Maybe I don't understand how things work, but if you plan on enjoying and living in the house, does the house value matter except for property taxes? I bought a house to have stable "rent"
> Maybe I don't understand how things work, but if you plan on enjoying and living in the house, does the house value matter except for property taxes? I bought a house to have stable "rent"
You could end up being underwater on your mortgage, which could be a bad thing if other aspects of your financial situation deteriorate.
> You could end up being underwater on your mortgage, which could be a bad thing if other aspects of your financial situation deteriorate.
Being underwater on your mortgage is, in and of itself, not too bad. If you also can’t pay the mortgage, that’s bad, because being underwater means you can’t sell the house to get out of it.
OTOH, in a non-recourse state, especailly in a bad economy where you are very far from being alone in that situation (which, statistically, is when it is most likely to happen), there’s a sense in which that is more of a bank problem than a you problem.
In California & Washington mortgages are non-recourse, ie they are secured by the property itself and nothing else.
So if your financial situation deteriorates to the point where you are forced to foreclose, you lose the equity in the home, but your other assets are protected.
> But even a non-recourse foreclosure tanks your credit rating and makes it difficult to rent or buy another home, right?
Been through essentially that (it was actually a short-sale in a non-recourse state, not a foreclosure, but in most effects the two are pretty similar.)
So, yeah, because we didn’t rent the new place immediately when we realized that there was a problem but after some period of nonpayment (but before the short sale was finalized), we had to find an individual landlord who managed property directly rather than one managed through a management firm that ran applicants through a hands of screening process before even looking at them (who we found, before the apartment was publicly listed, through an real estate agent who we first contacted because they had listed their house for rent and it was at the high end of what we were looking at, and who we also ended up working with on the short sale.)
Once financial circumstances turned and we were in the market to buy again – within the 3 year period of ineligiblity after a short sale for an FHA loan – we had relatively little problem finding acceptable financing, though we paid slightly higher (but still tolerable) rates, and were able to refinance into better rates a couple years later.
Which is really influenced by how much you are financially leveraged, and less so about whether a home is underwater or not. In a case where capital is needed, if I "put 10% down on my primary residence with remaining capital in more liquid assets and the home becomes underwater" can often be a better situation than if I "put 40% down on my primary residence with little capital in liquid assets and the home decreases in value by 20%".
Well if house values go down it changes the size of the mortgage you can take out on it, and your stable "rent" will turn out to be stably high compared to market, but yeah, house prices going down shouldn't affect your plans too much if you'll just live in it.
Some people don't have "stable rent" as they may have something akin to an ARM.
Besides that, some people purchase homes to fixup/sell as a way of personal/business income. Others may have purchased just barely in their means and now inflation going up on necessities has pushed them out of their means ... and they need to sell but also can't afford the loss in a declining market. Others may be relying on the value of their home for retirement related expenses.
My point: there are a lot of situations that a declining market makes worse. Depending on how far down it goes, you can see a lot of people hit hard times which can lead to real economic pain for everyone.
I'm not sure where you live, but where I'm from, the hip leverage of.choice was to take HELOCs (home equity line of credit), which a lot of people use to extract the "value" they have in their homes to help fund their lavish unsustainable lifestyles. The sh*t hits the bricks and their houses are underwater, they're now basically double screwed because the home is worth way less and they can no longer extract money from the home (possibly being unrecoverable crippled in debt)... It'll get real bad really fast if we're in for a notable correction.
Got ya. I keep it pretty smart I think. Got a house for 270k and I make 150k a year. Mortgage isn't high at all. (1300) after all the add-ons. Don't plan on extracting value from the house less something terrible happens like a tree falls on my roof or something. fixed interest rate at 2.7%
