What's my next play here?

Dan_Devere · Joined: 10 Aug 2008 Posts: 1

Two years ago, I purchased a 500K house with zero down in Montgomery County in Maryland. I did a 75% 30 year fixed and a 25% 15 year amortization with a balloon payment at the end of that term. Since then, according to Zillow (not the gospel I know), I've lost approximately 20% of my house's value while building a grand 2% of "equity" if I could still sell the house for what I paid for.

There's a list of things I wish I had done differently. This was my first house, and unfortunately I'm the learn as you go type. The payments are a little on the high side, but I'm not in danger of missing payments and I do have about 20K in savings. I'm just wondering if there's any way that I can change some things to try to get out a little more ahead. I have decent credit (700+) but when rates were really low, I couldn't get anyone to refi me because I had no equity. It seems like every month my house becomes worth less and by the time the market does come back the interest rates will be so high it won't make sense to re-finance.

The first thing I'd like to do is re-fi the 25% mortgage into a straight 15y fixed loan. That way I could at least be building a little more equity faster. I've also thought about trying to re-fi everything under one of these "jumbo" loans but I don't know if that's the way to go either. I'm just irritated because if I'm going to continue to just watch my money disintegrate for the next 3-5 years and leave me with no options, then why NOT just default on the house? At least that way I could get out of it and be ok money wise in the next 3 years after the foreclosure come off my record. Obviously, I would prefer not to do this but I'm trying to see find out what the next play is here.

David · Joined: 19 May 2004 Posts: 703

A forclosure will be on your credit report for 7 years. We already know that available credit is tightening. It could be extremely difficult to get credit again anytime soon after this derogatory mark.

Most likely in the next few years, you will see the value of your house recover, and available credit increase a little. You might be better off if you can keep making your normal payments, and just watch the markets for another few months. If you are able to make it through a year with regular payments, I think you'll have more options next year.

jtrenton · Joined: 12 Sep 2008 Posts: 10

David wrote: Most likely in the next few years, you will see the value of your house recover, and available credit increase a little.

It may recover, or it may not. This is a huge bubble and it will take a long time to get fully deflated.