In most cases banks won't lend you money right after such a dramatic financial default, at least not for a decent rate. The market will probably not move too much in any direction for the next 12 months. So you could rent for a year until your lending power is better.
Hope this helps.
It seems we are missing some information.
You are asking about a loan for a new home but it seems you are not dealing with your current home. You need to work out something with the bank to resolve your current home's situation - short sale, deed in lieu, or it will eventually be foreclosed.
For your future housing situation you might want to consider renting. I would recommend to sit wit your accountant and agent to work the numbers.
My apologies I had 401(k) loans and hardship withdrawals confused in my head - then again it really isn't my area of expertise which is why I advised you talk to your accountant on the issue. There is still some risk involved that you may or may not be considering:
Ultimately you are going to do whatever you want to do, so I'll cut to the chase on my opinion on the matter. I think you (as most consumers do) want a quick and easy fix to getting out of your current upside down mortgage and the associated payment and you want to hop into another fire sale property that you own without facing any of the repercussions of your decision. You see clearance sale prices on everything around you and are trying to game the system by forcing someone else to take the loss on your current home so that you can run over and buy a different â€œon saleâ€ house.
Look, as someone who negotiates short sales for a living I have no love loss for the banks and how they treat people sometimes; but for you to sit there and tell us that you have a pile of money that you are willing to spend on real estate (just not your upside-down house) and that you are deserving of a short sale is sad. Why should the bank help you out when we are all working on files where people are spending their last dime keeping their houses current and are asking for the same help? Worse yet, it appears that you are willing to just let the place go and then run off to buy another with your other money.
I've heard consumers call it a "business decision" or say that "they need to do what is right financially for their family." You told me that you wouldn't end up with the "same thing - not even close." Really its all just cover for I want to take the easy way out and have someone else pay for my misfortune or bad financial straights.
I'm not an old guy but I remember a time when people honored the contracts that they entered into. Not because it was convenient or it was easy, but because it was the "right" thing to do. What was right used to be right regardless of circumstance. Now consumers have decided that they deserve a do-over any time they make a bad deal, but oh yeah - it can't cost them anything in the process.
I'm not questioning your ethics or you honor - yet. Youâ€™re in a financial pinch and youâ€™re scared, my hope was that you would realize that if youâ€™re a willing to spend â€œxâ€ on â€œyâ€ that you should also be willing to spend â€œxâ€ on â€œzâ€. Not because itâ€™s easy or because it would be a great financial deal, but because you are a person of integrity and you agreed to do so.
licensed MN Broker
Coldwell Banker Burnet
I wasn't suggesting that you use your retirement to keep your current home. In fact I think pulling money from your 401(k) was an awful idea because of the penalties.
I was trying to understand why if you were willing to pull $70k (assuming a $100k purchase price, which would be on the low end) from your 401(k) to buy a new house, why you wouldn't be willing to pull $70k from your 401(k) to make monthly payment on your current mortgage. Assuming that you had a $2,000 mortgage payment, that amount of money would float you for 35 months. I have to assume that your wife would be able to find another job in the next 3 years. In the end you end up with the same thing - $70k missing from your retirment account and a house you have to make payments on.
licensed MN Broker
Coldwell Banker Burnet
First, let me start with short sales and add something no one else has mentioned. In a short sale, if it is not PRE-APPROVED by the bank, then they have every legal right to go after you for a deficiency judgment. That is the amount of difference between what they actually walk away with after all other liens are paid and what you actually owed. Pre-approved short sales, however, the bank has already, pretty much, agreed to take less and forego the deficiency judgment. However, banks do not pre-approve short sales unless you;re between 3 and 6 months in arrears. After that you're in the foreclosure process; it seems you are aware of this and already there.
As for getting a loan with THAT MUCH down payment after a foreclosure, it will, indeed, be a very difficult process but there are banks out there that will do it, regardless of your credit and the foreclosure; the rate, of course, will be unbearable but can be refinanced EVENTUALLY.
Also, most banks won't give you the short sale with that kind of asset in your 401k. But on that particular aspect I am foggy at best, so consult your attorney regarding that.
One other route I did not see mentioned (but I did not read every response) is doing what is called "deed in lieu of foreclosure." This is the process in which you simply hand over the keys to the house and sign the deed over to the bank and walk away. This, too, should be discussed with your attorney but it is very effective and can save your credit.
