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We Got 100% Financing On Our Home But Once the Loan Adjusts We Won’t Be Able to Afford it. – KC

KC

“Dear Steve,

My husband and I have a 5/1 Adjustable Interest Only loan, as well as a HELOC loan because we did 100% financing. I’m no longer working (staying at home with new son), and my husband’s salary was recently cut 10%. We’ve given up a few luxuries (cable tv, saving for retirement, etc) in order to stay current on our mortgages, but once our rate adjusts in January I’m quite certain we’ll no longer be able to.

Another factor is our home value is now nearly half of what we owe on it ($246,000 down from $455,000) Now that we have a child, our 2 bedroom home is getting to be too small. We’d like to move on from our starter home, especially to a better school district, but I think we’d be willing to stay in this home for 3 or 4 more years if we can get a modification that makes sense and saves our credit. So far, BofA doesn’t want to talk to us unless we’re delinquent.

I’ve been considering going with MMI’s free counseling to help. Any thoughts on this? Are we so underwater now that we should look at walking away and going into foreclosure and possible bankruptcy? Some friends in the same situation are doing this and I wonder what the consequences (besides poor credit for 10 years) would be. I don’t take this lightly. I understand we have an obligation to pay our loans, it’s just that as of January, we won’t be able to without sacrificing necessities. Your advice is appreciated!

KC”

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The Answer

 

Dear KC,

You are so underwater on the loan that I doubt that Bank of America is going to come up with a loan modification plan.

Unfortunately you are just part of the next wave of mortgages that are going to default. These option ARM loans are toxic and bad news.

If housing values had doubled instead of dropped by half, you’d feel like a genius. But as it is you feel like a failure.

Bankruptcy can be recovered from. The irony is that only by going bankrupt do you even have a shot at saving up money for a new home in the future. The shock to your credit report can be repaired.

Unfortunately Congress never passed legislation that would have given bankruptcy judges the authority to drive down the mortgage balance to current values. If this had been your second or vacation home, they can do that already, just not on your primary residence. Crazy.

You can certainly go and talk to any HUD approved housing counselor but at the same time you need to find a local bankruptcy attorney and make an appointment for a free bankruptcy consultation. You need to hear both sides of the story to understand which path is best for you.

If I was to bet, I think you’ll decide that walking away from the home and starting over is the most logical path to follow.

Big Hug!

We Got 100% Financing On Our Home But Once the Loan Adjusts We Wont Be Able to Afford it.   KC
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Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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