Mortgage Brainiacs - Answer me this please

[Handbag Lady]

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]

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]

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]

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]

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?

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

They have to have taken out equity somehow, meaning the payments did go up.

We SOLD a house in SoCal in 2005!~

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]

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]

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]

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?