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View Full Version : Mortgage Brainiacs - Answer me this please


Handbag Lady
03-12-2011, 10:35 PM
We hear all the time about people walking away from their homes. Either they've lost their jobs, they "took out" money from their home assuming their home values would continue to rise, or for whatever reason.

Let's say they bought their house for $600,000. Their mortgage is for $2000 a month. Their house is valued at $700,000 so they take out $60k for a car. Their mortgage is still $2k. Their house value changes to $450,000. I assume their mortgage stays the same at $2k. Please correct me if I am wrong. They decide to walk away because they are under water.

In another case, another family doesn't take out any money. The value again changes from $600,000 to $450,000. Same mortgage of $2k. They lose their job and they walk away.



What's to keep another family from just approaching the bank in either case and just offering to continue the payments? They might not have a downpayment, but they can keep paying the $2k? I know NOTHING about this and my husband and I are very curious. We think, and maybe we are VERY wrong, that a bank would rather have someone keep paying the original mortgage than having to try and sell it again.

carebee21
03-12-2011, 10:51 PM
Why would someone take over the payments on a house where $600,000 is owed, when the house is only worth $450,000? Then they've overpaid for the house?

DawnM
03-12-2011, 11:02 PM
I am a bit confused....how does one take out money from their mortgage and not have the mortgage go up? The only way to do that is to refi, which has a fee/charge attached and will lengthen the years you owe on your house.

Also, on a $600K loan, your mortgage will not be $2K. Even at 4% interest for 30 years, you are looking at closer to $3K in mortgage (check bankrate.com) and that does not include taxes or insurance.

I am not sure what you mean in the 2nd scenario. Are you talking about renting from the bank? Banks want to know that you can pay the entire amount, so you will have to go through the entire escrow process and be approved if you want to purchase. They want to know you won't walk away too! If you are talking about renting, I don't think banks want to deal with rental properties.

Dawn

We hear all the time about people walking away from their homes. Either they've lost their jobs, they "took out" money from their home assuming their home values would continue to rise, or for whatever reason.

Let's say they bought their house for $600,000. Their mortgage is for $2000 a month. Their house is valued at $700,000 so they take out $60k for a car. Their mortgage is still $2k. Their house value changes to $450,000. I assume their mortgage stays the same at $2k. Please correct me if I am wrong. They decide to walk away because they are under water.

In another case, another family doesn't take out any money. The value again changes from $600,000 to $450,000. Same mortgage of $2k. They lose their job and they walk away.



What's to keep another family from just approaching the bank in either case and just offering to continue the payments? They might not have a downpayment, but they can keep paying the $2k? I know NOTHING about this and my husband and I are very curious. We think, and maybe we are VERY wrong, that a bank would rather have someone keep paying the original mortgage than having to try and sell it again.

Cheshire Figment
03-12-2011, 11:16 PM
Basically you do not look at the payments. That really does not come into it.

The bank is looking to get at least the current balance of the mortgage, including any arrears. They also want the purchaser to put up a down payment, so they have an incentive to remain in the house and not just walk away, as if they were paying rent.

If you find someone who is ready to walk away, and their mortgage is assumable, you should be able to come to some agreement with them for taking over the payments. More than likely you would have to give them at least some payment which will allow them to put down a deposit on a rental and cover moving expenses. And you would still have to work with the bank to remove them from the mortgage and put you oin it, as well as the title. But the problem is to find an assumable mortgage, not one that becomes due on transfer.

bdcp
03-12-2011, 11:27 PM
I don't think any mortgages are assumable any more.

As another poster said, a home for 600K would not have a 2k mortgage (I wish). Our home was purchased for around that in 2003, and we put 20% down and our payments at 5.125% are still over 3K (including taxes and homeowner insurance). And our home is worth more than we paid for it in 2003 but less than it was worth in 2005, but we would NEVER just walkaway. That is so wrong.

Sorry, I'm of the camp that you are responsible for your mortgage and you don't get to just walk away cause things get tough, especially if you made poor decisions.

I want to know where people got the idea that 1) they are entitled to a mortgage and 2) that they just can walk away if they don't like it?

