Advice for a Friend

NEW -> Contingent Buyer Assistance Program
tmare_IHB

tmare_IHB

New member
A close friend is in the following predicament and I'd like to either get advice other than that I have already given or confirmation from those who are more knowledgeable than myself regarding my own advice.



Home Purchase Price: 275K in 2000 in N. Santa Ana

Current Debt: 200K

Current List Price:500K



One offer for 415K has been received. They can't qualify for the type of house they want to buy with two mortgages, so they must sell. Their family has grown too big for the current house and they dislike their neighbors who have a constant flow of renters trashing the property (otherwise they might consider adding on). They make an income in excess of 170K (don't know exactly how much more than that). 415K would be significantly below the comps in the neighborhood but a few short sales have popped up in the last few weeks on their street and one is listed for 380K. Their house is moderately improved but the kitchen is not. This is a tract neighborhood with 60's homes very close in proximity to the custom homes in Park Santiago. I think it is technically Park Santiago but not at all what you think of when you think of the Park Santiago type of home.



My advice: seriously consider taking the 415K and rent a 4 bedroom house in the neighborhood you would like to buy. Keep the cash safe and wait for your ideal house potentially not losing your 20% down in the meantime. I told them to do whatever they could to check out the owner of the rental property to be sure they wouldn't find themselves evicted after he/she gets foreclosed on.



Anyone have any better options?
 
[quote author="tmare" date=1242702441]

They can't qualify for the type of house they want to buy with two mortgages, so they must sell. </blockquote>


Reading this sentence brought up another question in my mind. Hope you don't mind if I pose it here, tmare, with no intention to derail as it relates to this scenario. What has become of bridge loans? Have they gone the way of HELOCs?? I would imagine so. At the very least, if bridge financing is still offered, I would think the criteria would be strict enough or the fees high enough that it would not be a feasible option for the intended move-up buyer (not that I recommend they do this.) I did try the search feature regarding bridge financing but did not come up with anything so my thanks to anyone who has any info.
 
How many days has it been on the market? How does it compare to sold comps? That's a pretty low-ball bid (only 83% of list), but maybe they overpriced it and it's really only worth 415k-but without knowing comps (even the automatically generated ones from Redfin) and time on the market, who knows?



Your suggested pattern of sell-rent for awhile-buy at the bottom seems good overall, but only if you think the market is going to go down significantly more than it already has. If the market only drops 10% in two years, they will probably spend close to that in renting, so then they might as well buy now.
 
[quote author="SoCal78" date=1242704795][quote author="tmare" date=1242702441]

They can't qualify for the type of house they want to buy with two mortgages, so they must sell. </blockquote>


Reading this sentence brought up another question in my mind. Hope you don't mind if I pose it here, tmare, with no intention to derail as it relates to this scenario. What has become of bridge loans? Have they gone the way of HELOCs?? I would imagine so. At the very least, if bridge financing is still offered, I would think the criteria would be strict enough or the fees high enough that it would not be a feasible option for the intended move-up buyer (not that I recommend they do this.) I did try the search feature regarding bridge financing but did not come up with anything so my thanks to anyone who has any info.</blockquote>


I had read somewhere here that it is virtually impossible to purchase another house while you have another due to so many people walking away after they purchase. Not sure who said it but they also said that they won't even consider the rental income of the property for qualifying.
 
I think they will count the rental income if you have 25% equity in the property. The problem that most move up buyers have is they don't have that kind of equity.
 
[quote author="stepping_up" date=1242708006]I think they will count the rental income if you have 25% equity in the property. The problem that most move up buyers have is they don't have that kind of equity.</blockquote>


I have read that many banks won't consider it at all. Some want 30%+ equity and a income for both.



And the ones that do want your income alone to be sufficient to cover both mortgages unless you have 3 years of documented rental income already.





I think that your advice is good, tmare.



And if it is the area that I am thinking of (tract of 60s homes east of you), it is going to drop a ton in the next 12 months. take the $415k and run. it will be 200k within 2 years.
 
[quote author="freedomCM" date=1242710549][quote author="stepping_up" date=1242708006]I think they will count the rental income if you have 25% equity in the property. The problem that most move up buyers have is they don't have that kind of equity.</blockquote>


I have read that many banks won't consider it at all. Some want 30%+ equity and a income for both.



And the ones that do want your income alone to be sufficient to cover both mortgages unless you have 3 years of documented rental income already.

.</blockquote>


freedom, are you referring to step's example or are you referring to a hard money loan such as bridge financing? Thanks.
 
I already assumed that they would not try to rent it, they considered it but aren't interested anymore. Anyway, it seems that if we still believe that it will drop in value more that it would make more sense for them to just get out quick. They had it on the market last year but I don't think they had really realized the extent to which things were crashing and they kind of blew it that time around by pricing it too high. This time around they are more realistic. They already had someone back out just before the start of escrow. I just don't think that they should rush into buying another place if and when they sell this one because I believe they should be looking for the place they want to live in for the next 10 years or so. It doesn't seem that a hurried decision based on selling the other house makes sense when they haven't found the ideal house yet. It isn't easy to find a 4 bedroom in the areas that they are searching. The majority of the homes they have looked at are being offered by non-distressed owners who still believe their house is worth 700-800K. I think they could afford it but would be sorry later.
 
I was referring to trying to get financing to holding onto the first house as a rental. Its basically a no-go.



I don't think that any bank is giving "bridge" loans. Maybe SGIP knows better?





(agree with you tmare, they should find a nice rental for a year or two)
 
You must log in or register to reply here.
Back
Top