buying a 2nd home while underwater on 1st?

[Anonymous]

Wondering how realistic this would be... neighbors of ours are doing this through a credit union (of which we are members). They're qualified for whatever amount (say, $600k) and since their current mortgage is for $250k, they have $350k to buy another home (we are in condos, so $350 in our area will be able to get them a townhome). They plan on renting their condo out and, if it falls through in a year or two, letting it go via short-sale (which they are okay with since they'll have already purchased another home).

Does this seem realistic? We're pretty much exactly the same situation as they are (value is at about 60% of what we paid in early 2007) and could easily qualify for enough to buy a bigger home (which would be fantastic now that we have two children).

[Anonymous]

You have to show financial distress before the banks even approve a short sale, so I don't see why anyone thinks a short sale is the answer to their problems, unless they really are in financial distress. Also a short sale hurts your credit, not like a foreclosure, but it goes on your record. Sometimes both the seller and bank take a loss on a short sale, so it's not an ideal siutuation for either.

[Anonymous]

Anonymous wrote:Wondering how realistic this would be... neighbors of ours are doing this through a credit union (of which we are members). They're qualified for whatever amount (say, $600k) and since their current mortgage is for $250k, they have $350k to buy another home (we are in condos, so $350 in our area will be able to get them a townhome). They plan on renting their condo out and, if it falls through in a year or two, letting it go via short-sale (which they are okay with since they'll have already purchased another home).

Does this seem realistic? We're pretty much exactly the same situation as they are (value is at about 60% of what we paid in early 2007) and could easily qualify for enough to buy a bigger home (which would be fantastic now that we have two children).

So they are using the equity in their current home--to buy the 2nd home? Am I reading this right?

We just bought a 2nd home this Fall----used our local credit union--but we had to come up with 20% downpayment (not using solely equity from the other house)...actual $. We were allowed to take out a small Heloc (less than $100k on the other home) to do it thru the credit union. I am not sure if this is the scenario you are describing.

Our first home was valued around $675 (we owe about $250) but currently rent it out for a profit...I am not sure if the reason we couldn't get bigger line were mortgage rules in Sept2009 or not. I think we also didn't want to..we came up with cash for the other $200kdownpayment.

I generally dont think letting a property go to short sale is sound reasoning....I am not quite sure what you mean by that. "Short sale' is something thru the banks...do you mean to sell their condo quickly instead if the renting doesn't pan out? Those things are wildly different---and have very different credit history and financial impacts.

[Anonymous]

Doesn't sound like they are under water on the first. Doesn't sound like good investment strategy, to be sure, but they aren't under water.

(under water means you owe more than you can recoup from a sale)

[Anonymous]

Live w/in your g-damn means.

basic, solid financial advice

[Anonymous]

Anonymous wrote:Wondering how realistic this would be... neighbors of ours are doing this through a credit union (of which we are members). They're qualified for whatever amount (say, $600k) and since their current mortgage is for $250k, they have $350k to buy another home (we are in condos, so $350 in our area will be able to get them a townhome). They plan on renting their condo out and, if it falls through in a year or two, letting it go via short-sale (which they are okay with since they'll have already purchased another home).

Does this seem realistic? We're pretty much exactly the same situation as they are (value is at about 60% of what we paid in early 2007) and could easily qualify for enough to buy a bigger home (which would be fantastic now that we have two children).

I think your neighbors are assholes and you are too for thinking this is an option. Where is your dignity? As long as there are people like them who have no sense of of pride, responsiblity, or class we will continue to have this mortgage mess. I wish mortgage companies would go after people like your neighbors and recoupe their losses as any means possible...garnish wages, retirement, and sieze assets.

Have you stopped to think about how much this potential short sale will impact YOUR property?

Boo fucking hoo, you made a bad real estate investment. Live with your choice and learn for the next time.

[Anonymous]

Anonymous wrote:Live w/in your g-damn means.

basic, solid financial advice

Amen!

You should check with accountant/tax attorney but I believe a short sale can create a tax liability--if your condo is assessed at $250k and your short sale is $150k, you will have to pay taxes on the $100k.

[Anonymous]

I'm thinking if you use one property as collateral for a $600k loan, use the money to buy a second property and then default on the loan, the bank is not going to settle for the collateral property if it does not cover the debt. They are going to come after your friends for the full debt. Banks approve a short sale based on the seller's hardship and the value of the home. If your friends own a second home, they are not in financial hardship.

Also, how are they able to get a $600k loan on a condo in an area where townhouses cost $350k?

[Anonymous]

Anonymous wrote:Live w/in your g-damn means.

basic, solid financial advice

Seriously!! And we put all the responsibility on banks for this mortgage mess. Riiight.

[Anonymous]

Since credit unions are not-for-profit institutions owned by the depositors, this scam will result in them hurting the organization that they own . . . oh, and you a well, since you are a member of the same credit union. Or to look at it another way, they will be stealing from you and the other members.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Live w/in your g-damn means.

basic, solid financial advice

Seriously!! And we put all the responsibility on banks for this mortgage mess. Riiight.

It is because people like the OP and her neighbor have no sense of personal responsiblity. Pathetic.

[Anonymous]

I don't share the moral outrage but I am not sure that this is a good idea. It seems to me that you are already over-exposed to the housing market. If you really want to be done with your place I would look into a short sale now and rent for a few years until your credit is repaired.

If you own another place through the same lender I find it very hard to believe they wouldn't come after you for the rest of the cash.

[Anonymous]

Anonymous wrote:Doesn't sound like they are under water on the first. Doesn't sound like good investment strategy, to be sure, but they aren't under water.

(under water means you owe more than you can recoup from a sale)

They are absolutely underwater, which is why I was a little thrown off... I didn't think anyone would give you a loan (much less 100% financing, which the credit union is offering) if you were upside-down in another property.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Wondering how realistic this would be... neighbors of ours are doing this through a credit union (of which we are members). They're qualified for whatever amount (say, $600k) and since their current mortgage is for $250k, they have $350k to buy another home (we are in condos, so $350 in our area will be able to get them a townhome). They plan on renting their condo out and, if it falls through in a year or two, letting it go via short-sale (which they are okay with since they'll have already purchased another home).

Does this seem realistic? We're pretty much exactly the same situation as they are (value is at about 60% of what we paid in early 2007) and could easily qualify for enough to buy a bigger home (which would be fantastic now that we have two children).

I think your neighbors are assholes and you are too for thinking this is an option. Where is your dignity? As long as there are people like them who have no sense of of pride, responsiblity, or class we will continue to have this mortgage mess. I wish mortgage companies would go after people like your neighbors and recoupe their losses as any means possible...garnish wages, retirement, and sieze assets.

Have you stopped to think about how much this potential short sale will impact YOUR property?

Boo fucking hoo, you made a bad real estate investment. Live with your choice and learn for the next time.

OP here - calm down, I was just wondering how realistic it was where the loan is concerned. We don't want to let go of our property and would plan on renting it out - the short sale theory was something they mentioned. Yes, obviously the first thought that crossed my mind was in regards to how it would affect us... along with the 20+ other short-sales and foreclosures in our small neighborhood.

[Anonymous]

Anonymous wrote:Also, how are they able to get a $600k loan on a condo in an area where townhouses cost $350k?

I don't think I explained it very well... for example, based on their incomes etc. they qualified for $600k. They currently owe $250k on their first property which would come out of their qualifying amount, leaving them with $350k to shop for a new home. Not sure if that explains it any better - I have no idea if it makes any sense at all... because it just sounded unrealistic to me.