Irvine Housing Blog

Someone used to post the down payment facts here.  Median down payment in Irvine has consistenly been around 30%.

They used to post every single Irvine transaction with down payment.  The norm is a large down payment, with the average Irvine Joe putting down 6 figures cash.  The same can’t be said for Vegas.

It was nice when there were more fact based contributors here, providing detailed information specific to Irvine.  To many people now Ignore facts specific to Irvine.

Irvine Home Owner and Ten Magnet still provide good insight.

We’re looking for FHA refinancing.  We’re qualified but for the 97.75% LTV requirement.  We’re considering bringing cash to the table to refi into an FHA loan.  The problem is, it’s a lot of cash!  Not sure I want to deplete our savings…

We’re considering bringing cash to the table to refi into an FHA loan.  The problem is, it’s a lot of cash!  Not sure I want to deplete our savings…

Why in the world would you even consider that?!?!

Has this blog not made it abundantly clear that you can squat in your house for 2 years or more? If you still want to refi your current place, use the money you’re NOT paying on your mortgage to fund the eventual down payment. Or, even better, let the bank eventually foreclose. You can walk away, rent for a couple years, and then buy something much cheaper. You might like your current place, but do you really like it enough to pay bubble prices on your monthly housing bills?

House prices are still falling, so your current underwater situation will only get worse as time goes by; meanwhile, the other places that you could buy in a couple years are only getting more affordable with each passing day.

Why would you want to throw money at a losing investment. Let the bank eat the loss!

As it is, you’re trying to figure out how to use your own hard-earned money to reward the banks for their recklessness and irresponsibility. (Arguably, your own irresponsibility as well, but self-interest reigns supreme, especially when we’re talking about your own money.)

-Darth

You’re right; that’s why we haven’t applied for an FHA refi.  We’re not prepared to spend our savings to refi.  However, there are a lot of considerations and factors in addition to the home’s value in 2-5 years.  The cost of the refi would be a quarter of a year’s household income (from savings).  The benefit would be a rate 2+ points lower (I know there’s also FHA MI which would add 90 bps and isn’t deductible) and a monthly payment nearly $1,500 lower (our current payment considering taxes is ~$500 above rental parity).  We could also refi into a 15 year term, and our payment would still be lower (with the added benefit of FHA MI decreasing to 25 bps).

A benefit of holding firm and not refinancing is that we can continue to build our savings and if hardship were to arrive, we can start negotiating with the servicer for a modification (they won’t do anything without hardship).  We might be able to get the rates reduced at that point.

At what point should someone consider strategically defaulting (in the absence of any hardship)?  If our mortgage is < 2x your household income, what amount underwater should we be before we live rent-free for 18+ months and walk?  When the amount underwater exceeds 10% of our annual household income?  25%?  50%?  100%?

Either nobody has an opinion on where the line is on when to walk, or it’s just too complicated an issue and very fact-sensitive/ household-specific…

Hi Perspective.

First, don’t spend so much of your savings on your refi that you don’t have 6 months worth of reserves.  That’s just self-preservation.

Strategic defaulting - I think the stats I’ve seen show that many defaults happen at 25-40% underwater.  Your own decision may depend on your long-term plans; if you intend to live in your house forever, then it may be worthwhile to keep paying.  If your neighbors are defaulting, the “moral” stigma against it decreases.  If you plan to sell your house at a profit, when do you want to sell?  If in the next 3-5 years, go ahead and default.  If you have a 20-year horizon, it might be worthwhile to stick it out, because prices may appreciate back to bubble peak.

In any case, if you were a big financial company, you would default the moment it became clear that your payments were exceeding prospective profits, with little chance for recovery.  Without poking into your personal finances, nobody can tell you when that is.

How many Irvine buyers have a credit score sub 640? How many Irvine buyers are looking for FHA financing?

Nice try to be smug.

The real question is:

How many Irvine buyers sold a house to someone with a credit score sub 640 in order to get their big downpayment?  How many Irvine buyers were first sellers looking for buyers who were looking for FHA financing?

Without FHA financing allowing these folks to sell and plop the bubble profit into the Irvine downpayment, it would all come to a standstill.

How many of these buyers are first timers?  I bet not many.

I’ve seen those stats too (25%+ underwater = great propensity to default), but they always refer solely to the percentage the house is underwater.  Does the borrower’s(s’) financial condition matter?

e.g. A husband & wife have a house valued today at $200k and a mortgage at $250k.  Their home is 25% underwater.  What if their household income is $125k?  If their other debt is small, and they have $50k in savings, should they strategically default?

You should immediately default, live in your house as long as you can, and take the money to rent, or buy a place outright!

That is simplistic thinking. I’d agree that most people underwater should live rent-free as long as possible and then walk; but that’s because most people bought houses beyond their means in the last decade (> 2.5x income).  If you’re underwater, but you bought a house within your means, the knee-jerk “WALK” response is unhelpful and possibly harmful.

What if your housing costs (PITI + HOAs) are near or below rental parity?  Absent hardship, I don’t know when you would consider walking?

You are right.  It is simplistic thinking, and possibly harmful in terms of wrecked credit and a possible deficiency judgement.  But…

They should walk live in the house rent free and take the money to rent or buy a place outright. This is what I did with my 400k nightmare. 

I have lived in the home for 13 months rent free at a motgage savings of 3k monthly.  I already made my housing “arrangement”, and I am just waiting for completion of a little work.

At a cost of 60k for a bank foreclosure, I am off the debt treadmill.  In all of the free money of the last decade, many of us forgot that credit is for those with no cash.  I am now saving 5k cash monthly.

If poor credit prevents mortgage financing, then the 12-24 months of savings will come in handy to be used as a rental escrow account, or to purchase outright.

In fact, I will over the next 7 years, I will purposely sabatoge my credit.  You’re pretty astute, so you should know why.

Home values are falling.  If housing costs are below rental parity now it is probable that a glut of inventory will cause even more price deflation.  So why stay in an underwater albatross?

It is probable that strategic defaulters will not be able to just “walk away”.  The banks will find some way to put individuals or taxpayers on the hook.  SO GET OUT NOW!

You’re doing the right thing (not that you need my confirmation).  We’ll just keep paying our ~$400 above market “rent” and hold the option to walk if and until circumstances change.  We’re in a fully-amortizing fixed loan, so the principal is declining ever so slightly.

A friend just rented a comparable home in Irvine (but this home was build 30+ years ago) at $3k monthly, so I’m comfortable with the rental figures I use to justify cost comps.