And, no, NO ONE can just take over someone's payments. Where do people get these ideas (second thread this week) that someone can just pay on someone else's mortgage? A mortgage is a loan give to someone based on THEIR ability to pay and the value of the home. Where does this idea that banks should be grateful that someone is paying the mortgage come from?:confused3

Are people really that uneducated about LIFE? The bank wants to know that someone can make the payments and that's why they have to APPLY for a loan. I am just amazed.

So, unless I'm wrong, you just want to be able to take over the payments on a house and not make a downpayment? Wow. I really doubt you don't understand how real estate, mortgages and home ownership work.

tinatark
03-12-2011, 11:40 PM
Many mortgages are assumable, with qualifying. For a person about to lose their house, having someone assume the mortgage (even without a down payment to them) would be more beneficial than just walking away.

I am sure there are many people out there today who have assumed notes in other people's names, unofficially.

hipchickie
03-13-2011, 12:35 AM
Our home was purchased for around that in 2003, and we put 20% down and our payments at 5.125% are still over 3K (including taxes and homeowner insurance). And our home is worth more than we paid for it in 2003 but less than it was worth in 2005, but we would NEVER just walkaway. That is so wrong.

Sorry, I'm of the camp that you are responsible for your mortgage and you don't get to just walk away cause things get tough, especially if you made poor decisions.

I am not in the position of being underwater on a mortgage, and/or being unemployed - but, REALLY, you can't see why someone would walk away form a home that was 100's of thousands underwater from what you paid for it vs. current worth????
I think there is a difference in believing people should be accountable, and being completely blind to reality

Jeff_G
03-13-2011, 12:37 AM
The person who is assuming the loan or taking over the payment would want to have legal ownership of the property. The current owner would need to transfer legal ownership, in my area this is done with deeds. Many if not all mortgage notes stipulate that the loan is due in full on sale or upon the transfer of the deed to another party.

So the bank would be expecting all their money back from the original owner, the new owner would be asking to buy the house at the reduced value. This is known as a short sale and it’s done many times.


As for just walking away I don’t begrudge anyone who has fallen on hard times from walking away if they have exhausted all other options. We don’t have debtors prisons in the country and the bank makes their loans taking on the risk…

Handbag Lady
03-13-2011, 12:38 AM
I was just making up numbers. I do no own a house nor have I ever owned a house, so I don't know about the actual figures.

I guess I was asking about assumable mortgages, but didn't know the term yet when I made the original post.

I agree it is wrong to walk away from your mortgage. We would be the assuming party, I suppose. What the amount owed wouldn't matter, if we were just taking over payments. We pay the same in rent and have nothing to show for it.

It is just that we see so many short sales going on in our area. We figure that the bank loaned money out to a party, the party wants to walk away, why wouldn't that bank rather another party take over payments rather than deal with lost monthly mortgage payments?

Weluvdisny
03-13-2011, 12:48 AM
I work in the legal department of a local bank. Under certain circumstances we do let someone assume another's mortgage. It must stipulate this in the deed transferring the property. The new owners must qualify to take over the payments and a current appraisal must be done to ensure the bank that the investment is still worthy of the current balance amount.

The process to foreclosure has changed and is so much more work than it used to be. We certainly don't want to resort to that, so if someone wanted to help a delinquent person out, we will do what we can to help them.

Handbag Lady
03-13-2011, 12:49 AM
I am a bit confused....how does one take out money from their mortgage and not have the mortgage go up? The only way to do that is to refi, which has a fee/charge attached and will lengthen the years you owe on your house.

Also, on a $600K loan, your mortgage will not be $2K. Even at 4% interest for 30 years, you are looking at closer to $3K in mortgage (check bankrate.com) and that does not include taxes or insurance.

I am not sure what you mean in the 2nd scenario. Are you talking about renting from the bank? Banks want to know that you can pay the entire amount, so you will have to go through the entire escrow process and be approved if you want to purchase. They want to know you won't walk away too! If you are talking about renting, I don't think banks want to deal with rental properties.

