Help me through with this logic....

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Anteater Alum_IHB

Anteater Alum_IHB

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If I sell my current home to move into a cheaper home but closer to work, I will likely lose my entire downpayment due to market correction. In order to buy another home, I would have to come up with 20% down. Therefore, I would incur losses of the previous downpayment and then fork out $ for new downpayment. Based on my estimate of differential in monthly mortgages, it would take me 6-7 years to recoup the losses from the previous home.



So am I better off staying put? Save the 20% downpayment and just weather this storm? Thanks.
 
[quote author="Anteater Alum" date=1226728503]If I sell my current home to move into a cheaper home but closer to work, I will likely lose my entire downpayment due to market correction. In order to buy another home, I would have to come up with 20% down. Therefore, I would incur losses of the previous downpayment and then fork out $ for new downpayment. Based on my estimate of differential in monthly mortgages, it would take me 6-7 years to recoup the losses from the previous home.



So am I better off staying put? Save the 20% downpayment and just weather this storm? Thanks.</blockquote>


No, not if renting is way cheaper than owning.
 
[quote author="Anteater Alum" date=1226728503]If I sell my current home to move into a cheaper home but closer to work, I will likely lose my entire downpayment due to market correction. In order to buy another home, I would have to come up with 20% down. Therefore, I would incur losses of the previous downpayment and then fork out $ for new downpayment. Based on my estimate of differential in monthly mortgages, it would take me 6-7 years to recoup the losses from the previous home.



So am I better off staying put? Save the 20% downpayment and just weather this storm? Thanks.</blockquote>


1. You have already lost your downpayment, sold or not.

2. You will pay selling costs when you sell (whenever that is).

3. You will pay purchasing costs when you buy (also, whenever that is).



You have several options:



A. You can sell and buy - incurring all costs now.

B. You can sell and rent - incurring costs #1 and #2 now, and deferring cost #3 until later.

C. You can "stay put" - incurring only cost #1 now.



The rest is up to you. Place your bets.
 
Very good question. Look at it this way: your downpayment is a sunk cost. It is gone. Forget about it. The real question you have to answer is how long are you willing to wait to get a new 20% downpayment, and how much are you willing to sacrifice to get one.



Your existing house has no current equity value, but it does have option value. If you believe house prices will go up, then you don't have to do anything, and your 20% downpayment will appear by magic. If you believe house prices will go down, stay down for a while, then slowly creep up, you can wait 15 years for your downpayment to appear by magic. If you are unwilling to wait 15 years, and if you are willing to sacrifice to save for a downpayment, you can do that, and depending on how much you sacrifice in order to save, you can have your 20% downpayment much quicker.



I don't see any other options for you.
 
Like IPO and IR2 says... you have another option besides sell and buy now... sell, rent now and buy later.



You will probably find you will recoup your losses sooner than your original scenario.
 
Here is some real advice - stop making your payments for 90 days, hell make it 6 months, call your bank and get a principal reduction to 90% of the current value of your home to at least give you 10% equity and stay put. This is one of the few times you will be able to get a handout from the fed government, better take advantage while you can! If our tax dollars are bailing out people across the country the least we can do is help out a fellow IHBer.
 
[quote author="qwerty" date=1226733232]Here is some real advice - stop making your payments for 90 days, hell make it 6 months, call your bank and get a principal reduction to 90% of the current value of your home to at least give you 10% equity and stay put. This is one of the few times you will be able to get a handout from the fed government, better take advantage while you can! If our tax dollars are bailing out people across the country the least we can do is help out a fellow IHBer.</blockquote>


I hate your comment. But I hate so much more the fact that it is true.



You save taxes by being an homeowner plus you get bailed-out...crazy world out there.
 
[quote author="IrvineRealtor" date=1226729857][quote author="Anteater Alum" date=1226728503]If I sell my current home to move into a cheaper home but closer to work, I will likely lose my entire downpayment due to market correction. In order to buy another home, I would have to come up with 20% down. Therefore, I would incur losses of the previous downpayment and then fork out $ for new downpayment. Based on my estimate of differential in monthly mortgages, it would take me 6-7 years to recoup the losses from the previous home.



So am I better off staying put? Save the 20% downpayment and just weather this storm? Thanks.</blockquote>


1. You have already lost your downpayment, sold or not.

2. You will pay selling costs when you sell (whenever that is).

3. You will pay purchasing costs when you buy (also, whenever that is).



You have several options:



A. You can sell and buy - incurring all costs now.

B. You can sell and rent - incurring costs #1 and #2 now, and deferring cost #3 until later.

C. You can "stay put" - incurring only cost #1 now.



The rest is up to you. Place your bets.</blockquote>


You pretty much summarized the current market. There are no move-up buyers since almost no once as equity left.



