house with the intent of keeping it for the life of the loan (uncommon nowadays, people just change jobs too often) there's no guarantee you'll build equity before needing to sell. Or, rather, that you may build negative equity, as in the OP's case (though he's not in a need-to-sell position at the moment).
Whether it's a good idea or not varies based on individual circumstances, of course...in my case, we were going to need to move in 4-5 years and while the conventional wisdom was that this was more than enough time to build some amount of equity, I knew that housing values were inflated (and we'd be looking to sell, well, in about six months or so from now...so I made a wise choice).
If you're intending to stay for 15+ years, and you really are paying the same monthly for roughly equivalent space, then yeah buying is a no-brainer. Otherwise it's a risky proposition...or, more accurately, an investment...and like most investments it has the possibility of losing value.
So yeah, I'd agree that your attitude probably did contribute to at least some people buying homes when it was grossly unwise to do so. That still doesn't change the fact that the OP is essentially asking me to give him some money to settle up his negative equity, when I've been renting for the past few years (well, actually since before leaving high school, so much longer...but I made the "real" rent/buy choice a few years ago).
Us lobbying our Congressmembers to ensure that this doesn't happen again, and that in the future people who can afford to pay their debts, like, do.
If you can afford X payment now, then making Y payment (where Y < X) you should be able to put aside the difference. Odds are, especially for the next 10 years (if not longer) that difference will be larger than the amount of principle he is paying off each month.
And again, this all goes back to the specifics.
I'm getting kind of annoyed at the whole "throwing away money" nonsense. Because that's what it is. Nonsense. If you were really throwing away money, then no one would rent or lease, ever. The market price for renting/leasing also takes into consideration of the market (or current lack thereof) for purchasing homes/units.
If someone is willing to pay to live in a place on a monthly or yearly basis, then they are obviously getting something out of it. Namely, somewhere to live. You aren't "throwing money away" by paying rent. You're buying a place to live for a set period of time. That's what you're freaking paying for. And if it wasn't worth it, no one would do it. But it is obviously worth it, which is why the majority of people in this country do it.
Furthermore, this is a blatant oversimplification of the issue, and if there's anything we've learned from dumbass market "managers", blatant oversimplification is fucking stupid when you're talking about major financial transactions, let alone major, life-altering decisions such as whether to buy a home or just rent. "Building equity" only works if the thing you are paying into will actually increase in value and you are planning on selling it after a set period of time with that return in mind. Otherwise, you are potentially also "throwing money away" by putting it into something which may, gasp, lose all of its value.
Try telling an 80-year-old woman who bought a house, paid off the mortgage responsibly 30 years ago, and is now looking to sell it so that she can afford to live in an assisted-living facility that it was a good idea to "build equity" instead of put the difference in something like an assisted-living insurance fund, or bonds.
Agreed so hard I think it hurts!!!
Well, that and the fact that getting a loan large enough to buy requires pretty decent credit, unless you want to pay rape rates.
There do exist people who intend to stay in the same area long term but simply can't get a loan to buy, you know.
Well, the odds of it losing all its value are slim outside of events you can insure for. It may lose some, but at the end of the day it's still a house in a location and that will have a value to somebody.
And apparently the risk in it losing some of its value isn't as great as you might think...deal with a little bad credit, let the taxpayers cover the loss, and you're golden.
The root of that is not this person taking out the loan, though. This is all because banks were able to turn people owing them money into collateral for debts that they made at a secured value that grossly over estimated the actual chance of getting the debt collected. Since they got more and more fancy about finding ways they said guaranteed they were safe, we are in our current financial mess.
Edit: TO be clear, if the bank had not managed to say that someone owing them 6% on a house was something they could use to secure credit to invest a ton of money elsewhere, this would not be a concern. They would lose 30% of the house at worst and find ways to reinvest. As it is, they are losing the ability to pay loans that they took using these loans as collateral and are sharing the hurt with other financial systems. Basically. So, why aren't people more upset with the bank?
Oh, I think it's a little of both though. Plenty of blame to go around.
And for the individuals that can still afford to pay for their mistakes? I think they should have to, not me.
I'm all for a little dab of socialism here and there, but it should go to those that need it, not those that are still doing okay overall but made a poor decision.
But seriously, to the OP: do what you need to do. Look out for yourself. I got your back. Because I have no choice.