Upside Down

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sweetpetutie

Member
I've been out of touch with the forums lately so please forgive me if this topic has been worn out already. An elderly friend took advantage of her inflated home price some time back and refinanced to the hilt to pay off some debts. Now she fears she will never be able to pay the house off, which is probably true. The question is this: Her loan is upside down now and she barely has any equity in it (maybe 5% but not sure). With the rates so far down now, are there any reputable mortgage companies that may go out on a limb for her? She has good credit and would love the low rate, but with such little equity thinks it's pretty hopeless.
 
ProfMoneyWise

ProfMoneyWise

Member
sweetpetutie said:
I've been out of touch with the forums lately so please forgive me if this topic has been worn out already. An elderly friend took advantage of her inflated home price some time back and refinanced to the hilt to pay off some debts. Now she fears she will never be able to pay the house off, which is probably true. The question is this: Her loan is upside down now and she barely has any equity in it (maybe 5% but not sure). With the rates so far down now, are there any reputable mortgage companies that may go out on a limb for her? She has good credit and would love the low rate, but with such little equity thinks it's pretty hopeless.
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If she has 5% equity she is not upside down.

Upside down is owing more on the home than she can get if she tried to sell it.

A mortgage company/bank is in the business of selling money (i.e. loans) so they will do whatever they can to sell their product. No company will necessarily go out on a limb as they are not in business to be benevolent.

If she only has 5% equity she has another problem in that if she is not paying PMI already she will most likely do so unless she can come up with enough down (yes, even on her own home as a re-fe is a re-buy of the house) to have at least 20% equity to avoid PMI.

Again, if she has 5% equity she is not upside down.
 
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sweetpetutie

Member
ProfMoneyWise said:
If she has 5% equity she is not upside down.

Upside down is owing more on the home than she can get if she tried to sell it.

A mortgage company/bank is in the business of selling money (i.e. loans) so they will do whatever they can to sell their product. No company will necessarily go out on a limb as they are not in business to be benevolent.

If she only has 5% equity she has another problem in that if she is not paying PMI already she will most likely do so unless she can come up with enough down (yes, even on her own home as a re-fe is a re-buy of the house) to have at least 20% equity to avoid PMI.

Again, if she has 5% equity she is not upside down.
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Maybe I'm not explaining this right so I'll use the real numbers. Her original loan was about $260,000, she refinanced to the max of what her home appraised for when things were good, so she now owes $334,000 with only about $5,000 into it at 6.5%. With the rates so much better now, but with the value of her home probably back down to what it originally was, does she have any options at refinancing the $334,000 at 4% or whatever the current rate is without coming up with more money? Thanks for your help.
 
aps45819

aps45819

24/7 Single Dad
sweetpetutie said:
Maybe I'm not explaining this right so I'll use the real numbers. Her original loan was about $260,000, she refinanced to the max of what her home appraised for when things were good, so she now owes $334,000 with only about $5,000 into it at 6.5%. With the rates so much better now, but with the value of her home probably back down to what it originally was, does she have any options at refinancing the $334,000 at 4% or whatever the current rate is without coming up with more money? Thanks for your help.
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Why doesn't she ask a lender?
 
S

sweetpetutie

Member
aps45819 said:
Of course her current lender getting 6% is going to tell her no.
She needs to ask competitors.
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Exactly, so back to my original post: Does anyone know of a reputable mortgage company they could recommend? Does anyone know if mortgage companies are likely to make this type of loan.
 
ProfMoneyWise

ProfMoneyWise

Member
sweetpetutie said:
Maybe I'm not explaining this right so I'll use the real numbers. Her original loan was about $260,000, she refinanced to the max of what her home appraised for when things were good, so she now owes $334,000 with only about $5,000 into it at 6.5%. With the rates so much better now, but with the value of her home probably back down to what it originally was, does she have any options at refinancing the $334,000 at 4% or whatever the current rate is without coming up with more money? Thanks for your help.
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Her original lender, as well as others, will tell her no for the following reason based upon the numbers you provided.

Original loan (and I'll assume home value now): $260,000

New loan based on value at the time: $334,000

Current loan balance: $329,000

Current home value: $260,000

What a lender sees is if they had to foreclose they would get $260K Max and be stuck being owed $69,000

So in response to your question will any lender re-fi this entire amount with only $260K backed by anything solid? Answer would be no. I'm not sure if even a non-reputable lender would touch it.

And what you just described is "upside down." It is unfortunate your friend is in this situation due to her own doing. This is a lesson to us all. Never risk your equity as equity is like a stock value. It can go up or down but it truly is only worth real money the day you sell.
 
ProfMoneyWise

ProfMoneyWise

Member
aps45819 said:
Of course her current lender getting 6% is going to tell her no.
She needs to ask competitors.
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Current lenders are jumping at the chance to re-fi current loans in that is generates loan application fee's and other re-finance type revenue that can be gained. Re-fi'ing with your current lender is called by most a "streamline refinance" and moves pretty fast relatively speaking.
 
ProfMoneyWise

ProfMoneyWise

Member
ProfMoneyWise said:
Current lenders are jumping at the chance to re-fi current loans in that is generates loan application fee's and other re-finance type revenue that can be gained. Re-fi'ing with your current lender is called by most a "streamline refinance" and moves pretty fast relatively speaking.
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Jumping at those that are not upside down that is.
 
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sweetpetutie

Member
ProfMoneyWise said:
Her original lender, as well as others, will tell her no for the following reason based upon the numbers you provided.

Original loan (and I'll assume home value now): $260,000

New loan based on value at the time: $334,000

Current loan balance: $329,000

Current home value: $260,000

What a lender sees is if they had to foreclose they would get $260K Max and be stuck being owed $69,000

So in response to your question will any lender re-fi this entire amount with only $260K backed by anything solid? Answer would be no. I'm not sure if even a non-reputable lender would touch it.

And what you just described is "upside down." It is unfortunate your friend is in this situation due to her own doing. This is a lesson to us all. Never risk your equity as equity is like a stock value. It can go up or down but it truly is only worth real money the day you sell.
Click to expand...

Thanks for some real information.
 
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