7 years is a good estimate of the time needed to build 20% downpayment.



You can probably save hundreds of dollars by month renting out now, this could help you build another downpayment.



You could check housing swaps on craiglist.
 
[quote author="Roo" date=1226733688]You pretty much summarized the current market. There are no move-up buyers since almost no once as equity left.



7 years is a good estimate of the time needed to build 20% downpayment. </blockquote>


Lets consider those two thoughts for a minute..........
 
[quote author="qwerty" date=1226733232]Here is some real advice - stop making your payments for 90 days, hell make it 6 months, call your bank and get a principal reduction to 90% of the current value of your home to at least give you 10% equity and stay put. This is one of the few times you will be able to get a handout from the fed government, better take advantage while you can! If our tax dollars are bailing out people across the country the least we can do is help out a fellow IHBer.</blockquote>


Actually, the is probably very sound financial advice... If I was in the same situation, I might consider doing that.
 
<blockquote>If you believe house prices will go up, then you don?t have to do anything, and your 20% downpayment will appear by magic.</blockquote>


Tinker Bell economics! I like!



Funny, I didn't see that mentioned in The Book...
 
[quote author="effenheimer" date=1226739599]<blockquote>If you believe house prices will go up, then you don?t have to do anything, and your 20% downpayment will appear by magic.</blockquote>


Tinker Bell economics! I like!



Funny, I didn't see that mentioned in The Book...</blockquote>


The seductive magic of property appreciation... I guess I need to lay off the kool aid.
 
Points well taken. Problem is I'm a numbnut that can still make my payment and don't want to wreck great credit. In a previous thread someone stated that the current lower interest cost is worth something. Oh so true. When I consider buying even at a lower price point and with a 20 percent down, a conforming rate is still higher than my current jumbo. All in, and this very warped thinking, I'm better off staying put and try to payoff this home in 7 to 10 years. Factoring in the sunk cost of the downpayment, higher interest cost at prevailing market rates and transaction cost, I've just talk myself into staying.



This is sick.
 
[quote author="Anteater Alum" date=1226742627]Points well taken. Problem is I'm a numbnut that can still make my payment and don't want to wreck great credit. In a previous thread someone stated that the current lower interest cost is worth something. Oh so true. When I consider buying even at a lower price point and with a 20 percent down, a conforming rate is still higher than my current jumbo. All in, and this very warped thinking, I'm better off staying put and try to payoff this home in 7 to 10 years. Factoring in the sunk cost of the downpayment, higher interest cost at prevailing market rates and transaction cost, I've just talk myself into staying.



This is sick.</blockquote>


AA - Great comment. You've just pointed out the great question mark of the Alt-A dilemma.



Subprime borrowers had a history of not making payments. Duh. That's why they had poor credit scores already. There should be no surprise that this pool of buyers defaulted/walked/got evicted.



Alt-A buyers at least had a history of making payments, on time, and in full. Even though the numbers might not wash, the question is whether or not they will stretch themselves to make payments for fear of "wrecking great credit." My hypothesis is that they will as long as they can, in spite of the bass-ackwardness of it all. That's what I've observed so far. But I've been wrong before ("plenty", shouts Mrs. Deuce.) and this dance has just started, we all know. Time will tell.



The wild-card as I see it continues to be employment figures. If there is no job, there is no paycheck, and even those that would pay will not be able to. <em>(reminding myself of another reason to thank GITOC for posting jobs numbers)</em>



The credit is a security blanket. It gives us the feeling that we have one more layer of protection against the unknown.
 
the following is from



http://blogmaverick.com/2008/11/11/homes-vs-stocks/



written by Mark Cuban, a bona fide billionaire investor who I've read for about 10 years now, and I agree with most of what he writes. This is from 3 days ago and is his take on situations facing many people which is probably similar to yours.



-------------



So whats the difference between being underwater on a mortgage and underwater on a stock ? Is it that ?experts? will tell you to hold the stock in hopes of it going up in value and then explain that those with homes worth less than their mortgages shouldn?t feel bad about breaking their mortgages and defaulting ?



I think ?Buy and Hold? for stocks is one of the all time great marketing scams. Ignore it. Always.



?Buy and Hold? for your house is a mantra you should always live by. The difference ?



You can live in your house. You get utility from your house. You may get a deduction for interest paid on your tax bill. You can develop a positive emotional attachment to a house.



A share of stock?.well you can?you can look up the price anytime you want if you think thats fun. There is no utility of a share of stock beyond its financial value. The value of a house is that its your home.



The fact that you may be underwater in your mortgage is of no relevance if you can make the payments.



