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I've been saving a down payment and watching the market and really want to jump in but I'm worried... what if I buy a house today for say, 300k and like 6 mos. later, I lose my job?
I've got several months' income set aside for just this reason, would probably get some kind of severance package, and could probably get a loan from a family member but at some point, I might just not be able to make ends meet. In that case I'd want to sell my house and rent to get back on my feet. But I'm worried- what if, due to the housing prices declining, my house is then only worth say 280k? Now if I sell it and pay back the bank, I still owe 20k!
How does that work exactly? Does the bank even let me do that (sell for a price less than what I still owe?) Is that what a short-sale is? Obviously I'd still owe that 20k so do I just then make payments like I was on my mortage? Does it keep the same terms (30 yrs at whatever percent I got my original mortage for?)
I know that some of my concern is just being a first-time homebuyer and realizing the gravity of taking a loan that big but I want to make sure I understand fully what I'm getting into. Maybe it's just better to wait and rent till things settle out w/ the housing market so I'm not so worried about the value of my home dropping so quickly... Thanks for taking the time to answer what I'm pretty sure are basic questions.
I've been saving a down payment and watching the market and really want to jump in but I'm worried... what if I buy a house today for say, 300k and like 6 mos. later, I lose my job?
I've got several months' income set aside for just this reason, would probably get some kind of severance package, and could probably get a loan from a family member but at some point, I might just not be able to make ends meet. In that case I'd want to sell my house and rent to get back on my feet. But I'm worried- what if, due to the housing prices declining, my house is then only worth say 280k? Now if I sell it and pay back the bank, I still owe 20k!
How does that work exactly? Does the bank even let me do that (sell for a price less than what I still owe?) Is that what a short-sale is? Obviously I'd still owe that 20k so do I just then make payments like I was on my mortage? Does it keep the same terms (30 yrs at whatever percent I got my original mortage for?)
I know that some of my concern is just being a first-time homebuyer and realizing the gravity of taking a loan that big but I want to make sure I understand fully what I'm getting into. Maybe it's just better to wait and rent till things settle out w/ the housing market so I'm not so worried about the value of my home dropping so quickly... Thanks for taking the time to answer what I'm pretty sure are basic questions.
Wow, lots of good healthy fears there, as in any situation in life there are NO guarantees that things will work out. Even without this recession people still get sick, have accidents, lose jobs etc.. in life it is about taking risks with every decision that we make. You have to decide if the risk is worth it.
You say you have several months of money set aside that is great, better still would be six months of savings set aside for an emergency.
You are right about the values declining in my area of Florida homes are declining thousands of dollars each month. For anyone to purchase right now even a bank owned home there is risk involved.
I am not sure where you live but my goodness, 300K for a first home?
I am 45 years old and have yet to spend that much, in fact I have no doubt in my mind that I will ever spend that much on a home.
I think people have forgotten that before the bubble homes that were priced in that range were really exclusive to the rich. The housing bubble changed peoples mind-sets and people started to think that spending 300,000 for a home was the "new norm".
The fact is 300,000 is still a lot of money and that will not change.
As far as a short sale, if you can prove your insolvency and sell for less than you owe they will forgive the money and you do not have to pay it back. It prevents a bank foreclosure which would stay on your credit report for 7 years.
If you do a short sale the delinquent payments will show on your report and still hurt your credit score very much.
The best thing to do at this time is buy a REO home ( bank owned) do your homework, MAKE sure that the price you are paying reflects a
PRE-HOUSING BUBBLE PRICE. At that point all you can do is hope for the best that home values do not dip even below that.
In some areas it is not looking like that is what is happening as they are falling below that.
Like I said I have no idea where you live, all of the coastal areas are the areas that have been hurt the most and continue to take the hardest hits as they are the areas that experienced the biggest run up in prices.
Best thing to do is to read thehousingbubbleblog.com every day and learn as much as you can about all of this.
It is nice to see someone posting and reflecting and weighing all of the odds.
There is an attractive 8,000 credit being offered to first time home owners which is free money that doesn't need to be paid back. It could be an additional padding for your emergency savings stash.
Best of luck and keep reading and learning, don't rush into anything as the prices of homes are NOT going to go back up for a long time. Don't get stuck buying and over paying. That would be the worst thing you could do.
P.S.
