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Need some honest opinions... (LONG)
Ok, this is probably gonna be long, sorry.
So, I bought a 3 story townhouse in SW Phoenix as a new build in Sept 2007 before DH and I were even engaged. The neighborhood was pretty new when I bought, so not a lot of finished houses. But they were having a huge incentive weekend, and I loved the homes, so I bought! Yay for me!
So now, FF 3 years. The neighborhood is about 20% complete. I got a letter about a year ago that they are "no longer pursuing sales efforts in this area," packed up, sold all the model homes and demolished their office. Now all that's left are a few homes with a ton of weedy dirt lots.
So, DH and I have been talking recently about our options. Obviously we owe more than the house is worth (just like everyone else). We would like to move in the near future (say 1 year), but will be unable to because of this house. Even if the economy picks up to where it was, because of the unfinished neighborhood, it will probably never get what I paid for it.
There are also 5+ houses for sale in the neighborhood, one of which has been on the market for 10+ months. They just aren't selling.
So, what do we do? We could try to short-sale (but that would require a buyer, which doesn't seem to be happening here). Foreclose? I'd hate to do that, because I am not unable to make my payments or anything, but I'd just hate myself for waiting 5 years to find myself in the same place as I am now, wishing I had done it sooner.
Long story short, DH and I know we do not want to stay here a lot longer, and it's just not good for kids (which we are actively TTC).
WHAT SHOULD WE DO?
Re: Need some honest opinions... (LONG)
We offered on a house where the owner didn't want his house anymore.
The owner purchased another house before listing his current home (while his credit was still in tact), and then once he closed on his new house, he short saled the original house. I think it eventually went into foreclosure, but at that point he didn't care about his credit b/c he had a new house and didn't have any major purchases to make for years.
ETA: So I guess what I'm saying is, you could do something like that. Assuming you can front the closing costs without the proceeds from the sale of your current home.
Can't wait to meet my baby boy!
I would not forclose at all. Mostly because it will really hurt your credit and you wont be able to buy another house right away unless you have cash saved to just buy it out right.
Also, that process could take a while as well. So that's not really the best option IMO.
If you are really hell bent on getting out of there, you could rent it? I know renting is a process and a half, but if you get the right tenants it could work to your benefit. You could have an agency do the screening process for you? There are a lot of familys looking to rent and you could find decent people, I am more then sure. You would just have to weed them out.
We've had a lot of friends do this- buy another house, then short sale or foreclose on the old one. It's not the best option, but it's still an option. DH and I are upside down in our house as well, and although our neighborhood is nice with very few homes for sale/short sale/foreclosure, we know that it will be a long time before we recoup what we paid or even what we owe-- so we will most likely short sale when the time comes.
This. Also keep in mind that if you do decide to rent it out and the "market value" of rent in that area is less that your mortgage you and DH will be responsible for making up the difference each month. So let's say your mortgage is $1200 but "market value"for rent is curently at $900. Then you and DH will need to make up the $300 difference on top of whatever your new home mortgage is.
I have known a few people who have bought a new house then short saled /forclosed on their old house. While it is an option I wouldn't recommend it. You could potentially end up with a higher interest rate if you purchase the home as an "investment property" if it is with in a certain distance from your current home.
Honestly, I think, when you buy a house, you take on the responsibility of taking care of that house for the length of your mortgage unless you sell.
I think it's wrong that people Short Sale "just because they are upside down". I understand your house isn't worth what you paid for but that comes with the territory when you buy, right?
Now, I'm not a home owner (yet) but if you can make the payments then why would you help the economy get worse? Just put it on the market, live there until you can sell it for a decent price or wait until the market goes back up??
I'm not trying to be mean but there are SO many houses out there that are SS's and they are a f*cking pain in the asssss to buy and most people will stay away from them bc they are a SS.
I honestly don't know what to tell you but good luck.
ETA: I also believe you have to prove to the bank that you can no longer make payments in order to Short Sale??? I'm not 100% sure but I believe this to be the case.
I'd look into your rental options. Also, even though you want to have a kid now, being kid friendly or not won't matter until they are 4-5 and want to go outside to play. And maybe in that time things will pick back up (another investor could buy the land and continue developing it). So it may be best to just sit and wait and see what happens with the neighborhood.
And you could also put it on the market and just wait to see what happens. I personally would LOVE an underdeveloped neighborhood! I used to live in an over developed area and I hated it. I'll take the weed-y fields over neighbors any day! There may be others like me out there looking to buy right now.
I agree with this. I am not and will never be a fan or foreclosing on purpose!! Or going short sale and letting it go into foreclosure. It doesn't just affect your credit for a few years. It takes a LOT more to get your credit back in shape than it does to completely ruin it. And it will not only affect home-buying, but car-buying, other loans, and anything you do they use your credit. To do that on PURPOSE just blows my mind.
I agree with some PP to try hard to rent instead if you want to get something else. And also, what someone said about waiting a bit of time too. If your neighborhood is safe and you can pay your mortgage fine, then what's the rush? Cuz of kids? A newborn doesn't need a yard, so you're talking minimum 2-3 years if you'd get pregnant right away before you would need something else. Please don't make any rash decisions that would affect your long-term credit! The credit system is screwy as helll, but if you have good credit, do everything you can to KEEP it that way!
Just my opinion, though.
Buying a home is a contract. A commitment to pay back that mortgage on the agreed terms.
