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Has anyone bought a new house while underwater with existing?

Discussion in 'Deed in Lieu of Foreclosure - Do You Need Help to ' started by tri-thunder, Feb 11, 2010.

  1. tri-thunder

    tri-thunder LoanSafe Member

    My question is has anyone bought a new house while being underwater in their current house?
    Did you then walk from the underwater home? Short sale it? Keep it and let it foreclose? Just curious. We had a mold test done in existing home and we're told we're clear.

    Jim
  2. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    I have seen people do this. However, I do not think it's a great idea to buy a home when the market is still going down. Most people will short sale.
  3. mattfree99

    mattfree99 LoanSafe Member

    Everybody will have a little different situation. I am thinking about buying a second home right now so we can save our first. Sounds funny I know, just there is some maddest to this logic.
    First thing unfortunately would be to cash out my retire account. Then I can buy a house outright no mortgage forever. At that point we could rent out the house we are in. And make up the difference between the rent amount and the mortgage.
    Or let the bank have the house underwater 80K.
    Seems like around here if you stay on top of the market, places are coming available for about half of what we owe on this place.
  4. Sparky06921

    Sparky06921 LoanSafe Member

    yes,

    We closed on a second property within the last 60 days while $200k underwater on our current home.
  5. it302

    it302 LoanSafe Member

    Sparky06921 could you give a few more details on your loan. What is your current mortgage on your first house? How much is the new mortgage?

    Would you mind giving a rough estimation of your yearly income.

    I'm wondering if my spouse and I could do this. (I'm on a mortgage for a townhome, underwater and we want to get a single family home at some point)
  6. tri-thunder

    tri-thunder LoanSafe Member

    Ditto to the request Sparky. I know that Bait and Bail as it's known is a form of mortgage fraud. I would be completely up front with the lender of the new home and let them know that I would intend to either rent out the old house or if it didn't rent, short sale and worst case, foreclose. We can't afford 2 house payments, and I'm not sure if a bank out there would touch this, but figured I'd ask. I can understand doing it if you have the resources, such as the retirement cashout or the income to afford it. But if I had the income to afford it, I would have the issues now...
    Can you walk us thru the process you and your providers used?

    Thanks,
    Jim
  7. kfedaz

    kfedaz LoanSafe Member

    I've heard of it called "buy and bail" rather than "bait and bail." As long as one is not lying on their paperwork, how is it considered mortgage fraud?
  8. Garry

    Garry LoanSafe Member

    I would like to think they have more important things to do rather than chase around homeowners trying to get them for mortgage fraud.
  9. mattfree99

    mattfree99 LoanSafe Member

    If one can afford the payments on two mortgages almost any bank will lend you the money. We can not afford one mortgage right now. If I was still working we could easily buy a second house right now, because of how low the prices have dropped. If your plan is to rent out your old house, banks will only consider 75 percent of the rental amount as income. Also one lender told me they want to see you buying up not down from your current house.
  10. jakelabry

    jakelabry LoanSafe Member

    Two things - telling the lender your intention will automatically get you turned down, and you would not get approved for the second house unless you could afford both payments. Either of these makes this an exercise in futility.
  11. tri-thunder

    tri-thunder LoanSafe Member

    kfedaz,
    You are correct. Buy and Bail.
  12. drowningvegas

    drowningvegas LoanSafe Member

    I tried this, but the debt-to-income with the balance owed on my condo made for a very small pre-qual number for me, and I was never able to lock down a house. I was working in the 100k or less buyers category, and every house here in that range was getting 10-15 offers (this was before the government decided to extend the $8k tax credit, so it was ultra competitive). I gave up and decided to walk away from this place... Best of luck to you! :)
  13. Sparky06921

    Sparky06921 LoanSafe Member

    Some of the information you ask in your requests is rather personal. My yearly income? I'm not trying to be rude but that's not a question you ask of anyone on a public board. I hope you understand. This board has been invaluable to me, but that's because I spent hours reading through the posts and asking the occassional question. In an effort to help others and give back some of the small amount of knowledge I've gained I will share the following.

    If you're underwater on your current property and you're interested in purchasing a second one, my best advice is as follows.

    1) Read the posts in this forum. I've spent hours upon hours reading most of them on this subject over several months and it helped me realize all of the implications involved in this. This board is a wealth of information, but no two situations are exactly the same.

