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What's your opinion of people who are underwater on their mortgages?
Posted on 6/16/15 at 12:02 pm
Posted on 6/16/15 at 12:02 pm
The conventional wisdom that we're all told growing up is that renting a home or apartment is 'throwing away money', and that the best financial move is to purchase a home as soon as you can afford 20% down. The idea is that you will both create equity in the home over time with your principle, as well as with the appreciation of the home.
So suppose someone bought a house for 200K in Arizona in 2008, and the home prices in the area tank without warning. Before you know it, they're 60K underwater on the mortgage after making what conventional wisdom would say is a good financial decision. For a lot of people, 60K is a crippling amount of money to lose.
Is it their fault that the home lost value? Do you think they owe the bank the full price of the home? Would you sit on a home like that for years to pay back the 60K loss you sustained?
Personally I think the answer to all three questions should be yes, and that the conventional 'wisdom' of home ownership is flawed, but I'd like to hear some other opinions.
ETA: sorry, not their fault that the home lost value, but the risk of that happening is entirely their responsibility.
So suppose someone bought a house for 200K in Arizona in 2008, and the home prices in the area tank without warning. Before you know it, they're 60K underwater on the mortgage after making what conventional wisdom would say is a good financial decision. For a lot of people, 60K is a crippling amount of money to lose.
Is it their fault that the home lost value? Do you think they owe the bank the full price of the home? Would you sit on a home like that for years to pay back the 60K loss you sustained?
Personally I think the answer to all three questions should be yes, and that the conventional 'wisdom' of home ownership is flawed, but I'd like to hear some other opinions.
ETA: sorry, not their fault that the home lost value, but the risk of that happening is entirely their responsibility.
This post was edited on 6/16/15 at 12:05 pm
39
Posted on 6/16/15 at 12:03 pm to gorillacoco
this thread is underwater
Posted on 6/16/15 at 12:04 pm to gorillacoco
Take money you would spend on mortgage
Spend on lotto tickets
Profit
Spend on lotto tickets
Profit
Posted on 6/16/15 at 12:04 pm to gorillacoco
quote:
So suppose someone bought a house for 200K in Arizona in 2008
You could barely find condos in decent neighborhoods for that price in 2008 around here(before the bubble burst). Your friend must live in the ghetto.
Also....it's 2015, so in 7 years those prices should have come back up.
This post was edited on 6/16/15 at 12:06 pm
Posted on 6/16/15 at 12:05 pm to gorillacoco
You pay so much in mortgage interest (and mortgage insurance, depending) over the years that "building equity" is incredibly misleading. Not to mention property taxes, homeowners insurance, maintenance, etc.
Buying a home is not an "investment", it's simply you buying a home vs. renting it.
Buying a home is not an "investment", it's simply you buying a home vs. renting it.
Posted on 6/16/15 at 12:05 pm to gorillacoco
quote:
Personally I think the answer to all three questions should be yes, and that the conventional 'wisdom' of home ownership is flawed, but I'd like to hear some other opinions.
I agree that the answers should be "yes" but disagree that the wisdom is flawed. The wisdom is sound, it's just that many people don't do adequate research ahead of time.
Posted on 6/16/15 at 12:05 pm to gorillacoco
why did they lose the money? why are they trying to sell?
conventional wisdom says if you buy high, the market drops out....well don't be a dumb arse and try to sell it right away. Hold on to it and let it come back up.
Never understood people freaking out over being underwater. If you could afford the note before and locked in a good rate, why does it matter what your the price does day to day. If its an investment than has to be a long term investment.
maybe I am missing something, i dunno.
conventional wisdom says if you buy high, the market drops out....well don't be a dumb arse and try to sell it right away. Hold on to it and let it come back up.
Never understood people freaking out over being underwater. If you could afford the note before and locked in a good rate, why does it matter what your the price does day to day. If its an investment than has to be a long term investment.
maybe I am missing something, i dunno.
Posted on 6/16/15 at 12:05 pm to lsunurse
quote:
You could barely find condos in decent neighborhoods for that price in 2008 around here. Your friend must live in the ghetto.
Also....it's 2015, so in 7 years those prices should have come back up.
It's a hypothetical. Say it happened two years ago.
Posted on 6/16/15 at 12:06 pm to gorillacoco
Paid cash for my home and rebuilt it over 10 years paying cash. Think I came out better than a mortgage.
Posted on 6/16/15 at 12:06 pm to Chad504boy
If you're guided by morals, you pay it back. You borrowed the money and spent it as you wished. You owe the money back to the bank. Not the popular answer I'm sure, thus the preface.
