Forced to take action: sell now or refi in this climate?

Asked by Marc Lucas, Los Angeles, CA Wed Sep 12, 2007

Hi, I bought a house with my girlfriend in June 2006, and we just broke up. I need to sell it, or buy her out and keep it. We bought it for $874k, as an equity share, with 100% financing. Current market value is around $940-$980. I can qualify to refi in my name, on an interest-only 5/1 loan or a 'flex payment' loan. The house has a rental unit in the back which provides income as well. It won't be cheap, but it looks like I can afford it, and everyone says it's a bad time to sell. However, everyday I turn on the news, I hear about a big correction, signs of a recession, amd things are going to get worse before they get better. So I'm wondering if I'm foolish to hold onto this massive loan. The house needs to sell for $933 for us to break even, which seems feasible. Anything above that is profit. Do I keep the house, and bet on the market recovering, or do I cut and run now? I live in Los Feliz, a desirable neighborhood in Los Angeles, close to Hollywood.

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L.A. Real Es…, , Los Angeles, CA
Wed Mar 5, 2008
Dear Marc,
We can help you! We live and specialize in the Los Feliz /Hollywood Hills area. We also happen to specialize in working with couples who are seperating or divorcing. If you have a time frame to test the market by listing the house and see what type of offers you get. Los Feliz prices have not dropped as much as other areas. Some have actually held their price. It does depend on your location and details of the property. We do have an in house appraiser who would happily give you a rough estimate value of houses appraised in your neighborhood that are similar to yours.
We also have several resources on our website for couples like yourself, who are not sure what they should do. Please visit the site,, to get some supplemental infomation.
You can email or call us anytime.
Good Luck to you both!
Lou and Alex
LA Real Estate Group
1 vote
Roberta, , Dayton, OH
Wed Sep 12, 2007
Here is the thing I think you want to consider, if you are looking at any kind of an interest only refi, you are doing no more than paying rent, you are not paying down any principle. The appeal of these loans was in a hot market where values were going up, it allowed many buyers to jump into the market when there was an urgency to buy. Now, some of these loans are converting and homeowners payments are going up by 3x and 4x what they were interest only. You don't want to get stuck in a cycle of having to refi-refi and never pay your principle down. Maybe talk with several lenders to see what loan options they can come up with for you. If you're starting to feel pressure to make your payments, I'd look at selling your home and let the market cool off for 12-24 months and you will likely be able to pick something up at a lower price. There is a huge number of homes that are currently pre-foreclosure in CA, where people are falling behind on their mortgage payments. Maybe cash out now and get back into the market at a later date when things adjust and will be more affordable. I wish you all the best!
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1 vote
Mr.P, , Arizona
Wed Sep 12, 2007
Hey Mark,
By just reading your question.
I would sell to break even.

I would keep your girlfriend on the line for the payment.

You say ,it looks like you can afford a interest only 5 year which would include the income from the rental.
What`s the prepayment?
You are walking a tight wire in a wind storm.

You and your ex, Make the payments until it is sold.
Don't let her out of the deal in a crummy market.
Dont buy her out!
You need her income to make the payments.
Just get it sold.
Good Luck
1 vote
Jim Gleason, Home Buyer, Solana Beach, CA
Sun Mar 9, 2008
It sounds to me like you are screwed. Send the keys to the bank and write it off. Since you didn't put anything down, you haven't lost anything. Time to flush the house with the girlfriend and chalk it up to life experience.
0 votes
Julie, , Buffalo, NY
Sun Mar 9, 2008
Why was this dead thread resurrected?
0 votes
Ray Chen and…, Agent, Rowland Heights, CA
Sun Mar 9, 2008
hi Marc,

go look at these data
to see how is the market in your zip code doing.

good luck,

0 votes
Cameron Fedd…, Agent, Los Angeles, CA
Thu Mar 6, 2008
Don't forget though, if you put your house on the market and it doesn't sell. You have to wait 6 months to refi once you take it off the market.
0 votes
Access REO S…, , Los Angeles, CA
Thu Mar 6, 2008
Gotta start clean - sell it and hope you break even. Unless you want to hold onto it for a bit, refinancing means that you are hoping to make a little profit when the market turns around. If you need to clear up your finances now and start fresh, get rid of the property and its attendant mortgage.
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0 votes
Tman, , 30642
Thu Mar 6, 2008
Sep 12 2007 ........................?
0 votes
Kelley and T…, Agent, Santa Monica, CA
Fri Jan 25, 2008
Since you seem uncertain, why not let the market decide for you. Put it on the market at the price you want and see if it sells. It is a great time to buy, so you could find something for yourself that is not such a stretch. In addition, interest rates are so low that it would be great to lock in a longer term rate.
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0 votes
Yev, Home Buyer, Los Angeles, CA
Fri Jan 25, 2008
Marc, I am a buyer who is sitting this market out, I've been studying/researching the real estate market for a while now and here is what I have come up with. Some of this might be painful to hear but here goes.

If you can qualify on an interest only loan, you likely cannot afford the house. To give yourself some safety I would try to qualify for a 20% down 30 year fixed mortgage, if you can qualify for that and get it then you can probably afford the property. A qualification for such a mortgage gives you a piece of mind that you are ok. However you must be honest with yourself whether you can or cannot afford it. To me a home close to a 1mil requires a 300K income if you have that you can afford it, if you don't you're kidding yourself.

Cut your losses. The likely scenario for the next few years is a drop in prices. Someone below mentioned a 10-20% correction from here. on 940-980K appraisal (your house is worth what is can be sold for) but let's take your appraisal, 20% drop from your appraisal is ~192K, so if properties drop 20% by the end of this year, that's how much you'll be down, can you handle that, plus carrying costs, etc.

I would say sell it and take what you can get, cut your gains/losses short and be happy until this market shows its real colors.
0 votes
Sam Perez, , 91730
Fri Dec 14, 2007
You are thinking smart here I would consider a 5/1 arm because it would take years to pay off the mortgage anyways. If you wait too much longer you may not have the programs available to you to refi.
I am a direct lender and broker if you need help contact me.
Do not pay principal/int to pay off the loan you are only making the bank more money and not in your pocket. Read the book untapped riches great book!
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0 votes
Carrie, Both Buyer And Seller, Say Cheese!
Sat Sep 15, 2007
So you can qualify for an interest-only or flex-payment loan? Than means you can't afford it. This is the next step to losing your home and your credit. Your first step was a 100% loan, and that loan with someone with whom you had no long term commitment for business.

Just because you two broke up doesn't mean you aren't still business partners in real estate.Time to stop acting as if your mistakes don't matter.

Hold on until the market is better. Rethink the refi position, since any refi will use up lots of $$ in costs up front as well; you'll be deeper in the hole.
0 votes
Tisza Major-…, Agent, Upland, CA
Wed Sep 12, 2007
Hi Marc,

Well, you do have a couple of big factors in your favor - the location of your home and your understanding ouf your situation. Yes, summer is over and prime "selling" season is as well, but homes sell all year 'round and homes in areas like Los Feliz where there is a limited supply, not a whole lot of new home construction can behave differently than homes in areas where there is an oversupply for a much smaller demand.

Most people tend to make the selling, buying or refinancing decisions of their homes based more upon emotion than upon a strictly financial basis. I would urge you to base your decision upon upon what makes the most financial sense for you in the longer term.

Here is what I would ask you to decide what might make the most sense:

1) Do you have to sell your home? If the payments that you are currently making or those that you would be making if you refi are comfortable for you then maybe you might want to consider holding on to the home.

2) If you decided to sell to break even and the home does not receive offers that would alllow you to do that, are you willing to or able to take a loss?

3) Is there anything that you forsee changing in your near future that would make the situation you are currently in easier or more difficult? Are you secure in your job? Expecting any promotions?

4) If you decide to sell your home are you willing to listen to your Realtor regarding staging your home and willing to listen to the market with regard to pricing? When I talk about staging, I am not necessarily talking about hiring a company to bring in items, but rather about making your home as showing worthy as possible. As for listening to the market, are you willing to price your home market appropriately?

5) If you don't sell but decide to refinance instead and the value of your home takes a hit, are you in the position to hold on to the asset and continue to pay for the loan acquired at today's value for a long enough period to allow the market to rebound?

And, finally have you decided who you would like to have help you regardless of what your decision would be? If the answer to this last question is no, then please allow me to throw my hat into the ring and offer my services. You are welcome to give me a call to discuss your situation privately in greater detail.

I hope this has been helpful and look forward to hearing from you soon. Oh, by the way, though I currently live in Claremont, I lived in your neck of the woods for ages just before I got married and still have strong ties there.

Take care,

Tisza Major-Posner, Realtor, Keller Williams Professional Group (213) 392-4084 or (909) 837-8922
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0 votes
Rebecca Cham…, , Palos Verdes Estates, CA
Wed Sep 12, 2007
Even Los Feliz is down a bit..I would speak to a Realtor about what your property might actually sell for so you have a realistic idea..that number changes pretty quickly and also speak to your lender about ReFi. It's good to have as much information as possible. I wouldn't wait however.
0 votes
Patti Philli…, , Carlsbad, CA
Wed Sep 12, 2007
Marc- I would have to agree that this is a personal decision. Qualifying for a loan, and wanting to be responsible for making the required payments on that loan are 2 different things. Be sure you know what you can really get- then decide. I would agree that you aren't the only one left holding the bag on this house. If needed the ex may need to help make payments, or split the loss if that should happen.

Good luck, I wish you the best in a bad situation!
Patti Phillips
0 votes
Keith Sorem, Agent, Glendale, CA
Wed Sep 12, 2007
I am estimating a market price correction in Los Angeles. I see figures from 10% to 20% over the coming months. I would echo the suggestions to either sell it now, or do the refi.

If you sell it now, you may not get what you'd like. The market is undergoing a correction so whatever you paid last year, is out the window. I do not know your specific home, however in general anyone who purchased their home within the last two years is probably going to have a tough time breaking even.

That being said, if you opt to hang on to it., you're looking at at least a 24 month holding period, just based on what we know NOW about the market. Once the September sales stats are available that forecast could be revised (read that to mean probably will be).

The bad news is that you've missed the prime selling season. The good news is that rates are going down. So if you re-fi right NOW, you might get a decent rate and still retain enough value to make it work.

The bad news is if you put the home on the market, and THEN try to re-fi it, you might be in trouble.
I strongly advise you to look at all your options, then make your move ASAP.
0 votes
Mr.P, , Arizona
Wed Sep 12, 2007
OK Marc,
At least you are not upside down.
Of course you know what someone says the home is worth and what it actually sells for are two different things.
Again I think you are putting yourself at to high of a risk.
Make sure the Ex helps you make the payments until it is sold.
Yes Short sales are no good, however what happens if you end up there. If you owe the bank a extra 20K to close. Wouldn`t you rather pay only 10K.
I am going to guess that your Mortgage is $4500.
Wouldn`t you rather pay $2250. until it gets sold?
Good luck
0 votes
Marc Lucas, Home Seller, Los Angeles, CA
Wed Sep 12, 2007
Thanks for your responses. A couple clarifications - we bought the house directly from the owner, so he discounted us about 5%. Otherwise it would have gone on market at $920. As for the current market value, my numbers are based on the words of a few agents who have come by to look at the place. The average of all their opinions is close to $970.
0 votes
jl, , Kalamazoo, MI
Wed Sep 12, 2007
Marc, this is probably going to be a personal decision for you. You sound like you've done the numbers and really have a good handle on what you can, and can't afford. Either option - selling at break even, or holding onto it and being able to afford it - has pros and cons for you. The good news is, you have options! If the massive loan feels too much for you (depending on your work circumstances) I would suggest getting 2 or 3 different Realtors over to give you a market appraisal on the house, to double check your assumptions. Also, they can tell you if you will need to do any work on it to get it ready for sale, and further, they should be able to do a "net sheet" with a very good estimate of the seller's proceeds after the sale (including all transfer taxes, etc.) to see if, indeed, you will break even. By getting more information you will probably be able to make a choice that makes sense to you. Good luck.
0 votes
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