Dawn

We have no idea. We've just had so many friends that took the equity out of their homes and spent it on cars and vacations. Their lifestyles have not changed. This, of course, was before the big housing crash in California. For all we know, they may have had their monthly payments increased.

Truly, we are asking because we are puzzled. We NEARLY bought a over-priced condo in 2005 and are SO freaking happy we didn't now.

I guess the question is really in regards to getting a house now in this turmoil. If someone is just walking away because they lost a job or are underwater, could we not just assume the loan?

Handbag Lady
03-13-2011, 12:54 AM
I work in the legal department of a local bank. Under certain circumstances we do let someone assume another's mortgage. It must stipulate this in the deed transferring the property. The new owners must qualify to take over the payments and a current appraisal must be done to ensure the bank that the investment is still worthy of the current balance amount.

The process to foreclosure has changed and is so much more work than it used to be. We certainly don't want to resort to that, so if someone wanted to help a delinquent person out, we will do what we can to help them.

I think this answers our question. It can be done under certain circumstances, then.

Would the current balance amount be what is due on the mortgage? So if someone else paid a mortgage for 10 years and they bought at $x it would be x-10 years of payment less interest charges?

carebee21
03-13-2011, 01:17 AM
We have no idea. We've just had so many friends that took the equity out of their homes and spent it on cars and vacations. Their lifestyles have not changed. This, of course, was before the big housing crash in California. For all we know, they may have had their monthly payments increased.

Truly, we are asking because we are puzzled. We NEARLY bought a over-priced condo in 2005 and are SO freaking happy we didn't now.

I guess the question is really in regards to getting a house now in this turmoil. If someone is just walking away because they lost a job or are underwater, could we not just assume the loan?

There are very, very few circumstances in which it makes sense for both parties and the bank.

If the house owners house is underwater, they owe more than the house is worth. Again, why would you want to buy a house for more than it's worth?

If they have made payments for years and now have equity, or the home is worth more than what they owe, they can either re-finance it and lower their payment or sell it outright if they lost their job...For example, if they owe $100,000 and the home is worth $200,000, they can agressively price the house to sell and still likely walk away with some kind of money....

If they owe $200,000 on the home and the home is worth $200,000 you may be able to assume the payments. However, most banks would rather short sale it to someone with a downpayment and pre-approved loan, than let you take over the payment with nothing down. If the house goes further down in value, nothing is keeping you from walking away from the house, vs. the person who bought the house with 10-20% down, financially investing them into the property.

Tink888
03-13-2011, 01:19 AM
I think this answers our question. It can be done under certain circumstances, then.

Would the current balance amount be what is due on the mortgage? So if someone else paid a mortgage for 10 years and they bought at $x it would be x-10 years of payment less interest charges?

The current balance would be what is owed on the mortgage. That number would go up slightly though in the event the mortgage was being paid off to include interest through the payoff date along with any administrative fees.

Keep in mind that interest is charged per day and in the beginning of a mortgage, the bulk of the monthly payment is going toward interest with only a small portion going toward the principal. For example on a 2000.00 monthly payment in the first years of a mortgage 1800.00 would go toward interest and 200.00 would go toward paying down principal. So 10 years of a 30 year mortgage for 600,000.00 isn't going to have much equity built up.

Swimalie
03-13-2011, 07:38 AM
I don't think any mortgages are assumable any more.

As another poster said, a home for 600K would not have a 2k mortgage (I wish). Our home was purchased for around that in 2003, and we put 20% down and our payments at 5.125% are still over 3K (including taxes and homeowner insurance).

Actually you can, depending on the downpayment and lack of escrow. We have a house for $470,000 (so quite a bit under the example but you'll see) and we put down 40%. Our mortgage now is $1300 a month. No escrow, we pay our taxes and insurance ourselves.

PlutoPony
03-13-2011, 09:28 AM
Many mortgages are assumable, with qualifying. For a person about to lose their house, having someone assume the mortgage (even without a down payment to them) would be more beneficial than just walking away.

I am sure there are many people out there today who have assumed notes in other people's names, unofficially.