Posted on 6/16/15 at 12:07 pm to kilo1234
quote:
You pay so much in mortgage interest (and mortgage insurance, depending) over the years that "building equity" is incredibly misleading. Not to mention property taxes, homeowners insurance, maintenance, etc.
I agree with this statement. Most people (especially at the beginning of a mortgage) pay far more in interest, additional utilities, property tax, insurance, and maintenance than they ever would living in an apartment.
Posted on 6/16/15 at 12:07 pm to gorillacoco
I don't think it is anyone's fault that the value went down in most cases. Most of those circumstances are beyond an individual's control, unless they knowingly moved into a declining neighborhood.
Should they owe the bank full price? Yes, however, if someone has to leave early for a job or something beyond their control they should have some options.
Would I sit on it and pay it? What choice do you have? Walking away is not a good option for a responsible person.
I found myself in this situation within the last few years. (Not 60k under, but under nonetheless). We dug in and started paying extra every month. If I had to sell today I would no longer lose money on the sale. We were so inspired we continue paying it down every month. It became a positive trend to not be in that situation again. It was not our fault as the value went up and then went down more. It was my fault for using equity and tacking on to the mortgage after I bought it. But since I paid that part off recently, I feel much better and it was a lesson learned type thing.
Should they owe the bank full price? Yes, however, if someone has to leave early for a job or something beyond their control they should have some options.
Would I sit on it and pay it? What choice do you have? Walking away is not a good option for a responsible person.
I found myself in this situation within the last few years. (Not 60k under, but under nonetheless). We dug in and started paying extra every month. If I had to sell today I would no longer lose money on the sale. We were so inspired we continue paying it down every month. It became a positive trend to not be in that situation again. It was not our fault as the value went up and then went down more. It was my fault for using equity and tacking on to the mortgage after I bought it. But since I paid that part off recently, I feel much better and it was a lesson learned type thing.
Posted on 6/16/15 at 12:07 pm to gorillacoco
quote:
For a lot of people, 60K is a crippling amount of money to lose.
if they stay in the house then they don't lose anything.
Posted on 6/16/15 at 12:07 pm to lsu777
quote:
why are they trying to sell?
let's say they get a job offer somewhere else.
Posted on 6/16/15 at 12:07 pm to gorillacoco
There's a great board for this thread.
Posted on 6/16/15 at 12:08 pm to rondo
quote:
if they stay in the house then they don't lose anything.
okay lets say they get a job offer elsewhere
Posted on 6/16/15 at 12:08 pm to gorillacoco
I bought a home in Orlando in 2006 for $293K. Six years later the place appraised at $135K. That left us 95K underwater at the time.
My only regret is that we didn't just foreclose on the place. Instead we did what's called a deed-in-leui of foreclosure, that cost us an extra $25K in attys. fees and payments to the mortgage company to get out of the mortgage.
I absolutely would not have been worse off if I simply walked away from the place on a straight foreclosure.
Oh, but what about my God almighty credit, didn't it plunge off the face of the earth? Today my credit score is 797.
Today I rent, and the money I save--about $11K a year--I invest.
I've never been happier.
My only regret is that we didn't just foreclose on the place. Instead we did what's called a deed-in-leui of foreclosure, that cost us an extra $25K in attys. fees and payments to the mortgage company to get out of the mortgage.
I absolutely would not have been worse off if I simply walked away from the place on a straight foreclosure.
Oh, but what about my God almighty credit, didn't it plunge off the face of the earth? Today my credit score is 797.
Today I rent, and the money I save--about $11K a year--I invest.
I've never been happier.
Posted on 6/16/15 at 12:09 pm to gorillacoco
Gotcha. I saw a lot of friends and coworkers lose their homes back then. Made me glad I was not a homeowner then. I think it's also why my husband and I never had the strong desire to own a home and are content renting for the moment.
Posted on 6/16/15 at 12:09 pm to LSU1NSEC
Financing 95-100% is a poor decision. You might as well rent.
If you have 25% or more cash down you are in buisness.
If you have 25% or more cash down you are in buisness.
Posted on 6/16/15 at 12:09 pm to gorillacoco
quote:
The conventional wisdom that we're all told growing up is that renting a home or apartment is 'throwing money', and that the best financial move is to purchase a home as soon as you can afford 20% down
The bolded part simply isn't true. Most people were raised that owning your own home was the American dream. There was no 20% down rule for most Americans growing up.
ETA: Yes, it's prudent to save 20% to reduce costs. It's also silly to rent when you could own if you are stable in your career and aren't leaving the area you live in. Houses generally build value over time.
This post was edited on 6/16/15 at 12:12 pm
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