If you can make the payments on your mortgage, it shouldnt matter if your house is worth 10pct of your mortgage. If you can make the payments, make them.



My last house, I remember being freaked out watching as my rate on my Adjustable Rate Mortgage went up and up as I watched the value of my house go down. For 2 years my rate went up, my house value went down. Fortunately, I liked living there. I wasnt building any equity, in fact, I was negative, but I was going to have to pay to live somewhere. On top of everything, my credit was bad enough, I didn?t want to make it any worse. In fact, I knew that if I didn?t make the payments on my house, my chances of ever owning a house again were none and none. So I kept paying the note every month. In spite of the financial pain.



Then a funny thing happened. Interest rates started to go down. I didnt even know it until I got my annual notice saying that my mortgage payment would go down. The value of my house wasnt going up, but for the next several years, my payments went down. It took years, but I actually built equity in the house.



Which is exactly the point. Buy and hold works when it comes to the HOME you LIVE IN. Turning in the keys because you have negative equity is a fool?s game. If you do, YOU WILL NEVER OWN A HOUSE.You will be a renter FOREVER.



Your home has far more value than its mark to market price because you can live in it . Do whatever you can to stick it out. It will pay off for you in the long run
 
[quote author="fumbling" date=1226747939]



Your home has far more value than its mark to market price because you can live in it . Do whatever you can to stick it out. It will pay off for you in the long run</blockquote>


IF you want to live there.



OP wants to move.
 
[quote author="fumbling" date=1226747939]Which is exactly the point. Buy and hold works when it comes to the HOME you LIVE IN. Turning in the keys because you have negative equity is a fool?s game. If you do, YOU WILL NEVER OWN A HOUSE.You will be a renter FOREVER.</blockquote>


Interesting perspective on the market. Statements like this one sound like they come from a realtor: It is complete bullshit. This guy is either heavily invested in real estate, being paid by the NAR, or totally clueless.
 
[quote author="ipoplaya" date=1226737620][quote author="qwerty" date=1226733232]Here is some real advice - stop making your payments for 90 days, hell make it 6 months, call your bank and get a principal reduction to 90% of the current value of your home to at least give you 10% equity and stay put. This is one of the few times you will be able to get a handout from the fed government, better take advantage while you can! If our tax dollars are bailing out people across the country the least we can do is help out a fellow IHBer.</blockquote>


Actually, the is probably very sound financial advice... If I was in the same situation, I might consider doing that.</blockquote>
And if he doesn't get a decrease in the principal reduction and the bank is unwilling to work with him then just live rent free for about a year (you'll be able to save a bunch for your next downpayment). Yes he'll take a hit to your credit, but after being a good boy for 3-4 years on the credit side hell have a FICO of over 720.
 
[quote author="Anteater Alum" date=1226742627]Points well taken. Problem is I'm a numbnut that can still make my payment and don't want to wreck great credit. In a previous thread someone stated that the current lower interest cost is worth something. Oh so true. When I consider buying even at a lower price point and with a 20 percent down, a conforming rate is still higher than my current jumbo. All in, and this very warped thinking, I'm better off staying put and try to payoff this home in 7 to 10 years. Factoring in the sunk cost of the downpayment, higher interest cost at prevailing market rates and transaction cost, I've just talk myself into staying.



This is sick.</blockquote>


You should not factor in the sunk cost of the downpayment. A <a href="http://changingminds.org/explanations/theories/sunk-cost_effect.htm">sunk cost</a> is supposed to be ignored. The cost is sunk. There is nothing you can do about it.



I don't know what you should do, but if a sunk cost is factoring in to your decision making, you are making a mistake.
 
[quote author="Anteater Alum" date=1226742627]Points well taken. Problem is I'm a numbnut that can still make my payment and don't want to wreck great credit. In a previous thread someone stated that the current lower interest cost is worth something. Oh so true. When I consider buying even at a lower price point and with a 20 percent down, a conforming rate is still higher than my current jumbo. All in, and this very warped thinking, I'm better off staying put and try to payoff this home in 7 to 10 years. Factoring in the sunk cost of the downpayment, higher interest cost at prevailing market rates and transaction cost, I've just talk myself into staying.



This is sick.</blockquote>
Good credit may be overrated in the current environment that we are in. I mean, rates are going up for everyone including the ones that have great credit. Hell, you can't even get loans now even if you have great credit. Having good credit is fine only if you can use it. I'm not saying to stop paying your bills, but I wouldn't be too concerned on taking a hit to your credit if it puts you ahead financially in the long run because as I said if you pay your bills on time after a foreclosure you'll have good credit again in 3-4 years (just how the system works).
 
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