A conundrum
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I'm not sure if you've really understood the dynamic.
Suppose you buy for $700k, pay off $50k, but then the market collapses and the property is only worth $600k.
You'll be $50k better off if you just stop paying and let the bank foreclose.
wrote last edited by [email protected]I seem to completely misunderstand the dynamic.
As I see it, you have paid $700k for the house with the bank's money (in this thread there is no deposit), bought back some of the house from the bank with $50k of your own money and then lost the house so you're out $50k with no house.
If the bank does pay out some of the value of the house to you based on equity, it's just going to be a smaller amount than $50k since the value of the house is lower and part of your repayment went to interest so you don't even get $50k worth of equity. This feels like a worse position to me.
Like the bank has lost money for sure, but we are not getting that are we?
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My issue wasn't getting pre-approved, it was being able to actually afford the mortgage amount I was pre-approved for. A lot of these companies don't give a damn if you can actually afford the mortgages they offer, because they know you'll either figure it out or go homeless trying.
We probably live in different countries, but where I live it's more like you can't get pre-approved for anything unless you either have a large amount of money saved up, or your salary is high enough that it's far beyond what you would reasonably need to get paid to afford the mortgage.
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I seem to completely misunderstand the dynamic.
As I see it, you have paid $700k for the house with the bank's money (in this thread there is no deposit), bought back some of the house from the bank with $50k of your own money and then lost the house so you're out $50k with no house.
If the bank does pay out some of the value of the house to you based on equity, it's just going to be a smaller amount than $50k since the value of the house is lower and part of your repayment went to interest so you don't even get $50k worth of equity. This feels like a worse position to me.
Like the bank has lost money for sure, but we are not getting that are we?
You're overthinking it.
The loan history is not relevant. The $50k you paid is gone. Sunk costs fallacy and all that.
A mortgage isn't a complicated shared equity situation.
You owe the bank $650k and if you don't pay they will take the house worth $600k.
Obviously if you default there will be legal problems and you're still on the hook for the last $50k and so on, but there's no incentive to keep paying. Like if you declare bankruptcy then you don't have to pay the $50k and you can start saving for a deposit on your next house for when the exclusion period expires.
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Bad take. In my situation it went from us paying $1900 in rent to paying $4500 in mortgage.
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Braindead take? This is just the reality of the situation for a lot of people
Mortgage payments are almost never lower than rent unless you are seriously downgrading
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My issue wasn't getting pre-approved, it was being able to actually afford the mortgage amount I was pre-approved for. A lot of these companies don't give a damn if you can actually afford the mortgages they offer, because they know you'll either figure it out or go homeless trying.
Fudging the numbers a bit, but let's say I'm paying $3000/mo for a mortgage. Brokers tell me I can afford $10,000/mo.
I cannot afford $10,000/mo.
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Mortgage payments are almost never lower than rent unless you are seriously downgrading
Given the figures are in pound sterling, quite often in the UK the mortgage payments are signficiantly lower than renting, 100% makes sense when in the context of the British housing market.
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Bad take. In my situation it went from us paying $1900 in rent to paying $4500 in mortgage.
Well you made a choice. Either you knew you could make the payments for the price range you bought into, or you didn't read the repayments figures on any of the documents the bank sent you and made a massive decision uninformed.
I pay 20% more for my mortgage than I did on my rent, but the house is also better, I can easily afford it, and I made that choice willingly and I'm happy with that arrangement.
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We probably live in different countries, but where I live it's more like you can't get pre-approved for anything unless you either have a large amount of money saved up, or your salary is high enough that it's far beyond what you would reasonably need to get paid to afford the mortgage.
You live in Germany don't you
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I'm not sure if you've really understood the dynamic.
Suppose you buy for $700k, pay off $50k, but then the market collapses and the property is only worth $600k.
You'll be $50k better off if you just stop paying and let the bank foreclose.
You’ll be $50k better off if you just stop paying and let the bank foreclose.
And do what? Live under a bridge? You would still have to buy a new house. Are you going to find similar house at $600k easily? Are interest rates still low despite market collapse? Will banks lend you money if just foreclosed?
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Well you made a choice. Either you knew you could make the payments for the price range you bought into, or you didn't read the repayments figures on any of the documents the bank sent you and made a massive decision uninformed.
I pay 20% more for my mortgage than I did on my rent, but the house is also better, I can easily afford it, and I made that choice willingly and I'm happy with that arrangement.
wrote last edited by [email protected]The bad take I was referring to was OP claiming the mortgage payment would be lower than the rent payment. In the US this is almost never the case. Edit: we have fixed rate mortgages in the US. My payment will only go up because of taxes or insurance.
