Our homeowner is hoping to sell his home through a short sale.
When one thinks of a short sale, what comes to mind are homebuyers who over-reached and bought homes they couldn't afford.
But, with the dramatic downward shift in home values, there are many average, hardworking homeowners who've been forced to go through a short sale. A short sale is when a homeowner sells a home for less than what is owed on it, and the bank agrees to discount the loan balance.
The blog recently talked to one of those homeowners, "Mike," 35, who purchased his very first place in Redlands, Calif., in September 2004 for $289,000 -- when the housing boom was going strong.
Drastically reduced home value
Mike financed 95 percent of his purchase of a 1,400-square-foot home with two mortgages -- a loan of just over $230,000 with a 5.125 percent fixed rate and interest-only payments for the first five years (that loan will reset to a 30-year adjustable rate in September), and a mortgage of about $43,000 with a 7.25 percent, 30-year fixed rate. He had a 5 percent down payment of $14,450.
"I
definitely borrowed within my means, and I didn't think I'd have
any problems if I had to sell it," he says.
Mike's not looking into a short sale because he's missing his mortgage payments (he hasn't missed one yet), but because he needs to move, and the market value of his house has fallen by at least $100,000. (Cyberhomes shows that the home values in his ZIP code have fallen 34.92 percent just over the past 12 months.) In today's real estate market, his house is likely to sell for much less than what he owes for it.
Mike, a product manager, has been commuting more than an hour each way to his job for more than a year. He's looked into renting out his home instead of trying to sell, but says the monthly rent he'd collect would be less than his mortgage payments -- about $1,900 a month.
"I
would be taking at least an $800 a month hit between mortgage and rent, and that'll
go up even more once my mortgage converts into an adjustable rate with
principle payments," he says.
Taking it to the bank
Mike's home is listed for $160,000 -- almost $130,000 less than what he paid for it. He received an offer for it at his asking price -- three months ago. He's taken the offer to his lender, Bank of America, and is waiting to hear whether or not they'll accept it.
If
the bank does take the price, Mike can move closer to his place
of employment. If they reject it, they’ll tell him the price they will accept. He just hopes they don't
come back with a price tag that makes it hard to find a buyer.
He'll be renting his next home, not buying one. "It’s pretty much wiped me out financially. I thought buying a home and putting money
into it would be a solid investment, but now I'm basically starting from
scratch again," he says.
Readers: Check the blog for updates on Mike's situation. Do you have any advice for him regarding his predicament?—Lauren Baier Kim