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I am sincerely puzzled and hope someone can explain to me what is going on. I am seeing and hearing about people I've personally known that have lost homes in the past recent years either to foreclosures or short sales that in a little over a year were able to purchase homes again. Only this time they didn't "downsize" or "humble" themselves, they "bought up". Seriously, how is this possible? And aren't we teaching people that to "upgrade" homes you simply walk away from your exisiting responsibilty and you'll come out a winner in the end?
Why would they need to downsize of humble themselves?
Depending on where you live the housing market has crashed so insanely that you can drastically cut your mortgage payment while moving into a larger home.
Out here in AZ you have 2,800 square foot homes going for 175,000. In 2006 1,600 square foot homes were going for 265,000. Throw in lower interest rates right now and it's still a big savings.
The house I'm in is valued 30% lower than what it was built for in 2001 - well before the boom.
I have friends and neighbors who bought in these starter home communities around 2004 - they now have families, etc and are looking to get into a house that fits there needs today ....... they can't sell because of the market
So it's a business decision
I really don't have a problem with it ....... this market isn't turning, there is no relief to those who have done the right thing, so at a certain point you need to be a little selfish, look out for your best interest and make a move
If they can afford their new place, more power to them.
Well my question was really how they were able to do it after a foreclosure or short sale. I thought those really wrecked credit scores and thus hindered any chances of qualifying for credit for many years. I also have been reading on here how other people that had short sales are now being pursued by collection agencies. I am very confused how someone can get a new mortgage under those circumstances.
Not all that much and it's a lot easier if you have cash.
There are so many of these going on you can't use a broad brush. Some are being persued, others negotiated the terms so that the difference is forgiven and no promissory notes are issued.
Some were in financial difficulties. Some were doing fine.
I think in a situation where you have someone "upgrading" through foreclosure/short sale you'll find more of the people who could afford their old condition - especially in short sale circumstances.
The short sale credit hit is a lot less (I've known people where the hit is 50-150 points ....... a lot will depend on where you start from).
You take someone with 760 credit, little debt and a decent amount of cash paying a $1,800 mortgage payment. Say they have $10,000 in savings. They go through the short sale, it costs them $2,500 of their savings and 150 points of credit. However, they settled their entire debt and are free & clear.
Move into a rental for the next year. Given the changes they can rent a home for $1,000 that is similar to what they had. They take that $800/mo and put it back into their savings adding $9,600 to their existing $7,500.
They now have $17,100 in cash. There is a home that is $200,000. This home used to go for $460,000 (only mentioned because the mortgage on that would be higher than what they were paying $1,800 for by a long shot and would be an "upgrade")
Using the current values though, that home is now obtainable. You can secure a 30 year fixed note for around $1,100/mo if you use the $17,100 as a down payment.
Your credit is going back up over the past year. Since you had such a high credit score to begin with there are really no dings. The only knock is the short sale - however, for the 8 years prior you never missed a payment that was $700 than proposed and for the last year you easily were making rent payments that were only $100 less.
The bank will look at this and take a calculated gamble. They have about 8% of a downpayment which provides some cushion if the market continues to fall. However, it probably won't fall drastically beyond that point and someone buying a long term solution type of home isn't going to panic if the value dips to $160,000 if they owe $182,900. Even in that case they'd be under a 1.2 LTV, which although not great is a loan that will look better than a lot of them that are out there. The person has no history of not paying and has paid much more that this in the past. It's not a bad loan to give out.
Also remember some of these owners abandoning their houses also lived in them rent-free for a year and a half, pocketing the cash. They also likely did not pay the (sometimes force-placed) homeowners' insurance, pocketing more cash. HOA dues, maybe, maybe not, some more money saved. Some also didn't bother paying the property taxes. With that kind of money saved, wouldn't it be possible to abandon your house and buy some other house for pocket change, at least in the most devastated of housing markets?
It really depends - I'll use my neighorhood as an example - say they were unfortunate enough to buy right at the peak when homes were selling for $265,000. Let's keep taxes & insurance out of escrow and make them nice to where they are paying it.
The mortgage payment if they were around 6.5% would be around $1,650 - most people were being forclosed on within 18 months - but even if it went that far that would be just under $30k. You're not going to buy much with $30k.
However, if you did hold that and then sat out the game for 2 years you'd be paying rent in the neighborhood of about $900 a month. That $750 difference goes into saving for 24 months and you have another $18,000.
Still aren't going to buy a home outright. But houses are now going for around $90,000 in the neighborhood. You'd be coming to the game with around half of the purchase price and even if they really wanted to crush you're interest rate with the foreclosure and went double what most are getting leaving you with 11% interest .... financing $45,000 over 30 years would still leave a note of only $430
So in this instance with the foreclosure and keeping the homes comparable they initially elimiated their cost of housing in the short term, replaced it with something that is $750 less than their historical before settling back into ownership a couple years later and saving $1,200 a month
Well my question was really how they were able to do it after a foreclosure or short sale. I thought those really wrecked credit scores and thus hindered any chances of qualifying for credit for many years. I also have been reading on here how other people that had short sales are now being pursued by collection agencies. I am very confused how someone can get a new mortgage under those circumstances.
They may have come into some money.
My neighbors (when I was a kid) were like that...got some inheritance...moved into a big house and within a few years couldn't afford it and were back into a cheaper house.
Either that or the short sale may not have wrecked their credit.
Don't sweat it...if they are making bad financial decisions it will catch up to them. It's like seeing someone decide to eat only McDonalds for a whole year...they might look on on the surface for a while but give it time.
If you foreclose or short sale your home you can buy again in 3 years. Foreclosing or a short sale on your home doesn't hurt your credit as much as many would think.
It also does mean they bought wisely this timje either and at reasohnable interest rates.Like ws siad they likely came into money as things have tightened up quite a bit that I have seen.
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