Too proud for a short sale? Still borrowing money to make your monthly payments?

Here is an analysis I did for a client this weekend. They purchased a home in 2004 for $185,000. They refinanced in 2007 to pay off college tuitions at a whopping $225,000!

Now, due to underemployment issues at the household, the family is struggling to make ends meet. A “new one” is on the way and finances aren’t looking good. But, the home is perfect for them today.

Family members are assisting, but not at the rate needed to get ahead. Each month is one step backwards. They knew nothing about HAFA programs or Housing Counselors until they met me.

They still asked me what it would take to unload the problem.

Here is a sample of what you might expect. Even though we are in a declining market, and home values might actually be less next year, I still assume a 3% to 4% increase in home value for the long haul. (I believe that is more than a fair assumption)

The current balance on this mortgage is $221,000 and monthly payments are approximately $1,375 per month, or $16,510 per year. Today a market analysis shows this property might only sell for $160,000.

The above chart shows the next 10 years and 20 years probable scenario. Still underwater for another 5 years, possibly at a break even point in 7-8 years, and able to sell and break even in 8-9 years.

In 5 years, 2015, the mortgage balance will be $199,785 and home might value around $195,000. In 7 years, the mortgage balance will be $189,375 and the home might value around $210,000. Assuming 6%-9% closing costs, the homeowner will still be bringing money to the table to sell.

After 10 years, the mortgage balance will be $171,315 and the home might value around $235,000. Assuming the same closing costs and fees, it could take almost a decade for this homeowner to reach a breakeven point, AFTER $180,000 in mortgage payments.

Could their underemployment improve in the next 2-3 years? Certainly.

Could their financial situation change in the next 6-12 months? Certainly.

Could the situation get worse or better? The baby on the way might have different plans…

I could go on and on about the story, but the banks don’t care about their (your) story and where / how much money they (you) have borrowed from family and friends, nor do they care. The banks have a right to receive their money that you borrowed several years ago.

Now, what’s the worst thing that could happen? Any point in time where it becomes financially impossible to make that next mortgage payment, the homeowners decide to walk away, leaving the home for a foreclosure.

They will not be able to buy another home. They will struggle with all things related to credit for years and years.

What’s the best thing that could happen? New programs offered through the Home Affordability Foreclosure Alternative (HAFA) might be able to assist them with reduced monthly payments through modifications, or in a case of unemployment, a forbearance or deferred payment. These programs will help them keep their home for the long term.

Why consider a short sale? These same programs described above also offer alternatives sell your home at a loss – or for less than what you owe. If you qualify, you could receive $3,000 for moving expenses, or you may be eligible for a waiver of deficiency judgment.

Give me a call to discuss what we can do to get you on the road to change, either for homeownership retention or liquidation options.

Robert Jarvis, MBA

RobertJarvis@AnOpenHome.com
Direct: 773-572-2362
Website: http://www.anopenhome.com/