I THINK MY HOME IS UNDERWATER

“I Think My Home is Underwater”

I did a mortgage for Barbara and Jimmy 5 years ago and they wanted to purchase another home, as their 2 bedroom ranch was just too small. They weren’t sure if they should sell or rent.

I had an appraiser do a comparable check for me, sure enough, the debt was slightly higher than the value. Their mortgage payment was $989 per month, but the home would rent for $1,000. I explained to them, the rental income could not be used in the qualifying process for another home. With this $989 debt and what a new mortgage payment would be, they didn’t qualify for the estimated new mortgage.

They were not willing to do a short sale, as they wanted to protect their credit. The decision was made to list their existing home and pay the shortfall. It took two weeks to find a buyer. We estimated they would need $16,000 as their shortfall, which they had.

They were able to find a home that met their family needs, which required $8,100 down. They had presented the offer with the seller paying their closing costs. We proceeded with a new mortgage, which went pretty well.

This past Thursday, both properties closed and they are moving into their new home this weekend.

Many families have to make decisions about selling a home that is underwater. None of these decisions are easy. Not everyone has the money to pay the difference as Barbara and Jimmy did.

Fewer Mortgages Fall Into ‘Underwater’ Status

By: Brad Finkelstein

Roughly 400,000 fewer U.S. homeowners saw their mortgage fall into underwater status in the second quarter, according to new figures compiled by Zillow through its "Negative Equity Report."

The research firm said the negative equity bucket improved by $42 billion during the three-month period to $1.15 trillion. (The comparison is to 1Q.)

There are now 15.3 million (31%) of homeowners with loan balances higher than their property is worth. In the first quarter, 15.7 million Americans or 31.4% of borrowers were considered underwater.

By age group, 48% of borrowers under 40 had an underwater loan. But underwater borrowers between 20 and 24 are more likely to be current on their mortgage, with 5.9% being 90 days or more past due, versus 9.2% for all underwater borrowers.

Zillow chief economist Stan Humphries said rising home values—caused by an inventory shortfall–was the primary driver in the reduction of underwater borrowers. "We hear about tight inventory in many markets, and it's clear where this is coming from,” he said.

“Negative equity is trapping young people in their homes, preventing them from selling,” he added. “These homes are likely the very starter homes potential first-time homebuyers are seeking.”

Earlier this week, Zillow reported home values increased in July on a month-to-month basis, marking eight months in a row. In that report, Humphries said tight inventory is leading to a return of multiple offers and bidding wars.

“Looking ahead, we expect to see less aggressive increases in the fall as rising values lift some would-be sellers out of negative equity, allowing them to place their homes on the market,” he said.

image: digitalart/freedigitalphotos.net