That would surprise me greatly, as the person unofficially assuming the mortgage wouldn't be able to receive any of the tax benefit from it. In order to claim the mortgage interest deduction, the mortgage has to be in your name (with your SS#) as shown by the 1099 for the property doesn't it?

It wouldn't make sense to take over payments on a house where the mortgage balance is greater than it's current value - and in most areas those are the homes/mortgages that people are walking away from. If you have a 25-30 year loan, you probably haven't built up much equity until 15+ years of paying into the mortgage (assuming you didn't pay additional principal monthly), so most people who bought at the height of the market haven't made much of a dent in their principal yet.

DawnM
03-13-2011, 09:36 AM
They have to have taken out equity somehow, meaning the payments did go up.

We SOLD a house in SoCal in 2005!~ :thumbsup2

By the way, even if a 600K home is $3K per month (4% interest for 30 years), CA property taxes are about 1%.....so add a $600 minimum payment onto that. Then, if they didn't put 20% down, add more than $600 for PMI for that amount of loan, and then add about $200/mo for insurance. So, that 600K loan is over $4,500, nowhere near the $2,000 guessed.

Dawn

We have no idea. We've just had so many friends that took the equity out of their homes and spent it on cars and vacations. Their lifestyles have not changed. This, of course, was before the big housing crash in California. For all we know, they may have had their monthly payments increased.

Truly, we are asking because we are puzzled. We NEARLY bought a over-priced condo in 2005 and are SO freaking happy we didn't now.

I guess the question is really in regards to getting a house now in this turmoil. If someone is just walking away because they lost a job or are underwater, could we not just assume the loan?

PlutoPony
03-13-2011, 09:55 AM
They have to have taken out equity somehow, meaning the payments did go up.
Dawn

Or they didn't officially take out equity but rather borrowed against the equity in their house by opening and using a home equity line of credit. The problem many ran into with those is that they were able to get line of credit on what their house was worth, which is not necessarily real equity. Let's say you paid $250k for a house and got a mortgage for $225k. Home values skyrocket and it later appraised for $500k (very common in our area) and you get a home equity line for $100k based on the higher value on your house. You spend the $100k and make payments on the home equity lines plus your mortgage of $225k. Everything's fine and good as long as the house can sell for the mortgage+the home equity line - in this case $325K. The problem came when housing values crashed the house is worth less than the mortgage and home equity line.....

DawnM
03-13-2011, 10:33 AM
Right, but even with a HELOC you have to pay for it monthly. We have had a HELOC for some home repairs before.

Dawn

Or they didn't officially take out equity but rather borrowed against the equity in their house by opening and using a home equity line of credit. The problem many ran into with those is that they were able to get line of credit on what their house was worth, which is not necessarily real equity. Let's say you paid $250k for a house and got a mortgage for $225k. Home values skyrocket and it later appraised for $500k (very common in our area) and you get a home equity line for $100k based on the higher value on your house. You spend the $100k and make payments on the home equity lines plus your mortgage of $225k. Everything's fine and good as long as the house can sell for the mortgage+the home equity line - in this case $325K. The problem came when housing values crashed the house is worth less than the mortgage and home equity line.....

PlutoPony
03-13-2011, 10:40 AM
Right, but even with a HELOC you have to pay for it monthly. We have had a HELOC for some home repairs before.

Dawn

Yes you do, but the monthly payment can be pretty low depending on how the HELOC is set up. Think our minimum payment is the amount of the interest each month, we don't have to pay any principal. Of course just paying interest would essentially mean an endless loan but if you want to ignore reality for a while, that's one way to do it :). Now if you took out a home equity loan it's a whole different game.... that's when you literally get cash out of your home (based on equity) but you do have a set monthly payment that does include principal payment. Don't know how long those are set up for payback - probably 5-10 years?

DawnM
03-13-2011, 11:07 AM
They charge only the interest every month? I am not quite following.

We paid ours off in one year and won't be taking one out again now that we have a different perspective on debt, but paying interest only would be awful.....you would never get it paid!