I am in the market myself and just lost out on a REO that just sold for 230K that went for 450,000 during the peak of the bubble. I was not even upset over not winning this home as there are plenty more like it. The REO deals are really only just getting started in my neck of Florida.
Just for kicks check out Port St lucie Florida they are at 50% +off of their peak with no end in site yet from a bottom.
Wow, thank you for your thoughtful reply! Gosh, I thought 300k was normal but I'm in Seattle. I read online that we were late in reaching the peak of the bubble and are now late in the prices coming back down so maybe that explains why the prices are so high still.
I would hope I wouldn't have to show insolvency if I were to lose my job and run through my savings. In fact, selling the house would be my way of avoiding insolvency. All these years I've been saving I thought that you couldn't go wrong buying a house b/c it only goes up in value. So I figured if I bought something and had to sell for some reason, I could just sell the house, pay off the mortgage and maybe even have some cash to handle whatever emergency arose (lost job, terrible accident involving really high medical bills, what have you).
So is it not possible to sell a home for less than you owe and simply work out a payment plan to pay back the bank then?
Thanks for the blog link and also suggestion to use the tax credit as padding to the emergency fund. Good ideas. I'm thinking "don't rush" is the best advice right now. I was getting excited to see prices drop but WOW 50% off peak in parts of Florida!?! In Seattle, I'm reading online about how if you can 20-30% off peak, that's considered good, I can't even imagine 50% off!
Wow, lots of good healthy fears there, as in any situation in life there are NO guarantees that things will work out. Even without this recession people still get sick, have accidents, lose jobs etc.. in life it is about taking risks with every decision that we make. You have to decide if the risk is worth it.
You say you have several months of money set aside that is great, better still would be six months of savings set aside for an emergency.
You are right about the values declining in my area of Florida homes are declining thousands of dollars each month. For anyone to purchase right now even a bank owned home there is risk involved.
I am not sure where you live but my goodness, 300K for a first home?
I am 45 years old and have yet to spend that much, in fact I have no doubt in my mind that I will ever spend that much on a home.
I think people have forgotten that before the bubble homes that were priced in that range were really exclusive to the rich. The housing bubble changed peoples mind-sets and people started to think that spending 300,000 for a home was the "new norm".
The fact is 300,000 is still a lot of money and that will not change.
As far as a short sale, if you can prove your insolvency and sell for less than you owe they will forgive the money and you do not have to pay it back. It prevents a bank foreclosure which would stay on your credit report for 7 years.
If you do a short sale the delinquent payments will show on your report and still hurt your credit score very much.
The best thing to do at this time is buy a REO home ( bank owned) do your homework, MAKE sure that the price you are paying reflects a
PRE-HOUSING BUBBLE PRICE. At that point all you can do is hope for the best that home values do not dip even below that.
In some areas it is not looking like that is what is happening as they are falling below that.
Like I said I have no idea where you live, all of the coastal areas are the areas that have been hurt the most and continue to take the hardest hits as they are the areas that experienced the biggest run up in prices.
Best thing to do is to read thehousingbubbleblog.com every day and learn as much as you can about all of this.
It is nice to see someone posting and reflecting and weighing all of the odds.
There is an attractive 8,000 credit being offered to first time home owners which is free money that doesn't need to be paid back. It could be an additional padding for your emergency savings stash.
Best of luck and keep reading and learning, don't rush into anything as the prices of homes are NOT going to go back up for a long time. Don't get stuck buying and over paying. That would be the worst thing you could do.
P.S.
I am in the market myself and just lost out on a REO that just sold for 230K that went for 450,000 during the peak of the bubble. I was not even upset over not winning this home as there are plenty more like it. The REO deals are really only just getting started in my neck of Florida.
Just for kicks check out Port St lucie Florida they are at 50% +off of their peak with no end in site yet from a bottom.
Have a great evening.
I enjoyed reading your post. Thanks. I had a question about the above, bolded part. How do people go about finding all of the REOs in their area of choice? There are so many places where one can find "foreclosure lists" and so on - for a fee. I did learn that Bank of America has a link to foreclosures on their website. Do you know of other banks that do this, or how do you shop for these bank owned properties at a discount/sale rate? Thanks.
