Buying a house and paying off my car..

[thepunishersssc]

Ok so here is my situation...I have the good credit to buy a house and I know I want to buy, that's not the problem...My car on the other hand is killing me!! The 549 a month payments and 8.9% is crazy!! My idea is simply this:
Buy a house with some equity (lets just pretend I can do that in the first place =)..Obtain a second mortgage with around 5.5% interest..pay off the car loan...payments would only be around $150. In a couple of years when the market gets better..Sell the house including the second.and now I am no longer upside down on my car and I have no payments either....(Also I owe 26k on myh car and its only worth 16k...there is no way out of it..cant trade or do a refi)

[bankaround]

Second mortgage rates typically are 1.5-2.5% higher than your first mortgage, especially with the market condition now. You'll be lucky to get a first mortgage for a 5.5% unless you pay points up front.

[thepunishersssc]

The 5.5% is in regards of the second mortgage not the first (my first mortgages with FHA are around 6.25%

[DebtFreeMe2]

Hey there,

What Bankaround is trying to say is that generally your second mortgage will be higher then your first, not lower.

Personally if your car payment is killing you now, it doesn't sound like a good idea to hope that you can buy a house with equity in it to pay off your car.

Even though real estate can be a great investment. If everything doesn't go just right you'll end up with a house and a car that you can't afford. That will be an even worse situation then you are in now.

More debt is never the question to getting out of debt. Unless you have a bigger plan to get out of debt you're just playing a lower interest shell game and still losing the much bigger game of money.

Good luck,

DebtFreeMe2

[Seeker]

Ok so here is my situation...I have the good credit to buy a house and I know I want to buy, that's not the problem...My car on the other hand is killing me!! The 549 a month payments and 8.9% is crazy!! My idea is simply this:
Buy a house with some equity (lets just pretend I can do that in the first place =)..Obtain a second mortgage with around 5.5% interest..pay off the car loan...payments would only be around $150. In a couple of years when the market gets better..Sell the house including the second.and now I am no longer upside down on my car and I have no payments either....(Also I owe 26k on myh car and its only worth 16k...there is no way out of it..cant trade or do a refi)

Lol--- since we're pretending that you can buy a house with equity -- why not pretend that a couple of years down the line when the market "gets better" -- that you still owe more than the house is worth and you cannot sell the house without a significant loss either. What happens then?

It's all a gamble. If you're making 8.9% interest payments on the auto, then you've already got one debt. Why get much deeper in debt for one thing that definitely will not increase in value (the auto) and with the time-limit of "a couple of years" (the house) that may not increase in value and will probably decline more in just 2 years?

Buying a house is for long-term. Without intent of long-term (and we are talking +7 years), IMO you probably shouldn't be looking at "buying" a house.

[thepunishersssc]

Lol--- since we're pretending that you can buy a house with equity -- why not pretend that a couple of years down the line when the market "gets better" -- that you still owe more than the house is worth and you cannot sell the house without a significant loss either. What happens then?

It's all a gamble. If you're making 8.9% interest payments on the auto, then you've already got one debt. Why get much deeper in debt for one thing that definitely will not increase in value (the auto) and with the time-limit of "a couple of years" (the house) that may not increase in value and will probably decline more in just 2 years?

Buying a house is for long-term. Without intent of long-term (and we are talking +7 years), IMO you probably shouldn't be looking at "buying" a house.

I understand what you are saying...but either way I plan on getting a house...my first purchase is going to be an investment property...probably buying a house around 90-110k which only puts my DTI around 23%..having the lower payments for my car would be great...

[Seeker]

I understand what you are saying...but either way I plan on getting a house...my first purchase is going to be an investment property...probably buying a house around 90-110k which only puts my DTI around 23%..having the lower payments for my car would be great...

So, let's pretend some more:

house 90k-110k
auto 26k more
total debt = 116k - 136k

house down payment:
?k

You are planning on turning the "$?k" into another loan and erasing the auto loan? Or now we're only making "lower payments" on the auto? So you essentially jack up the house price to include the car and "delay" the payments further and pay more long-run. And hope you can sell the house again at a gain in maybe two years?????

It's very unclear what you plan to do. The fact that the first mortgage is 6.5% and the second is only 5.5% sounds strange to me. Usually the second loan is more risky to the lenders, so they charge a higher rate (not a smaller as others have pointed out). The second loan in the courts will always lose out to the first loan priority.

Debt-to-interest of 23% is fine, depending on your other expenses. But why do you have a 8.9% auto loan in the first place? And owing 26K on an auto that you can only sell for 16K? Sounds like you overbought on the car.

Might be a better plan to sell the auto at a loss and buy a more reasonable used car for less and keep the house price what it is... and not use the house as a leveraging tool. Especially in these economic times; where getting a loan may be more difficult than actually qualifying. What is advertised may be different from what you qualify for.

I'm not certain what you mean as an investment property either. Do you intend to live there or rent it out? If you live there short-term -- it's no investment; you'd pay more by buying than by renting and living somewhere else.