Dawn

Yes you do, but the monthly payment can be pretty low depending on how the HELOC is set up. Think our minimum payment is the amount of the interest each month, we don't have to pay any principal. Of course just paying interest would essentially mean an endless loan but if you want to ignore reality for a while, that's one way to do it :). Now if you took out a home equity loan it's a whole different game.... that's when you literally get cash out of your home (based on equity) but you do have a set monthly payment that does include principal payment. Don't know how long those are set up for payback - probably 5-10 years?

PlutoPony
03-13-2011, 12:17 PM
They charge only the interest every month? I am not quite following.
Dawn

The minimum payment required on ours is only the amount of interest incurred that month. You can pay as much over that as you want each month, and that amount goes to principal. So it's essentially up to you how much you pay and how much debt you carry month to month on the HELOC. It works well for some situations / people, not so well for others.

BSil
03-13-2011, 12:39 PM
This is actually a pretty good time to buy a first home. I wish I was buying for the first time now. Prices have clearly fallen, and interest rates have as well. It is a perfect set up for a new buyer.

No way would I look to assume someone's mortgage. It is very likely they bought the home for way more than it is worth today, and as a PP said you would be overpaying for that home.

I'd look around where I wanted to live, and be patient. Sellers really want to sell, and you can probably make some nice low-ball offers. The short sales are out there too. Banks do not want to hold these properties, so there are deals to be had there too.

The best advice you can get is to research, research, research. Half the trouble the housing market is in, is because folks just relied on a lender to tell them what to do because they didn't research anything. They found themselves in ARM loans, and other odd types of loans because they didn't do their homework, or apparently read anything they were signing.

I applaud you for trying to get some information before trying to make a large purchase. Had more Americans decided to do a little information gathering before singing a mortgage, we might not be in such a mess today. Not that there aren't a boatload of other factors contributing to our economic climate, but the poor housing market certainly hasn't helped anything.

surfgirl
03-13-2011, 01:36 PM
I am not in the position of being underwater on a mortgage, and/or being unemployed - but, REALLY, you can't see why someone would walk away form a home that was 100's of thousands underwater from what you paid for it vs. current worth????
I think there is a difference in believing people should be accountable, and being completely blind to reality

Because you signed a promissory note to the effect that you would be paying back what you borrowed from the bank. Your note didn't say, "I will pay this back if my house value stays greater than my loan balance." Many people were extremely happy to take the profit from their house, but the moment it became underwater, they ran away and claimed no responsibility.

People losing their houses because of severe medical problems, extended job loss, etc. may be in a situation where there truly is no other way out. I know situations where it became "convenient" to walk away, and so people did. THAT, I disagree with.

MrsPete
03-13-2011, 04:25 PM
We hear all the time about people walking away from their homes. Either they've lost their jobs, they "took out" money from their home assuming their home values would continue to rise, or for whatever reason.Here's the missing piece of the equation: When people "take out" money from their houses, what they're really doing is tapping into their equity (the portion of the house for which they've paid). They're taking a second mortgage.

So in your hypothetical situation, the homeowner already had a mortgage of 2K/month (we'll assume for 30 years) . . . now the second mortgage would add a separate, new financial obligation; for the 60K mentioned, it might add 700/month for 10 years -- though the specifics are a pure guess.

Another important point: The bank will never, never lend more than the house's worth. So if the worth has dropped to 450K, the bank will never lend more than that -- so if we assume this is a homeowner who's almost done with the mortgage, this would be possible. If the homeowner's been in the house only a couple years (and isn't ahead on the payments), this would never happen.

Finally, "taking money out of your house" is rarely a good choice. If you can't pay it back -- unforeseen job loss, etc. -- the bank can take your house, leaving you homeless. They charge only the interest every month? I am not quite following.In unusual situations, people may pay interest only. For example, once my grandparents bought a house from a neighbor who was about to lose it to foreclosure. They allowed her -- just out of kindness -- to stay there two months to save towards a rental. They never wanted the house for themselves; they kept it only a couple months as they spruced it up (new paint, carpet) and then resold it. They told the bank this upfront, and got an interest-only loan; it kept their costs down, though they made no headway towards paying off the principle. Because they only owned the house a total of maybe six months, it made sense.

spatenfloot
03-14-2011, 03:57 PM
If you are interested in houses that are being sold by the banks under short sales, just get approved for a mortgage of your own and place a bid.

