I have a home that is worth a significant amount less than what I bought it for, just as millions of other.

Asked by Bp, Sterling Heights, MI Thu Aug 14, 2008

But, my problem is that I have an ARM that will adjust in 2011 and I have been paying interest only for about three and a half years. I know for a fact that the house will not even be worth what I bought it for when my rate adjusts in 2011. Also, the ARM is attached to the 1 year Libor rate 2.25. I am not in a arrears on my payments but should I try to short sell my home and buy a cheaper one now or wait?

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Matt, Both Buyer And Seller, Sterling Heights, MI
Wed Aug 20, 2008
2011 is three years away, and may be enough time for you to start making principle payments on your home (or at least save up the cash). If the housing market doesn't rebound within the next three years, then any house you'd currently buy would have lost a lot of its value as well. If you like your house, I would suggest taking a proactive approach and either:
a.) Refinance, coming into the contract with some cash to cover some of the equity you've lost due to depreciation.
b.) Save up money in the next 3 years, then refinance when your ARM matures - using the cash you've saved up to cover the equity loss
c.) If you can't afford paying more than interest-only for the next 3 years, and the market doesn't improve in the next 3 years, you can at least look into a short sale/foreclosure/renting at that point. But 3 years is a long time, and letting your home short sale now (if it's even possible with your bank) will only help further worsen the housing crisis. If you can afford to stay put, I was strongly suggest you do. At the very worst, you would have to short sell in 3 years, then lease to own to give your credit a chance to improve until you can earn a mortgage again.
0 votes
, ,
Thu Aug 14, 2008
BP
If you do a short sale then most likely your credit will not be good enough to qualify for a mortgage on a new home. Lenders treat a short sale almost identical to a foreclosure so it will probably be a year or two before you are able to get a new mortgage.

Now if you are in a position to cover the loss yourself , then you may be able to make up for it on the purchase of another home.

My advice to you though is to not look at the home as an investment, rather just look at it as a place that you live. No one knows when this market will turn around and begin to show appreciation in value. Even then, there is no telling at what rate homes will appreciate. If you truly WANT to get a bigger and better house then now is a good time to be a buyer, but as you know a bad time to be a seller. If the only reason you want out is because you can't stomach the fact your home has depreciated, then I would caution against moving. After all, what's to say things don't continue to deteriorate and then you are stuck with a bigger mortgage and even more loss?

Decide where you want to live, what type of home you want to be in, then discuss your situation with a REALTOR and a good lender ( I can help with that) to determine exactly what you'd be looking at if you sold the home and tried to qualify for a new one.

Hope this helps,
Tony
0 votes
Melinda J. R…, Agent, Grand Rapids, MI
Thu Aug 14, 2008
Bp, I always say in this market if you don't need to sell, don't! Short sales can have an effect on your credit. Not so sure you want to do that because it can effect a lot of things for you. Granted the sellers who thought they would hold out for a couple of years back in 2005 for example, probably would have been better off selling then, than now. However, you do have some time to deal with this dilema and see. Maybe it is best to wait and see if the economy goes up. I am not so sure that I would dive in right now and have it effect your credit. In 2011 it maybe necessary then to go for the short sale?

Don't get me wrong. It is great that you are being proactive, but you have some time to work with this and as lawmakers continue to change laws for the banks to work with you, maybe even a year from now they will have a good program that works for you to keep you in your home. Unless of course you don't want to.

I hope this information helps! Best Wishes!
Web Reference:  http://www.gomelinda.com/
0 votes
Derek Bauer, Agent, South Lyon, MI
Thu Aug 14, 2008
BP - you are in the same boat as many homeowners, but you have the foresight to try and do something, which is good. Here is the cliff notes answer...

A bank will not allow a short sale until you are behind on payments and you can prove financial hardship. If you would like me to pay a visit to your home and run some numbers, I would be happy to do so. You can contact me through my website at http://www.DoorToDreams.com.

Best regards,
Derek Bauer, Associate Broker / Realtor
Real Estate One - Farmington Hills / West Bloomfield
248.851.4100 x132
Web Reference:  http://www.DoorToDreams.com
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