Wow, thank you for your thoughtful reply! Gosh, I thought 300k was normal but I'm in Seattle. I read online that we were late in reaching the peak of the bubble and are now late in the prices coming back down so maybe that explains why the prices are so high still.
I would hope I wouldn't have to show insolvency if I were to lose my job and run through my savings. In fact, selling the house would be my way of avoiding insolvency. All these years I've been saving I thought that you couldn't go wrong buying a house b/c it only goes up in value. So I figured if I bought something and had to sell for some reason, I could just sell the house, pay off the mortgage and maybe even have some cash to handle whatever emergency arose (lost job, terrible accident involving really high medical bills, what have you).
So is it not possible to sell a home for less than you owe and simply work out a payment plan to pay back the bank then?
Thanks for the blog link and also suggestion to use the tax credit as padding to the emergency fund. Good ideas. I'm thinking "don't rush" is the best advice right now. I was getting excited to see prices drop but WOW 50% off peak in parts of Florida!?! In Seattle, I'm reading online about how if you can 20-30% off peak, that's considered good, I can't even imagine 50% off!
I hear ya...I cant even begin to tell you how much I love bargain hunting...who would have ever thought we'd get a chance to do it on our house hunting excursions, right?
I understand your fears because we are in the same position as you are but just another step ahead. We have a house under contract right now. Its our perfect house, but we have all of the fears you have described. Its also our first house, though. I am not sure if our fears are just cold feet, or if its the economy, the housing market, the new administration, or what - its likely a combination of everything going on around us right now that concerns our money. Its creating undue stress. Every night I have to tell myself none of the "what ifs" are going to happen and that if any of them do, life wont end, it will just have to be reorganized.
Same here ... under contract on our first home ... our worry is the same ... we think we got our home for a good price but after putting down 25%, if the value drops 20% in the next year, we are not in a great position. However I ran the numbers and made sure I could afford the home well under my current gross salary for some time to come and will keep about a year in reserve. I think thats about all we can do. No one knows where the bottom is and all indications are that this is not the bottom. However once you find the perfect house for you that you can afford, price increases over the next 2 years wont matter much if you are planning on staying in the house for 10 years or more. At this point I would NOT buy a house unless you plan on living there for at leat 5-10 years.
Same here ... under contract on our first home ... our worry is the same ... we think we got our home for a good price but after putting down 25%, if the value drops 20% in the next year, we are not in a great position. However I ran the numbers and made sure I could afford the home well under my current gross salary for some time to come and will keep about a year in reserve. I think thats about all we can do. No one knows where the bottom is and all indications are that this is not the bottom. However once you find the perfect house for you that you can afford, price increases over the next 2 years wont matter much if you are planning on staying in the house for 10 years or more. At this point I would NOT buy a house unless you plan on living there for at leat 5-10 years.
Exactly! We think we found a good deal on this home but the "deal" didnt even factor into it. We LOVE the home, location, etc. We can see ourselves in that home as golden oldies in our electric lift-off chairs marveling at the grandkids. However, remaining fiscally stable means maintaining an income to maintain that mortgage and outflow of funds and no one seems to be sure of things anymore so its creepy! Oh well...we love camping too - so worst case scenario ...
"So is it not possible to sell a home for less than you owe and simply work out a payment plan to pay back the bank then? "
That part actually made me smile and think "wow, there really are people left in the world that believe that a contract is a binding agreement and a handshake is as good as ones word."
I am sure that your idea would be possible if you were dealing with a smaller bank or credit union.
It is not necessary though as the short sale is designed to forgive the difference. In just the last year or so banks stopped issuing a 1099C tax form in which that forgiven amount would have had to be claimed as earned income and taxes would have to have been paid.
That recently changed and now no longer applies.
So short sales have really become the new "norm" in home sales and it almost seems odd to come across a seller that is not in that position in my neck of the woods. Most people dipped into that fake equity and extracted as much as they could.
Some got lucky and were able to make car, boat, and other luxury item purchases which they are now able to keep while they negotiate that short sale. In the long run short of messing up their credit they get to keep these valuable items they would not normally have had. Remember car sales and other big ticket items also had their hay days of sales during the bubble.
In my area there are so many Hummers parked in front of these beautiful homes that are now struggling to make their ARM payments. Hummers are not selling anymore so to try to even unload one is almost impossible.