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Mortgage payments are almost never lower than rent unless you are seriously downgrading
I bought my first apartment because it was like €500 per month cheaper than renting a similar place. ¯\_(ツ)_/¯
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You’ll be $50k better off if you just stop paying and let the bank foreclose.
And do what? Live under a bridge? You would still have to buy a new house. Are you going to find similar house at $600k easily? Are interest rates still low despite market collapse? Will banks lend you money if just foreclosed?
Don't be daft.
I'm not providing advice regarding what someone ought to do when they find themselves in negative equity.
I'm explaining the requirement for buyers to start with a reasonable amount of equity.
Once an owner falls into negative equity, they have an incentive to default on the loan. Yes there will be consequences, but the fact remains they will he weighing those consequences against the financial incentive to default.
The "better off" in my comment is an impartial objective calculation.
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Don't be daft.
I'm not providing advice regarding what someone ought to do when they find themselves in negative equity.
I'm explaining the requirement for buyers to start with a reasonable amount of equity.
Once an owner falls into negative equity, they have an incentive to default on the loan. Yes there will be consequences, but the fact remains they will he weighing those consequences against the financial incentive to default.
The "better off" in my comment is an impartial objective calculation.
But what you're saying is simply not true. Where I live you have to provide 20% of equity to get a mortgage but you can't default when the prices go down. No bank offers mortgage covered in 100% by the house. If you owe the bank $600k you owe then $600k, that's it. If you default and you're house now only costs $500k you still owe them $100k.
So the 20% requirement has nothing to do with negative equity protections. It's to limit the banks exposure in case you're unable to pay.
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Mortgage payments are almost never lower than rent unless you are seriously downgrading
Here in the UK rent is always much higher than mortgage payments. Where do you live?
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Mortgage payments are almost never lower than rent unless you are seriously downgrading
Mortgage payments are almost universally lower than rent payments. With rent, you're paying for upkeep, maintenance, administration, a profit margin and the landlord's mortgage.
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You're overthinking it.
The loan history is not relevant. The $50k you paid is gone. Sunk costs fallacy and all that.
A mortgage isn't a complicated shared equity situation.
You owe the bank $650k and if you don't pay they will take the house worth $600k.
Obviously if you default there will be legal problems and you're still on the hook for the last $50k and so on, but there's no incentive to keep paying. Like if you declare bankruptcy then you don't have to pay the $50k and you can start saving for a deposit on your next house for when the exclusion period expires.
Declaring bankruptcy would only be beneficial if the housing market fully crashed and it went down in price significantly and you don't think it'll be going back up within the next few years.
Not to mention it'll be a lot harder to get a house in the future if you did that, and you'd get all the other downsides of bankruptcy as well.
Not to mention, this is all under a stay that assumes you'd actually be able to buy a house without a significant deposit.
Under the current system, it'd be an even bigger setback because if the house did lose a lot of value, now you're also out a huge amount of money, still have to pay the full loan anyway, and it might take years to save up enough again to get a future house.
Basically, the banks are operating more as insurance gamblers now than they are lenders, because no matter what they win big. Even though banks should primarily work as centralized financial institutions rather than businesses, because otherwise they cause huge ramifications for the economy.
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The bad take I was referring to was OP claiming the mortgage payment would be lower than the rent payment. In the US this is almost never the case. Edit: we have fixed rate mortgages in the US. My payment will only go up because of taxes or insurance.
Most countries have fixed-rate mortgages. Most rental properties are also mortgaged. So a renter is paying for maintenance/insurance/tax costs, the landlord's profits margin and the landlord's mortgage.
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But what you're saying is simply not true. Where I live you have to provide 20% of equity to get a mortgage but you can't default when the prices go down. No bank offers mortgage covered in 100% by the house. If you owe the bank $600k you owe then $600k, that's it. If you default and you're house now only costs $500k you still owe them $100k.
So the 20% requirement has nothing to do with negative equity protections. It's to limit the banks exposure in case you're unable to pay.
Sorry chief, you're just not picking up what I'm laying down.
Of course you still owe the money, you're just much less likely to pay.
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Sorry chief, you're just not picking up what I'm laying down.
Of course you still owe the money, you're just much less likely to pay.
I don't know how this works in US but where I live when you owe bank money they will simply garnish your wages and benefits. No one is defaulting on their mortgage to save money. That's just not a thing. I personally know people who were paying their mortgages for many many years even though their house was worth way less then the mortgage. You just suck it up and hope the price will eventually go up. If it doesn't it's still better then living on the street.
