Real Estate Q&A
When we moved here in 2006, from California, we purchased our home for $243,000 and refinanced in 2008 for $276,000 and currently owe about $265,000. We think our home would sell in the neighborhood of $240,000, which leaves us with about a $25,000 shortfall. We are not in financial distress, but would really like to move to a larger home that would better accommodate our family. We have saved up enough money for our down payment on the new home and were planning to have the amount we were short on the sale of our home transferred over to our new home, until we get it paid off. We have been told we cannot do that and must have the money to cover our shortfall at the time of closing. We do not have the extra money available to cover the loss we will suffer on our existing home and just want to move that over to our new home, as we can afford the monthly payments. Is this possible? Or is it correct that there is no way to do that? We are now feeling stuck and do not want to wait to move into another home if there are any alternatives. Thanks.
Danny and Colleen, Grand Junction
Danny and Colleen,
It does appear that you may be stuck. It is true that you can not just move the unpaid balance of one home loan over to the loan on a new home. Your loan needs be settled at close, so the lien can be released to allow transfer of title over to the new owner. It does seem that it would make sense, since you can afford the monthly payments, to allow a reasonable amount to transfer over, but that is just not the case. Your current mortgage must be paid off in full and released at close.
There may be other options. If you have any other tangible assets that can be used to collateralize the shortfall, that may be an option. If you have any other property that has an equity position, you may be able to look at refinancing and pulling some of that equity out to cover the shortfall on your home and get your shortfall covered. Another option is looking into your retirement portfolio. If you have a 401k, you may be able to borrow from yourself and then pay yourself back with interest. In this case you can borrow the funds from your retirement account, look out to see if there are any penalties, and then pay yourself back over time and give yourself an option to get out of your existing home and make some money for retirement at the same time.
If you are stuck, then I make the suggestion to ride it out and work on paying down your principle debt and as the market continues to improve, meaning prices are moving up, you are working to reduce your debt basis down and hopefully speed up the time table for moving out. You can also spend that time making some improvements, if needed, that are cost-effective and will result in added value in an attempt to speed up your home’s appreciation as compared to the general market. The biggest mistake I see in cases like this are people just lose hope and let their property start to slide in appearance and upkeep and it has the opposite effect of what I am pointing out. Making modest and cost-effective improvements can help bolster your eventual selling price and if you work on reducing your principle debt, you may be able to move faster than you thought possible. You just need to be determined and don’t get side tracked with what you cannot do and focus on what you can do and create a plan to get out of the hole you currently find yourself in. It is not clear where you received your information, but I would contact a reputable lender and see if they can help you find another workable option, because maybe one exists that I am not aware of.
Don’t get discouraged, get determined and make a plan to get your debt down and bolster your value and you might get in that new home sooner than you thought possible. Hope this helps, but sorry I did not have a more immediate and timely solution. Best of luck.
The Kimbrough Team
RE/MAX 4000, Inc