Sale and Mortgage advice....pls help !!! (Sterling: real estate, housing, rent)

[uzee]

Hi,
Just found this forum yesterday, felt good to read as I'm in the same boat as most of you. I feel stuck because of the house otherwise I would've definitely moved out.
Here's a couple questions I have.
1. I recently met a realtor at a friend's house who mentioned something similar to a short sale but not quite.
According to him, these days in MI, if you're short of the cash to close, because of the current downtrend of home values, say about 15-20k, the bank will eat that cost... meaning they will waive that just so they can avoid foreclosure or someone just abandoning the property.. how true is that??


2. We bought our house in 2005 at $225k in Sterling Hts, I had put in 10% and took out 2 mortgages for 80% and 10%. This is our first house so I really dont know enough about mortgages. I currently have a 3 yr ARM at 5.725%. A friend suggested that if I refinance, I might be able to consolidate my 2 loans into one primary mortgage due to an appraisal of lets say $250k, the only benefit would be that the 2nd mortgage I have is at a higher rate (8.05%). Any other benefits...?
I also have a 11k student loan so I was thinking, would it be a good idea to refinance at this time and include my student loan ( I dont know what the correct term is, but basically in refinancing I was told there is a way to acquire cash also, which is basically just coming out of your existing equity).
Would that be a good idea...? how will that affect if I miraculously find a buyer say next year...?

Wow!! It actually took me quite a while to try and explain myself there My apologies for the length and details and will truly appreciate your advice and suggestions...

Thanks to all
uzee.

[michiganbob]

Let me preface this by saying I am not a real estate expert or a lawyer, but have been following trends in housing for the past year or so.

First: if you are having trouble with your mortgage you should be talking to your current mortgage company and/or a lawyer. And the sooner the better.

Second: I have read that if the mortgage company "eats" the difference in what you owe and what they will take on the house, the IRS is currently counting that as income. So if you "save" $20,000 on some kind of short sale, you will have to pay taxes on that amount. Again, talk to a lawyer or accountant before you make any kind of deal that seems to be too good to be true. There is some talk that the Bush administration is asking that this rule be set aside for homeowners in distress, but I cannot say if that is true or not. You should also know that many mortgage companies are unwilling to do short sales for fear that they won't be able to sell the house and will be stuck carrying it for months on their books.

Third: As far as consolidating your mortgage and other debt . . . I think you are being optimistic about the appraisal on a house that might have been bought at the peak of the market in 2005. Look around at the houses that have SOLD in your neighborhood in the past month. Not how much sellers are asking, or how much they sold for six months or a year ago. NOW. Or, pay for a third party appraisel, but don't be surprised if it comes back that the house is worth less than what you currently owe, even after you 10% down . . . that's just the reality in most Michigan markets today.

Some housing markets are holding up well, and some homes are selling in the right neighborhoods at the right price . . . but not many. And, you have passed the primary buying season (summer) for most family neighborhoods.

Wish I had better advice for you . . .

[magellan]

I'm with Michiganbob (for once) on this one. You're being overly optimistic thinking that your home will appraise for more than what you paid in 2005. It's just not happening.

What you're talking about is getting a home equity line of credit or a home equity loan to pay off your college loan. The upside is that you might get a better interest rate than your college loan interest rate, and you may have tax deductions for the interest you pay. Again, the problem is is that you may not qualify for a refinance when the time comes in 2008 when your ARM resets (or even today), because you may not get the appraisal amount that you need. Have you looked at your loan documents to see what the interest rate might jump to? Is it a 3/1 ARM, where the first three years are fixed, the 4th year jumps up a bit, and then the 5th year and beyond are variable?