The District Chronicles

Issue date: 12/7/08 Section: Business

Media Credit: Freddie Allen

This is part two of a three part column. In part one, a homeowner stated he had previously been approved for a $200,000 full documentation purchase loan and bought a $442,000 house instead, using a different lender. He stated his income (meaning it was not verified), financed 100% of the purchase price, and rolled the closing costs into the loan for a total loan amount of $454,000. This loan was made by a top national lender. His total "debt-to-income" ratio is 74%, meaning that 74% of his gross (pretax) income is spent on his mortgage. The last column spoke about the dire situation he is in. This column will outline some suggestions for him. He signed his name "No Name Please".

Dear NNP,

You are in a real jam. To get yourself out of this jam, you should start by making a budget of all your monthly expenses - car payment, car insurance, property taxes, homeowner's insurance, child support, gas, food, car repair, medical insurance, you name it. Without knowing what your monthly expenses are, there is no way to know if anything I am about to recommend will actually work for you.

As I said in my last column, refinancing to a lower interest rate would not save you a significant enough amount of money to make a difference. In this situation, you could save about $430/month, but an extra $430/month will not even pay for the property taxes, which the current mortgage does not escrow. There are other drawbacks to refinancing as well - it costs money, and would have to be paid for from cash in your pocket (which you do not have) or through stripping any remaining equity out of your home, which you may not have.

Selling your property is also not an easy or necessarily workable option. To break even on the house, after paying the realtors' commission (assume a 6% split in your area) and transfer taxes (2.2% in your area), your house would have to sell for $495,000 for you to pay back that $454,000 loan. I spoke to Karen Keith (www.karenkeith.com), a realtor with ReMax Specialists in Maryland, about your situation.

In your neighborhood, there are a few homes for sale, including one that is similar to yours for $417,000. The general price range was from $365,000 - $475,000 and houses have been sitting for 60 - 145 days. It is highly unlikely that you will sell your house in a timely manner for $495,000. You may actually be "upside down" on your house - meaning that you may owe more on the house than it is currently worth.

Continued...

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