Financing in Salem>Question Details

KP, Both Buyer and Seller in 01970

The Negative Equity Question - I am in a position where I am in no danger of foreclosure and do not want to

Asked by KP, 01970 Mon Jul 7, 2008

short sell and hurt my credit. However, I may be about 20-25K in the red on my condo right now. Would a bank (similar to auto loans) allow you to roll the negative equity into a new home purchase - this woudl assume me or my broker could negotiate a favorable price for the house we'd buy and I would put down 10-15% of that price. I.e. I owe 265K on the condo, get 245K for it, then purchase a home for 500K (say it was listed at 525K or something) then add the 20K "loss" to the new mortage - 520,000 total and put down 10-15% of that price. Just trying to figure out creative ways to get out of my condo and into a house without using a good chunk of my down payment savings towards paying the negative equity on the condo I have.

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Hi KP,
It's really all relative. what you are losing on your condo you will gain when you purchase your new home at today's prices and the market starts to get stronger. It seems like you have enough resources to get into a single family home and that the need is there. Have a market analysis done on your unit and find out what your true numbers are. Then you can decide how much house you can afford. If I can be of any help don't hesitate to call.
0 votes Thank Flag Link Mon Jul 7, 2008
Thanks Ute - I definitely do not want to do a short sale or anythign all all that would hurt my credit.
0 votes Thank Flag Link Mon Jul 7, 2008
Hello KP. While I like your creative thinking, unfortunately the plan can't be executed. Since you don't seem to be behind with your mortgage and you don't mention any other circumstances that would suggest a hardship other than the fact that you are upside down on the condo, you most likely would not qualify for a short sale anyway. Having said that, does not mean that you can't sell the house. However, you'd have to bring money to the table to close to pay off the mortgage in full. Since you mention a 10-15% down payment for a $500,000 house, it sounds like you have the money to do that (which is another factor that could disqualify you for a short sale). You may not want to use your savings just to get rid of the condo. You could try to negotiate with the bank to allow you to sell the house for less than what's owed and agree to sign a note for the difference. While it's technically still a short sale, it would probably not ding your credit as much (if at all) because the bank does not forgive the loan. The note would most likely be unsecured. and payable over 20 years at a very competitive interest rate or even 0%. You will want to talk to a loan agent and tax adviser before you decide how you want to proceed. Good luck to you.
0 votes Thank Flag Link Mon Jul 7, 2008
Ute Ferdig -…, Real Estate Pro in ,
i think leasing out your condo is more likely to get you the same net affect you're looking for. however, you could consider getting a signature loan for whatever you owe on your condo. it would affect your debt to income ratio, but might not be too bad. also, in your example, you're not calculating the costs to sell - it's usually less than 10% of the sales price all inclusive of brokerage fees, taxes, etc. so, you might be $40K upside down. maybe you should think about staying where you are and accelerating the payoff on your mortgage.
0 votes Thank Flag Link Mon Jul 7, 2008
Hi KP,

I'm not aware of any mortage companies (especially these days) that would allow that. One option would be to purchase a home with only 5% down (using your example that would be $26,000) and using the remaining balance to pay off the balance of the mortgage when you sell your condo. So if you sell the condo for $245k and owe $265k you would pay $20,000 to your existing lender to pay it off at closing. That would still leave you with close to 10% as a down payment. Not the best option financially but if you feel you must sell the condo and get into a house this would work. Another option is to keep you condo and rent it out. Even if you couldn't get a full mortgage payment you could put 10% down on the new house and if you had to pay $100-200/month, you could reap the tax benefits and wait out for the market to rebound. Even if you had to wait 5 years for the value of your condo to increase you would have only paid $12,000 over the term (assuming a $200/month loss). But you would receive tax benefits for those losses and the tenant would be paying down your mortgage for you. Just an idea, best of luck.
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0 votes Thank Flag Link Mon Jul 7, 2008
I would much rather do something like I described in my question than Lease, although leasing is most certainly option B, but I have heard some horror stories and there is no way i could lease and come close to the current mortgage payment. My issue is that we have set aside the 10% or so for a down payment on a 500,000ish home, but I do not want to just take that and throw it into my current condo just for the sake of breaking even on the condo - then where does that leave me? right back saving again for the house down payment.
0 votes Thank Flag Link Mon Jul 7, 2008
No all mortgages must be paid in full at closing GREAT thought !.... have you considered leasing ? Have you considered a buyers agent that will return a certain % of their commissions back to you. or work things out with a new builder? Good luck
0 votes Thank Flag Link Mon Jul 7, 2008
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