RENT for a while, rebuild and renew, then revisit the home buying issue at a later date.
I hope this helps,
White Plains, NY
Lenders may not get a deficiency judgment if they foreclose on under a trust deed. They almost always foreclose under a trust deed. A judicial foreclosure will allow a deficiency agreement but I have never seen an institutional lender foreclose using one. I have seen private lenders doing so.
The problem is if the first forecloses and there is a 2nd, the 2nd now rolls into personal debt. This debt many times is sold to a unrelenting collection company who will do things like garnish wages and obtain judgments, not to mention phone 5 or 6 calls every day . This then forces people into chapter 7 if they still qualify for it. Under current laws most homeowners do not qualify for a chapter 7 due to the maximum income requirement.
Under a short sale agreement, the 2nd would be deemed satisfied as part of the short sale. So at least if there is a 2nd mortgage a short sale is a much better option. It does make the short sale much more complex if there is a 2nd mortgage but it really is worth it.
I read your reply further down, this does appear to be a strategic default situation, your "throwing good money after bad" comment Making homes affordable, HAFA/HAMP assume you want to stay put and get a better rate to make the current payments doable. Doesnt sound like you want to stay even if you had a loan mod, you want to move on and buy something else thats a bargain with 401k money. Thats strategic default.
You can make a short sale work at a price that will sell and be prepared to bring some money to the table. A short sale is not designed to limit loss for a seller. I dont think you can get a mortgage for 3 years with a short sale, and 5 years-8 with a foreclosure. So rent!
I would call short sale agents who specialize in Minneapolis.
I would recommend you request the following in writing:
# of Active Short Sales
# of Closed Short Sales
At least 20 References from Short Sale Sellers
# of short sales closed with your mortgage company
The more short sales the agent has closed the more likely they will get you approved for a government short sale program.
I would address your current house before deciding to buy.
Also, if you have more than one mortgage I would strongly encourage consulting an attorney before buying. I have seen 2nd mortgage companies obtain judgements after the 6 month redemption.
Don't give up on the Short Sale; there are agents out there that can get your short sale approved!
Can you get a new mortgage?
I highly doubt it.
(my own question)
Should you get a new mortgage, even if you can?
I advise against it.
Should you use your 401K to put 70% down on a new home??
The last thing, imo, you shoud be thinking of now is taking on added debt when your current home is in foreclosure.
I am not being judgemental - quite the contrary - I just think it makes better sense for you to rent at this time......until your wife gets a new job, until you save up some money in addition to your 401K ......and get back on your feet financially.
Adding on new debt is not the prudent thing to do.
Renting may be your only option, even if it's not what you want to do.
I just sat down and discussed your situation with my loan officer and have quite a bit of wisdom for you in this matter. As Christopher mentioned below, I would not give up on the short sale situation. This puts you in a much better negotiating situation at a later juncture and although I cannot promise what the rules will be in a year or 3 years, I can tell you what the unwritten "plan" is that we are hearing. And it is NOT good for foreclosure victims.
I would highly recommend giving me a call when you have about 15 minutes to talk about this. There is a LOT at stake here for you and your wife. Don't waste any more time on wondering. You can do a lot and do it quickly and I think you would be pleased with the possibilities. I unfortunately do not have 45 minutes to type it all out here for you. I can type 70+ wpm . . . but I can talk at about 600 with sudden bursts of 1000 wpm!
I look forward to hearing from you, Weinerdog,
You may also try a load modification or you could certaily bring your payments current with 401k funds and hang on to it. There are many options. Find a great agent and get educated before making a decision but do it quickly before the foreclosure sale takes place.
You have gotten tons of information from a lot of us. Bottom line is, it seems that a great plan for you would be to short sell your home, renting for at least 3 years and then purchasing a new home. During the 3 years you are renting you are saving money like crazy, do not touch your retirment funds and keep your credit in good standing so that you are ready to take advantage of the lower pricing when the time comes for you to buy a new home.
One thing to remember, in life you sometimes have to take one step back to move forward (in a new direction); rather than continue to move forward in the wrong one with lots more headaches.
If you are 62 years old or older, you can purchase a home with only 50% down (or LESS if older) and you will not have another mortgage payment for life. Look into a reverse mortgage purchase if you fall into the correct age bracket. Do not pull hard-earned, well-saved retirement money out of your 401K to 'save' a home that's already underwater. When it comes time to retire, it's all about you, not the mortgage payment! I hope this is useful information.
This is a moral hazard area. One can buy a neighbors house cheaper than what is owed on current home. Just because someone can, does that mean they should? And just because someone can, does that mean it should be consequence free? Not much different than trading your wife of 20 years for a new one after you realize wife #1 isnt getting as big an inheritance as potential wife #2.
I am surprised you say settlement at closing is it and youre done. There are two issues at hand, one is the satisfaction and the other is the release. Sure the bank will grant a release but the hard part is getting the satisfaction letter. That is why i ask someone from MN to address if it is a recourse state.
If you read down this question has been overanswered many times and your answer was wierd. Wienerdog is wanting to buy and bail, doesnt want to throw good money after bad, read from the bottom up.
You could use a private money loan and put down 20%- 40%. Of course the more you put doen the
If you have that much to put down you may want to use some of it to cure your current loan and then short sale or modify it instead of foreclosing.
A short sale is much better than a foreclosure.. If you have this much money down you may want to consider this to save your credit.
One last thing to think of.
We have consumer protection laws FDCPA and FCRA, if you decide to cure (pay) your delinquency) you could then dispute the foreclosure on the credit and possibly get it removed.
Best of luck,
You are absolutely correct, more lenders will not give you a loan after they find out you had gone through the process of a short sale. If you successfully short sale your home, you will need to wait at least 3 years to apply for a new FHA loan and 7 years if it is conventional. If you go through a foreclosure the time frame to wait will be much longer, so I will suggest you try to short sale it again and hire an agent who will price it accordingly to the market conditions to secure an offer. However, you bring a good point, if you have 70% to put down on a new home, you may want to consider purchasing a smaller home, all cash if you have that much saved and can buy something you like with your money.
Short sales aren't selling well even if the bank grants them, because way fewer people can get financed on a new loan. Subject to works because it is owner financing.
Sellling subject to will not harm your credit. It can produce a buyer quickly, sometimes in days. It can be done by yourself but it costs you nothing to let us handle it for you. Plus then you have access to a database with over 10,000 buyers ready willing and able buy subject to.
The drawback to subject to is that your buyer takes over the payments on your loan, but you remain responsible for the loan. Which means if the buyer stops paying you get the home back, but you still need to make the payments, at least until a new buyer can be put into the home. That sounds scary, but instead of losing by taking a 70% downpayment out of your retirement, you would only have to take a few payments out of your cash....not 70%! And that is only if your buyer defaulted.
With the crash in the economy there are many good people out there who used to qualify but now that the banks have raised their qualifications, they no longer qualify. Or maybe, as with your wife, they used to qualify but no longer do EVEN THOUGH they have gotten a new job, they don't qualify because it's a new job.
These people are ready willing and able to buy a home subject to. They can afford it just fine. They could not have bought your home on a short sale because, like you now, they do not qualify for a loan. When they can qualify later, they will refinance. If your loan is FHA, in five years they may qualify to simply take over the loan, not just the payments... so then you would be off the hook for the loan at that time.
I'm not a lawyer or an agent, so this isn't legal advice, but it seems to me to be a better choice in a situation like yours, to take a few payments to hold in reserve in case you need them, instead of taking this huge hit to your 401k. And then selling the home subject to instead of having it foreclosed.
Some people will try to scare you out of selling subject to by stating the bank can call your loan due. But the facts are that if payments are being made the bank doesn't want to get the home back, and the national law firm we use has never had a bank do that and, in fact, gets an agreement with the bank when the deal is going to be done that the bank won't do that. That's another reason why it's good doing this with us.
Check it out at FastSaleFullPrice.com to get a better understanding. At the very least it will give you an option most folks don't know about. It's sad when people lose everything to foreclosure when they don't have to.
There are lenders who will loan with a minimum of 30% down payment without the set waiting periods.
These lenders will be private investors and may not offer the nice, low rates that are advertised in the media.
Regarding a short sale, you might find the discussion helpful a this link: