I'm looking to sell my house but am upside down 20-30K. Can i purchase a house valued higher than it is selling for and roll over the difference?

Asked by Brian, 48198 Sun Jan 16, 2011

When I sell my house, i want to take the difference from what I owe and what i get from the sale and move it to a new mortgage on a new home that I would acquire at the same time. I've called my lender (chase) and they said that it could not be done, that we'd have to have a short sale on our current home and then would be unable to purchase another.

It seems like we could talk the bank into letting us take our negative equity from our current house, and use the equity from the house we will be purchasing to roll the balance over. It seems like the bank would be all for this since my unsecured home equity loan would now be secured with the equity from the new house (this is of course assuming I get a house for less than it is worth). Anyone done this or heard of this being done?

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Christopher…, Agent, Methuen, MA
Sun Jan 16, 2011
Brian, I know what you are saying, but I think it will be easier said than done unfortunately.

Your lender is going to treat your current mortgage as a stand alone business transaction. If you sell your current abode the mortgage will become due to be paid in full. If you go with a short sale you may be able to get out of paying the short amount, but it will severely impact your credit and you probably won't be able to buy another home again until you are able to build your credit back up.

If you have enough cash, you can pay the short amount at closing for your existing home and that wouldn't hurt your credit because it wouldn't be a short sale any longer. If you don't have access to the cash for the short amount it is a tricky situation. Many people are in your shoes right now, stuck in a home or having to go with a short sale. Short sales are a double edged sword. It can get you out of your underwater home, but you need to consider what it will do to your credit. Also, consult with an attorney and CPA about possible tax implications. I think that all of the underwater homes are a big reason why the housing market hasn't recovered as fast as some people were hoping it would. I wish you luck.
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1 vote
Kaleb Hammer…, Renter, Henderson, KY
Sat Aug 26, 2017
Brian you could also work with an investor that buys homes on a lease purchase or lease option in which he would pay your mortgage payments down and take on responsibilities to the property for you.
0 votes
Debra (Debbi…, Agent, Livingston, NJ
Wed Jan 23, 2013
So much energy spent on answering a 2 year old, obsolete (and absurd) question!

Chase, already told this person, along with all but 1 of the agents on this thread, NO, it can't be done ......if you're going to resurrect an old question, at least make it a good one
0 votes
Wow, let me resurrect a now 4 yr old statement to commend you on representing the integrity of Berkshire to the fullest.
Flag Thu Aug 24, 2017
Such a rude B tch!!
Flag Wed Aug 31, 2016
I just love your people skills. NOT!!!!!!!
Flag Tue Mar 11, 2014
You are correct, but this site also offers answers that other in same situation find themselves in today,namely, many home owners are upside down but want to move, and a short sale is not always the answer. Therefore, my answer gives an alternative approach, and it might hit a nerve with somebody in a similar situation.
Flag Wed Jan 23, 2013
Alexander.Go…, , Bayonne, NJ
Wed Jan 23, 2013
To expand upon my earlier answer:

Find a tenant-buyer that can't qualify for a loan at this time, but can indeed qualify in 3 years to 10 years time. The time factor is up to you. The longer your tenant is still renting, versus buying, the more time passes allowing for the market to come back as well as your mortgage balance to go down via rent payments. I wouldn't sell a house with negative equity to a tenant-buyer. However, you can sell with a contigency clause, if your time frame is 3 years and not longer, you can put a clause in the contract, "subject to bank approval of a short sale", and the market value of the property at the time of the sale. However, extra time allows for the negative equity to go away and is the better approach.

Negotiate a contract and collect option money. You can get fill-in-the-blank lease option forms online, but you're better off getting them from an attorney. A real estate agent can't make a commission on this type of deal, so you can't market the property as a regular sale, since there is no commission until the sale closes, and that will not be in 3 to 10 years time, depending on the math involved. The contract is sometimes added as an addendum to a standard sales contract. Unless you really know what you're doing, get help with the details of the contract from an attorney The most important thing to remember is that you've got to cover not just the money issues but also who is responsible for what types of repairs and other complications that are bound to come up. The thing to remember is that a tenant-buyer that will eventually own the house, will treat the house much better than a regular tenant, since there is no pride of ownership in a regular tenant, but in a tenant that will eventually own the house, they will treat it more nicely.

Agree on the purchase price of the home, which should be fixed on the lease contract. Your tenant-buyer has the option, but not the obligation to buy. You, the seller, on the other hand, are obligated to sell if you enter into such a contract. You'll be obligated to sell at this price, so you want to make sure it's something you can live with. Ideally, the agreed-upon price should be at least at fair market value and maybe slightly more (especially for lease terms of 3 years or more) to compensate for the convenience to the buyer and for the likely appreciation of the property over the term. You and/or the buyer may want to pay for an appraisal to validate the price. Banks and other lenders will only loan against the appraised value, regardless of the price that you agreed on with the buyer. You may want to simply write the contract that the price is the appraised value, as per 2 separate appraisers, one paid for by seller and one paid for by buyer.

Determine how much option money to collect. Some states and municipalities have laws specifying a maximum amount of option money that can be taken, but in general the initial option money or option fee can be almost any amount. A typical figure is 2-4% of the purchase price. I recommend higher. You will keep this money no matter what. If the lessee decides to buy, the money will be credited toward the down payment or the purchase price, and if the lessee doesn't buy, he or she forfeits the option money to you. Keep in mind that many buyers choose lease options because they can't come up with a big down payment, so don't expect to be able to get a huge amount of initial option money. However, this is exactly the money you need by which you can buy your new house that you're looking to move into.

Decide how much of the lessee's monthly payment will be credited toward the option. Anywhere from 0-100% of the monthly payments can be credited toward the purchase price, although the amount is sometimes subject to state or local laws. In general, the monthly payment will be calculated at fair rental value plus a set amount that will go toward the purchase price. This, like the initial option money, will either be credited toward the down payment or the purchase price or, if the tenant doesn't buy, will be forfeited to you. For example, if your mortgage payment, taxes and insurance are $1700 per month, you can make a rent payment of $1900 per month for your tenant-buyer, with a $1,700 per month as rent, and $200 per month as toward the downpayment, in addition to the option payment you received. In this example, you'd take the $1,700 per month you are getting as rent, and pay your mortgage with it and all expenses, and you'll have to deposit the extra $200 per month in a separate account, preferrably an attorney held escrow account.
Decide on the term of the lease. Lease options typically run anywhere from 12-36 months. Less than 24 months usually doesn't make sense for the buyer, and more than 3 years sometimes doesn't make sense for the seller; but if you are severly upside down, time is your friend, not your enemy.
0 votes
Alexander.Go…, , Bayonne, NJ
Wed Jan 23, 2013
The concept of rolling over negative equity from one loan, and applying to the next loan is something that is true in car sales. This concept doesn't exist in houses. In a house, you signed 3 documents: the NOTE, the Mortgage, and the LIEN. The NOTE is secured by the LIEN and the Mortgage is simply how you will pay the NOTE. The NO TE is the promise to pay. The LIEN is against this particular collateral, not against new collateral. There is a concept called a "blanket mortgage", where one mortage is given against 2 or 3 properties. It is usally done by investors, not home owners. Essentially two houses act as collateral, with one loan against two houses rather than one. However, this is not a loan that is easily given out for an owner occupied property, and is usually covered by proving rental income from each respective property. Furthermore, lenders, like Chase, are not really lenders anymore, and are really Servicers. They sell you a loan, and then immediately turn around and sell it on the secondary market, to Freddie Mae, or Freddie Mac, or Ginnie Mae (if FHA or VA). So they no longer own the NOTE, and then act as the Servicer of the obligation, but not as the OWNER of the obligation.

Your best bet is a lease with an option to buy. You find a tenant that wants to become a home owner. Your tenant/buyer has let's say a 580 FICO score, but has 10% down of your price. So they are too low on credit score to get a mortgage, but not low on downpayment or ability to pay a monthly payment equal to your current mortgage payment , plus taxes and insurance. You put them in a lease option contract, where the price you ask for your house will be 3 years away in the future. At that point in time, your house will appreciate at 3% per year, times 3 years, and so your equity will come back partly via time, and partly from the fact that your tenant is paying down your mortgage for you on your behalf. In 3 years time, your tenant buyer is now "mortgage ready" and can indeed get a loan and has improved his credit to at least a 620-640 FICO score. So you're cashed out of your current house in 3 years in the future. Think of it as a rental property, which in the future, becomes as a sale. In the meantime, you take your tenant/buyer's non-refundable option payment, to "get the option" and use his money as your downpayment on the other house you want to buy. You will own two houses. One is rented by your tenant-buyer, and the second one you will live in it.

So your tenant buyer is not in possession of the deed. He only gets possession of the deed in 3 years from now. For now, he's merely a tenant. You need 2 separate contracts, drawn up by an attorney. One contract is a straightforward lease, and the second contract is an option to purchase contract.

Many people that would have qualified 5 years ago for a mortgage no longer qualify today in today's tight lending market, So many potential home owners are frozen out of buying by today's tougher lending standards. There is a pool of buyers that will jump at a house with built-in financing. Make sure you pre-screen your tenant, and make sure that their gross monthly income is at least 3 times the amount of your rent payment (which happens to equal your mortgage payment).
0 votes
Brek Schutten, Agent, Grand Rapids, MI
Thu Feb 10, 2011
I have never heard of this being done, and I feel like it would be too big of a risk for a bank to go for. If you are rolling over negative equity to a new house, your lender is essentially setting you up to fall short again. They would be setting themselves up for a short-sale or a foreclosure in the future. The reality of today's housing market is that yes, you can find a good deal on a house, but that is because the market values are so low right now. As far as the bank is concerned, your new house would be worth what you paid for it. That is the definition of market value. I hope your situation works out well for you because now definitely would be a good time to buy again. Good luck!
0 votes
The Roskelly…, Agent, Gambrills, MD
Sun Jan 16, 2011
Good question but the answer is no. Since the mortgage loan is secured in full by the property, no bank is going to give you a loan that is 100% of value plus $30k....then the asset is not secured. Most homeowners who purchased after 2004 (in our area) with low or no money down loans are in the same position. It's tough out there.
0 votes
Kevin Olson,…, Agent, Colorado Springs, CO
Sun Jan 16, 2011
There are lenders who will roll it over, but I've only found this with smaller banks (local banks) where there is an established relationship with the bank. There is no short sale officially done, but rather the new purchase is allowed, and the equity is immediately pulled out to pay down the mortgage on the 1st home in order for it to be low enough to sell (still sells below market value but not treated as a short sale). I've seen this 4 times, and it really seemed like quite a risk for all parties involved. Each time it did work out very well.
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Lisa Branden…, Agent, Florence, KY
Sun Jan 16, 2011
I do not know of any lenders that will roll over negative equity- you may end up having to do a short sale on your current home- but this will effect your ability to purchase another home- call your mortgage company and discuss your options! Best of luck to you!
0 votes
Debra (Debbi…, Agent, Livingston, NJ
Sun Jan 16, 2011
Brian - simply put - no - you cannot do this - you cannot make use of "negative equity" , as you have NO equity to use - that's what being upside down means.
You owe the bank more than the home is worth. Banks do not roll over from one house to another.

Your options are:

1 Remain where you are and keep current on your mortgage - hope the market improves in years to come
2. Sell the home, but be prepared to come to the closing table with the $20-30,000 you will need to make up the shortage.
3. Speak to Chase, and look into a short sale. You would have to show some sort of hardship in order to qualify, but you can at least look into this as an option.
Your credit will be hurt, and you will not be able to qualify for a new mortgage at this time, so buying a new home, unless you have cash, won't be possible.

Sorry, but your idea just won't work.

Best wishes..........
0 votes
Keith Sorem, Agent, Glendale, CA
Sun Jan 16, 2011
Nope, sorry. I would talk with a mortgage lender and also your CPA to look at the tax implications and options you have. I would also talk with the mortgage lender (your current) and see if you can work out an arrangement.,
0 votes
Bob McClure, Other Pro, Walled Lake, MI
Sun Jan 16, 2011
good afternoon brian....can't happen...i will be glad to help you..over 16 years of mortgage origination experience.
best regards....
bob mcclure
mortgage one
0 votes
Eli Givoni-S…, , Boca Raton, FL
Sun Jan 16, 2011
Hi Brian,

This cannot be done. You need to either short sale your first house, then move. Or, you could buy your new house first, if you can afford to do that, then short sale your first house. Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states
0 votes
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