Handbag Lady
03-14-2011, 04:34 PM
If you are interested in houses that are being sold by the banks under short sales, just get approved for a mortgage of your own and place a bid.



This is the problem. Where we need to live for work (and our work can't be found in many places) there just are no houses for sale for what we can afford. We could easily qualify for $250-300K, but there just are NO houses, even at short sale rates. We could probably find one in a gang-y area, but then that would give us an hour drive one-way to work. We're NOT going to do that again. We'll just continue to rent.

And I thank everyone. I've read and re-read and I'm learning a lot.

I still don't understand the people who walk away just because they are under water. When your house was worth $600,000 and you paid $X, you still have to pay $X even if your house is now worth $750,000 or $300,000. I am assuming that people figure ahead of time that they can afford their mortgage when they get it.

bellarella
03-14-2011, 04:48 PM
This is the problem. Where we need to live for work (and our work can't be found in many places) there just are no houses for sale for what we can afford. We could easily qualify for $250-300K, but there just are NO houses, even at short sale rates. We could probably find one in a gang-y area, but then that would give us an hour drive one-way to work. We're NOT going to do that again. We'll just continue to rent.

It sounds like it makes sense for you to rent. Buying a home is not always the best financial move. You might try to look long term to either find a way to increase your income, make yourself more mobile, or set aside money so that you can purchase a property in the future in another area.



I still don't understand the people who walk away just because they are under water. When your house was worth $600,000 and you paid $X, you still have to pay $X even if your house is now worth $750,000 or $300,000. I am assuming that people figure ahead of time that they can afford their mortgage when they get it.

I don't think anyone walks away because they are underwater. Being underwater is only a "paper loss" so long as you are living in your home.

People walk away because, while they could afford their mortgage when they took it out, circumstances have changed such that they no longer are able to. The two primary ones right now are job loss and interest only adjustable rate time periods coming to an end. Some people took out mortgages where they only had to pay interest for a certain number of years (often at a low adjustable rate)-- while they could afford that, they could not afford paying the principle and interest payments at the rate their mortgages adjusted to. For most people, though, I think it has been a case where they have lost their jobs and no longer have the income that they once had.

If one or both of you lost your jobs and your rent was no longer affordable, you could find a less expensive place to rent. If you have a mortgage, you can't just move if it becomes unaffordable. You need to sell your home first. But if you owe more on the mortgage than the house is now worth, your options are very few unless you have enough savings to cover the difference (assuming you can find someone to purchase it).

Walking away is generally not a choice for people -- it is basically the same as being foreclosed on, but without forceable removal by a court order (or sheriff).

Liberty Belle
03-14-2011, 05:22 PM
I don't think any mortgages are assumable any more.

As another poster said, a home for 600K would not have a 2k mortgage (I wish). Our home was purchased for around that in 2003, and we put 20% down and our payments at 5.125% are still over 3K (including taxes and homeowner insurance). And our home is worth more than we paid for it in 2003 but less than it was worth in 2005, but we would NEVER just walkaway. That is so wrong.

Sorry, I'm of the camp that you are responsible for your mortgage and you don't get to just walk away cause things get tough, especially if you made poor decisions.

I want to know where people got the idea that 1) they are entitled to a mortgage and 2) that they just can walk away if they don't like it?

And, no, NO ONE can just take over someone's payments. Where do people get these ideas (second thread this week) that someone can just pay on someone else's mortgage? A mortgage is a loan give to someone based on THEIR ability to pay and the value of the home. Where does this idea that banks should be grateful that someone is paying the mortgage come from?:confused3

Are people really that uneducated about LIFE? The bank wants to know that someone can make the payments and that's why they have to APPLY for a loan. I am just amazed.

So, unless I'm wrong, you just want to be able to take over the payments on a house and not make a downpayment? Wow. I really doubt you don't understand how real estate, mortgages and home ownership work.

Geez. A bit rude. :sad2: