Couple financially trapped in home

Q. My wife and I purchased a one-bedroom condo in Anaheim at the peak of the market in 2006 for $370,000. We have a first mortgage with Bank of America for $346,000 and a silent second with CalHFA for 12,500. Since our purchase our home has decreased in value and is currently worth $230,000 to $250,000. We never imagined living here for more than three years. Now that three years have passed there is no light at the end of the tunnel. My wife and I want to start a family but find it extremely difficult to do in an 800-square-foot condo. We are struggling with the fact that we are paying a mortgage on a home that has dropped over 30% in value. We have stable jobs and good income. We have been able to save a large portion of money over the last three years. In 2011 our first mortgage adjusts to principal plus interest and increases by about $500 a month. What can we do? We do not want to face foreclosure, and I am reluctant to use our life savings to cover the negative equity on our home if we sell. Are there any new programs we can work on with our lender to get out of this home?

A. I must say I feel for you and while I commend you for wanting to meet ethically the obligations you signed up for, it’s difficult to justify economically. It may be 2015 before your property has any equity in it at all, and it might be 2020 before it is worth $370,000 again.

Assuming for the moment that you are willing to hang in there for such an extended period of time, you can rent that property and buy another home to meet your needs. It comes with conditions. Other people have done this and when they get the loan on their new home, they just walked away from the old home and the old loan. You can imagine that the lenders aren’t thrilled with this. So here are the rules.

Either you prove that you have at least 30% equity in the old home that will become an investment property. You obviously cannot do that so the other way to is to be able to qualify for the loan payment, taxes, and insurance or HOA dues on BOTH properties without credit for any rental income.

You say you have saved a sizeable amount of money so perhaps you have sufficient income to do this. I hope so. Good luck.

AlmostDesperate in Mission Viejo asks:
Q. I have a 1st mortgage with a balance of about $165,000 and rate of 5.25% fixed with Bank of America. The loan is a 20-year loan with about 14 years left to pay. I also have a line of credit balance (interest only) of about $245,000 with an adjustable interest rate (currently 2.99%) with Citibank. My home in Mission Viejo has a current value of about $600,000. I am 51 years old, currently unemployed and feeling the financial pinch. Am I a candidate to refinance to obtain a lower overall payment? Is it a good idea? I have made all my payments and maintain a fico credit score above 750.

A. With some prospects for rising interest rates in the next few years, it would make sense to get that adjustable line of credit fixed by combining the 1st and 2nd into a new fixed-rate loan. However, because of your unemployed status you will not be able to do that now. You have to have the income to qualify for the loan. With rates low right now you are in reasonable shape but I would move to refinance as soon as you find new employment. Note that the monthly payment on the proposed loan would actually increase. The line of credit is now interest-only while the new loan would, almost surely, be fully amortizing.

http://mortgage.freedomblogging.com/

Posted via web from The Newport Beach Lifestyle

Can business credit be used for home buying?

Tonya in Aliso Viejo:
Q. Is it possible to use a business credit report to purchase a home? I would use a combination of my own money and a business credit loan.

A. All lenders you would want to do business with will require a personal credit report. The only exceptions are to foreign nationals who simply do not have a U.S. credit history. Our industry is so paranoid that when you say you don’t want to provide it, they would wonder what you were hiding. That would make them want it all the more.

If the reason you do not want to show them your personal credit report is derogatory items that lowered your score, you just can’t dodge that. If that’s the case, you need to engage in a credit rehabilitation program. You can do this on your own. Learn more on the Internet. My favorite, for whom I also write, is www.credit.com.

The rules on using business funds are more complex. Although the cash is from the business, you are borrowing the down payment which has always been a “no-no.” To become a homeowner you should have shown that you have the capability to save money, as demonstrated by your down payment.

If your business is strong enough, you can pay yourself a dividend or more salary and use that for a down payment but it should be profits that you have already made. If there is not enough free cash flow to pay you reasonable earnings to use for qualifying and enough cash for a down payment, then you probably should not be buying a house until it is.

Steve in Westminster asks:
Q. I am 50 years old, married and have a 15-year-old son. We own three properties; two are rentals with total rent collection at $3,700 per month. We currently owe $198,000 on my mortgage, which has an interest rate of 5.25% and payment of $1,104 monthly. It will be paid off in February 2039. (We bought it last year). That is the only payment we have. Should I pay off the loan or am I getting any tax write off on this mortgage? I have assets of about $300,000 and am planning to put $150,000 down on a house. The purchase price is $400,000. I want to use it as another rental property. Any suggestions?

A. Your affairs are complicated enough it makes sense to do a spreadsheet and look at the entire plan for the next 15 years until you are 65. But I hear you asking if you should do an accelerated payoff on the loan on your primary residence. Assuming you have figured out how to pay for your son’s education, it does make sense to devote some extra cash so as to pay off your home. When you retire you will have no monthly mortgage payment obligation to pay on your home with your presumably reduced income. If you are comfortable income-wise rates are such that it is actually advantageous to refinancing into a 15-year loan now. I wouldn’t worry about tax considerations. Who knows what the tax laws or rates will be then.

I’m sure that you will be able to buy another income property at an attractive price and with a large down payment, and you ought to be able to start out with a positive cash flow.

http://mortgage.freedomblogging.com/

Posted via web from The Newport Beach Lifestyle