Either way, with the what-if's and without a real budget or real interest rates; it's all pretty much a dream.

[Like2Plan]

My question is how you plan to get 26k of equity in your home immediately?
1. Do you have a 26K down payment?
2. Materialize out of thin air?
3. Get a bank to give you a second mortgage for 26k more than the value of the home? (Then you would be "upside down" with your home loan. )

20 years ago, I would have said #3 was out of the question, what bank in their right mind would write a loan like that.... But maybe not so far fetched in view of the current mortgage lending crisis and the loans that have been written.

Something happened in order for you to be upside down with your car payment in the first place. It looks like you keep trying to roll it over and the stakes keep getting higher and higher.

The only way I know of getting out of an upside down situation is to pay more than the payment each month until you've caught up.
It takes time and there is no quick fix.

BTW, have you considered in order to buy a home you have to pay closing costs and to sell the home you have to pay a real estate commission. Have you considered what percentage increase in value your home would have to appreciate just in order to break even?

[disneysteve]

The only way to have enough equity upon buying a home is through your down payment. If you have that much money on hand, why not just pay off the car?

How the heck did you end up owing $26,000 on a car worth only $16,000? I've seen lots of people who were upside down but not by that much.

[maat55]

If I were you, I would save up 1k to 2k and buy a beater outright, then sell your car for as much as possible and get a loan for the difference. It's better to make payments on 10k than 26k. There is not enough fairy dust to make your plan work. Take your lump the right way and learn from it.

[m3racer]

[QUOTE=DebtFreeMe2;180287]
More debt is never the answer to getting out of debt.

This should be the quote of the year!!

[thepunishersssc]

The only way to have enough equity upon buying a home is through your down payment. If you have that much money on hand, why not just pay off the car?

How the heck did you end up owing $26,000 on a car worth only $16,000? I've seen lots of people who were upside down but not by that much.

What do you mean the only way you are going to have equity in the house upon buying it is through a down payment? That's crazy to say! There are plenty of homes out there selling well below the actual appraised value..some people are just desperate to sell their homes...Finding a home that has at least 25k equity wouldn't be that hard of a task.

[maat55]

What do you mean the only way you are going to have equity in the house upon buying it is through a down payment? That's crazy to say! There are plenty of homes out there selling well below the actual appraised value..some people are just desperate to sell their homes...Finding a home that has at least 25k equity wouldn't be that hard of a task.

My guess is, that you will have to find a house with about 35k to 40k equity just to borrow 26k. Again, not enough fairy dust. Prove me wrong.

[momof1in150]

What do you mean the only way you are going to have equity in the house upon buying it is through a down payment? That's crazy to say! There are plenty of homes out there selling well below the actual appraised value..some people are just desperate to sell their homes...Finding a home that has at least 25k equity wouldn't be that hard of a task.

I disagree. Most homes are worth less (22% or more from 2 years ago) in this market. Finding a bank that will give you a first and a second mortgage in this market is difficult at best. The 80/20 or 90/10 mortgages are gone. It is too risky for the bank to make loans that way any more. Finding a home that would appraise $30-50K higher then the mortgage is difficult at best. In our market we are having a hard time getting homes to appraise for the sale price right now and most of the time the bank is requiring 2 appraisals and taking the lowest of the two.

[Seeker]

What do you mean the only way you are going to have equity in the house upon buying it is through a down payment? That's crazy to say! There are plenty of homes out there selling well below the actual appraised value..some people are just desperate to sell their homes...Finding a home that has at least 25k equity wouldn't be that hard of a task.

Actually there's a little bit of truth to this -- though it's not "equity" he's talking about (because "equity" does not exist within a sell price), it's the appraised property value that is higher than the sell price. So he's looking for the desperate deal.

There are many people and banks willing to make deals because they have properties that are not selling and are just sitting for months (if not years). But, the major flaw in "thepunishersssc" thinking is that he can borrow against 100% (or more) of the property based on this.

Lenders are willing to make deals for the people who have a down payment and meet their income qualifications. But the scrutiny that is now taking place, makes it hugely difficult for anyone to borrow 100% of the sell price on a first and only loan, let alone a second loan.

If "thepunishersssc" interest rate on the auto is 8.9%, how can his credit history be good? How old is this auto and when was the loan taken out?

Again reading the advertisements and actually qualifying for a loan at the interest rate described, are two entirely different worlds.

Also I would point out that the "appraised value" is a number that is also changing constantly.... not only by the condition of the property itself, but also by the condition of the neighborhood and the location etc.

So, finding a lender willing to deal with you is not a real possibility in today's market unless you have CASH (ie. a good solid downpayment) and a good/excellent credit history. No bank/lender will take out a 6.5% first and then a 5.5% second to cover 100%+ of any house.... not when "appraised values" are still falling.

If you want to deal with individual owners (not go through a bank), then you'd have to meet their terms.... which may or may not work depending on what the owner's true intent is.