My son thought he was living the american dream. I think he is living in a nightmare.?

So, 6 years ago my son got married. Both have descent full time jobs + 1 part time job. 4 years ago they decided to buy a house and worked with his %26quot;good buddy%26quot; a broker to obtain a loan. They had $10,000 for a down payment. I want to say the house they bought was about $180,000


after all was said and done we went out to celebrate their new home and my husband asked about their rate (or something) they proudly explained that they got 2 loans. the first was for $30,000 at 7% for the down payment (added to their $10,000) and then another place financed the rest at 6% . my husband and I just sort of looked at each other already feeling like OH-OH?????


We thought their were programs out there for first time home buyers. It sounded like the good buddy steered them away from those as well as fha. Now I could be wrong but am I????


Here is the thing. these 2 loans are killing them, recently wells fargo (not their lenders) called them and got them all excited about refinance. In the end they were told with the 2 loans and now that their home is worth less then what they owe. they are pretty much screwed. They still are able to pay all their bills but i worry for how long. they are struggling. they have also maxed out 2 credit cards to cover an emergency medical expense that came up. So I was wondering if anyone had any suggestions? with all this help out there I would think there would be a way to combine the 2 mortgages at a lower rate. Or is wells fargo right and they are screwed



Although hindsight is always 20-20, at the time and given the economy, your son%26#039;s broker did not necessarily direct him wrong. Assuming that your son got an FHA loan, he would have put down say 3% - about $5,400 leaving a mortgage balance of $184,500 and the rate would have been probably 6.25% (FHA rates tend to be a bit higher) and he would have also had to pay PMI because of his equity being less than 20%. Based on all that, his monthly payments probably would have been about the same as they are now or slightly higher. Since the price of the house still would have dropped, he would have still been underwater and struggling.





What he did was a then-typical 80-15-5, with a first mortgage at 80% (eliminating the PMI), the second at 15% and of course his down payment. Had the market kept going up, he would have eventually been able to combine the two at the lower interest rate and still avoided the PMI. Meanwhile, he would have been getting about the same tax deduction as in the FHA loan but avoiding the PMI. A win-win situation.





Unluckily for him, he had two pieces of misfortune - the real estate market crash and a medical crisis. The FHA loan would not have saved him from either of these.





Further unluckily, on a conventional re-finance, yes, you son is screwed until he can get the balance on the mortgages down below the appraised value (above water). However, what he might want to do is call his first mortgage holder and see if they are participating in the new mortgage financing act and then see if perhaps he can qualify for a modification. If he does qualify, it might help ease the burden somewhat.




ouch. I would say review their budget and cut out unnecessary expences. Teach them to make food, not take-out, and reevaluate clothes. If you help them create a workable budget they should be able to pay off the credit cards. Also, if they have good jobs they might want to cancel their 401k contributions for awhile until the credit cards are paid off.




even with one loan, their house would probably still be worth less than the loan balance




The reason they got 2 loans is because they didn%26#039;t have 20% down and were trying to avoid the mortgage insurance you have to get when you don%26#039;t have a 20% down payment. So each loan is for less than 80% of the price so they didn%26#039;t have to get the insurance for either loan.





They should suck it up, refinance to ONE fixed-rate loan (5-6%), resign themselves to the fact that they%26#039;re going to have to have mortgage insurance for about the first 10 years, and work with that ONE loan. Good luck...sounds like their broker %26quot;buddy%26quot; thought he was doing them a favor but really he didn%26#039;t do them a favor at all. Two loans at once are hard to handle for anyone.




I can only answer part of your question. You%26#039;re right that brokers want their cut quickly and don%26#039;t always provide all the information that%26#039;s necessary to know especially when they find someone who has a downpayment (or even partial downpayment, 20% down is required) they get dollar signs in their eyes. It%26#039;s not that they fib, it%26#039;s just that they omit info. Without prior information in hand and with the will to move upward and get immediate satisfaction (because who knows they may not get this chance again or anytime soon) young people plunge into the loans that are available, and yes many new buyers have 2 loans. And yes, in this economy most homes and nearly all the homes in certain areas have decreased in price so people %26quot;are%26quot; losing out and are paying for what they don%26#039;t have anymore. Yes there are places where the loan can be redone, but remember that there are also unscrupulous people out there, and that every time you re-do a mortgage (like to get around a balloon payment or payments) you have to pay upfront for the loans to be redone. Do they have the money to do that? To get out from under something like this people are doing a %26quot;quick sale%26quot; and taking the loss, a hit to their credit report, and possibly into bankruptcy, and that%26#039;s a real hit to the ego and belief in the system as well as to the job/career future. So I can see where they would want to try to keep this going as far as they can by keeping the house and struggling. I remember when my parents bought their home, their parents paid for the lots and they had the house constructed by a contractor of their choice who would listen to their ideas for a dream home. Then they had renters who helped pay off the mortgage. These days kids think they can pay for the thing themselves and not have renters, and the parents don%26#039;t help out like they used to. When it%26#039;s said that young people buy homes and they aren%26#039;t prepared to do so, well it seems these were as nearly as they could be prepared to buy a home but the world%26#039;s economy stepped in and is messing with their plans. These young people know that if they hang in there things %26quot;will%26quot; get better, jobs will come back and then they will own their home. This is called %26quot;faith%26quot; or %26quot;hope%26quot;.


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