It is a depressing site to see where I live, so many empty homes, weeds growing up all around, homes covered in wasps nests, green pools and just a plain ugly mess.
I think the new norm is going green and fuel economy, smaller homes, energy efficient and modestly made.
Those high flying days are really over.
I think you are very wise and have a good head on your shoulders to have considered all of those fears and valid thoughts.
Just do that homework and find out what homes were really selling for pre-bubble and stick with that.
If you wish to add in a nominal 3% YOY appreciation for those lost years that could be calculated into the price but no more than that. In all reality homes should appreciate 3% YOY. In Florida values were flat for 10 years before the bubble.
Best of luck I think you are on the right track no doubt.
I enjoyed reading your post. Thanks. I had a question about the above, bolded part. How do people go about finding all of the REOs in their area of choice? There are so many places where one can find "foreclosure lists" and so on - for a fee. I did learn that Bank of America has a link to foreclosures on their website. Do you know of other banks that do this, or how do you shop for these bank owned properties at a discount/sale rate? Thanks.
Thank you very much, I have been studying this so long I feel that I have a self proclaimed PHD in Housing bubble.
For me my Tax appraisers office and clerk and comptrollers office list all of the homes that are either Lis Pendens or REO status and the names of the owner. In my area this info is publicly available and free to see.
I also run searches into the sales area of the tax appraisers office to see homes that have sold in my county in the last six months:
What I also do is drive around areas that I like and write down the address of an empty looking home and do the searches my self. I am able for free to find out if the home is bank owned (REO)
Once I have the name of the owner I am able to go to this site and see if the property is REO with a judgment or LP ( lis pendens, which is pre foreclosure)
I then use zillow.com to see an ariel view and street view, I also then run the address in google and sometimes will pull up the actual listing.
When I do it this way I get a jump start on the process and find homes before they are listed with a bank. You can deal with a lot of them directly or they will lead you in the right direction.
You will find that the ones that are priced fairly sell very fast.
I have copy and pasted some for you to see, as you can see all of them sold for 50% off of peak and all of these homes were beautiful.
I have tracked many homes and can put together my own comps very easy.
Here is an example of some of the homes that I have tracked. You can see the new selling price and that all of the homes were REO or short sale properties.
By doing this I am able to avoid using realtytrac and having to pay 50.00 per month:
I then present these comps with my offer to prove to unrealistic sellers what is actually selling in the area and for how much. This usually gets a seller to wake up to see what is actually happening with the market.
I have another offer on a home right now that is not in LP or REO just someone who purchased pre bubble and didn't extract all of the fake equity they thought they had. I refuse to deal with anyone that is living in dream land.
Those days are OVER.
I hope this helps, some counties offer this service for free and others charge.
The news paper also lists all public notices which includes sales on the court house steps. ( don't buy from this or you may end up with all of the liens etc...) a bank can not sell you a home that has liens on it.
It is time consuming but has become my passion over the last four years of my research, best of luck.
start with history. (the amounts ar not in us dollars. sory for not calvulating the difrence. )
some years back i bought a country house for 380 K here in Norway. this had to be reneved so i loaned 420 K.
started renovating. but this went slow. so i aimed on living while renovating.
then after 6 years out of the blue i lost my job. 6 years long time i know.
but when i lost my job the house prices in this are also hited a all time low.
so selling my house would probly not help paying my loans.
so i had to use the credit i had build up previsly and pay house loand and living xspenses with mastercard and other cc's. this is realy bad.
lukly i managed to get temp jobs. week by week basis. but this is poor payd and inregulary pay time.
realy hard to keep up with.
it took me 5 months to geet a propper job. but luckly stil holding my house.but my credit loans where sky high.
first year in new job finished now. and i went to my bank. and refinanced the credit loans in to my house. lukly they accepted this coz of my previus situation was what they called an accepted situation coz of loosin gmy job was not under my controll. and since my hous value has jumped from 380 000 to 1 000 000. (NKR) (the year after i got the new job the house price jumped up again)
but they said i shud have go to them rather than using credit cards.
sorry if i sceared u now. but what i meen is that u shud think of this.
perhaps go down on house pirce. save and be cearfuel. (like it seems u have)
buy house. and if u geet work issues. talk with the bank imidetly and find a way.
most banks want a solution with u. that is also best for them. espesaly if houses go down in price.
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