IMHO if you can afford your mortgage, you should pay your mortgage. All of those people walking away from houses that they can afford to keep (even when underwater) are only making our economy worse. We don't need more losses on homes on the market.
That being said, I do think it's super unfortunate for all of those people that are upside down on their mortgages. But the point is, they chose to buy when they did, with the price of the house being what it was. You can't just buy something and when the market goes down jump ship because you don't want to pay the price you agreed on anymore.
My suggestion, as PPs mentioned, would be to try and rent it out, or hold tight. Foreclosures/short sales will tarnish your credit. Think about what the effects would be if you needed your credit checked for something in the near future.
I work in real estate...If you foreclose without proving extreme financial hardship (and being upside down is not extreme financial hardship) and/or with out going through all possibilities (ie attempting to Short Sale) the bank can come after you within 6 months for the difference between the foreclosure price and what you owe on your loan. Just because you foreclose does not mean you are no longer responsible for the difference unless you file for bankruptcy too. Now, most of the time the bank will not come after you, but if you do something unethical, like buy another house while your credit is still good to just turn around and foreclose on your current property, the chance of them coming after you is substantially higher. And from what I hear from our Broker, the banks are going to start coming after more people because they are tired of people foreclosing for no reason.
Also, most banks will not approve loans right now for secondary houses unless you have 20% to put down, and if you have 20% to put down then the bank will see that when you foreclose on your property and a huge red flag will go up, and like I said, they have 6 months to come after you for the difference. If I were you I would never take that chance, especially since I think it is going to happen more and more in the near future. Either attempt a short sale first so the bank will not come after you, or rent out your property. I rent out my Scottsdale townhouse easily, and am able to cover my mortgage that way.
This is my honest opinion which some may not like.
You could short sale if the bank is willing.
Otherwise if you can make payments I think you should, going into forcloseure when you can make the payments just seems wrong to me.
What about making it a rental, enough to cover your Mortgage and then you can buy a new house.
I pink puffy heart you stacy!
hhmmmm well my answer to this would be lengthy and not completely board appropriate--if ya wanna email me at shellysandwich at gmail dot com...
I think you can go somewhere between both. Everyone makes excellent and food for thought points. Being upside down or in a not so great area with little kids can be an apprehensive situation--how do you know what the best choice for your family is?
I'd go talk to your bank or mortgage peep and see where you are at financially and stability wise...you have retirement, college funds and life in general to consider. Figure out what your overall plan is and where you want to be in ten years. Don't forget that all mortgage interest is an awesome write-off--and investment properties are handy write-offs as well.
You are facing a difficult set of decisions if you short sale. It's not an easy walk in the park. You could rent it and hopefully cover yourself (esp if you're near a school or work places). Though many choose short sales for lots of reasons--short saling doesn't make you a bad chica.
You need to look at your personal big picture, not just the economic impact of the house or berbur. People walk away for a lot of reasons...anywho, this is getting long anyway...
I agree with a lot of what you all are saying. I am not one that is just going to move because I want a bigger housem and would never recommend that. Yes, I can make the mortgage payments and have not missed a payment yet. I have put a lot of thought into this decision, and still don't know what I'm going to do. The thought of bad credit is enough to give me an anxiety attack.
My biggest problem is not the house really, but the neighborhood. I am willing to wait it out if I knew eventually the house would regain some value. But with the neighborhood being OBVIOUSLY incomplete and the HOA doing NOTHING about the car-sized weeds on all the dirt lots, my house looses value based solely on that fact. Even if the market semi-returned to what it was, the neighborhood hurts the house. Plus, I would not want to send my kids to schools in this area.
If in say, 7 years I am still here in the same situation, what then? Ugh, I don't know.
I agree that a mortgage is binding, and I agreed with the terms when I signed. And believe me, it's not because I don't feel the price is fair anymore. It's the re-sale value of the neighborhood.
Are you close with your neighbors? Can you start a neighborhood cleanup of the overgrown lots?
Can't wait to meet my baby boy!
I think you should worry about it then....7 years can make a huge difference in the real estate business.
I feel for you. I'm also in a condo that I bought at the height of the market and am way underwater in. My complex is decent, though, and in a good location, so I don't have the neighborhood issues that you have, which I know makes it harder. Our biggest issue is space. It's fine for kid #1, but things will get a little more dicey with kid #2.
Our plan is to live there as long as humanely possible. We're throwing as much money as we can at our mortgage, to try to get to a point where (someday) we're at least not as far underwater and selling can become a possibility. If we get to a point where we outgrow the home and still can't sell (this will likely be the case), our plan is to rent out the condo and buy or rent a house. In the meantime, we're having fun fixing up the condo the way we like it, and we rent a storage unit to keep the stuff we don't have room for. So, we're making the best of it.
I'm in the "against foreclosures and short sales when you can afford your mortgage" camp. I understand why it's the logical financial solution on an individual level... but I also think it's a huge reason why it's taking so long for the economy as a whole to rebound. It's sort of making it worse for the rest of us who are choosing to stick it out. I agreed to buy my condo for a certain price. I can afford the condo. No one else wants to pay me as much as I paid for it. That's my bad luck. So I'm keeping it.
In the end, we've got a roof over our heads, and it's one that we can afford. I try to remind myself that that is a more than a lot of people can say and count my blessings on that.