November 28th, 2007 2:59 PM by BILL WILBANKS
"I owe more than my house is worth"
I just had a customer question arise that I could not help with today. It was typical for many folks unfortunately. Here goes:
The customer was self-employed and needed to do a no income verification program two years ago to take some cash out of the home he had owned and lived in for a number of years. He also had a middle credit score at that time that was said to be a few points below 620. He ended up with a 2/28 ARM to qualify, that already had a rate before it adjusts in two months that is over 7% for the first two years. He didn't know if there was a penalty to pay it off early (my guess is that there probably will be). The home had appraised two years ago for $240,000, but he had applied for a mortgage someplace else now and it just appraised for only $216,000. The problem is that his current mortgage balance is about $215,000. By the time you add costs and prepaids the new balance would exceed today's value. But, though he can now verify his income, his credit score is still below 620. That's a problem. I suggested he work with the current mortgage holder to try to improve his terms.
Why am I talking about this? To emphasize the importance to evaluate your mortgage needs early in today's market. Declining values in some markets can seriously hinder, if not block, moves you may be thinking about or need to consider as borrowing power or credit availability diminishes, at least until a bottom materializes. You don't even have to have credit score issues. The above example would still be a problem to a person with great credit and standard verifications.
Don't let this happen to you. Sooner or later values will turn around. But be proactive to meet your borrowing needs in the meantime. We can help you with the analysis. Call us.
Bill Wiolbanks / www.OrlandoMortgageMasters.com