    2) Find a good mortgage broker/lender who can take a look at your current financial situation, credit score and DTI ratios and tell you if and what you qualify for on a new mortgage. Careful, there are lots of sheisty mortgage people still out there who will steer you wrong or promise you things they can't deliver. In my situation none of the big banks would touch me on a mortgage unless I had a 20%-30% downpayment. I found a competent mortgage broker on a mortgage marketplace website that starts with a Z and rhymes with pillow. (Sorry, not sure if I can mention other sites on here.) I found them by READING the boards on that site and following the daily advice that they dispense. It doesn't take long to discover the good from the bad and who will deliver on what they promise. People can leave reviews about their experience with a particular lender/broker on that site and I decided to go with a very highly rated broker who is licensed to do business in my state (CA). I never once met my broker. I mostly communicated with them via email/fax and occassional telephone calls.

    3) You will need to show through income, that you can afford the payment on both homes regardless of any potential rental income if your putting a small amount down like I did. What "jakelabry" said is correct. Telling a potential lender your intent to possibly short sale or let foreclosure happen on your 1st house will automatically get you declined on another loan. Even if you can afford the payment on both homes, that will kill the deal. They don't want to hear that. What you tell them is up to you. I can't advise you on that nor divulge what my particular situation was because that's a real gray area & not finalized yet. I hope you understand. Read & use some common sense & you'll figure out should or shouldn't say & what you're comfortable saying or not saying.

    4) Geting a loan these days is not easy. Especially being upside down on a property. Be prepared to jump through a lot of hoops to satisfy the lenders requirements. Have clear and concise answers as to why you're purchasing a new house and what your intentions are with the 1st one. They will ask and you will have to put it down on paper. Understand what the potential implications of that are.

    Best of luck.
  14. Jumbo101

    Jumbo101 LoanSafe Member

    "Either of these makes this an exercise in futility.<!-- google_ad_section_end --> "

    This is not true for some. It is in fact the only option for some that have the means to purchase a second home. It has to do with your ratio's and if you can qualify for the second home. If you can, I assume you are talking to lenders and being quoted NOO loan rates?

    The lender thinks you are buying an investment property to rent out. You know what your intent is , but the lender does not need to know. You pay a slightly higher interest rate. Will the banks come after you? They are going to have a hard time in states like California. They get the original property and then they would have to prove intent to commit fraud.

    Why banks are not on the phone, to every high credit score borrower who puts in for another loan, trying to rework the original loan is beyond me. If I owned a bank and had already been bailed out of my toxic assests and I could keep people in the house and collect something I would. Alot of people I talk to would gladly pay what there original loan amount was if they could just get a prevailing rate and make the loan a 30 year fixed. No forgivness of principal, just a reduced rate. The current state makes it foolish for those with the means to not seriously consider the buy and bail.
  15. InMesaAZ

    InMesaAZ LoanSafe Member

    we did this. i'm actually surprised we got approved for as much as we did because we kept hearing about how strict the banks were getting. first home loan is 263k and that house is now upside down 110k, 2nd home we financed 280k. our credit scores are 800+ and yearly income is just under 100k. I consider us to be pretty good with money, we don't have cable or spend a lot otherwise, and have a decent amount in savings even with the expense of two properties.

    the first home is rented out at a loss. we did not go into this intending to buy and bail. i don't know if they ever investigate stuff like that or not. after dealing with trashy renters and having to pay nearly 1k of our own money every month towards ownership of the first house, i'm finally beginning to accept the idea of walking away.
  16. it302

    it302 LoanSafe Member

    Thank you InMesaAZ for providing all those numbers.

    Sparky06921, please accept my apologies. I did leave it perfectly open to you not to provide anything you didn't want to.

    InMesaAZ, that is actually really good news for me. My name is on a mortgage for a townhouse, owe 175k, probably worth 110k.
    My spouse and I make just over 100k and nice single family homes are going for 225-250k. Hopefully we too could get approved for 250k or so to really get something that will last through the time we have children. My credit score is just over 800 and hers is 750ish.

    Did you have a big down payment to go with the financing of 280k?
    Maybe we will buy and rent out the townhouse instead of just dumping it...

    Thanks for the info InMesaAZ!
  17. Sparky06921

    Sparky06921 LoanSafe Member

    No worries it302.

    If you read through some of my previous posts, my current mortgage info is in there.

    In my experience on loans, no lender will touch you on a conventional loan without a minimum of 20% or more down. I tried BofA, Chase, ect. They all told me to take a flying leap. Besides, allowable DTI ratios are lower on a conventional loan and we didn't qualify. I think we were at 51%.

    Our only alternative was an FHA loan. Minimum is 3.5% down. We put slightly more down than that to make our offer more attractive to the seller as we were competing with a lot of first time buyers. We bought a property in the $250k range.

    The funny thing is...2 weeks after our loan closed, it was purchased by one of those large banks that turned us down initially.
  18. InMesaAZ

    InMesaAZ LoanSafe Member

    we did FHA 3.5% down, it was a foreclosure so we put probably 10k worth of work into it before it was livable. you can always have a property manager look at your TH and determine what it would rent for, and see if that would be doable.

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