Al, say a house costs 100 bucks (to simplify things a bit, housing isn't that cheap here =P). To get a loan here, you need like 10-15 bucks of own money saved up, so you need a 85 buck loan. The house is worth 100 bucks, so 70% of that is 70, meaning you need to come up with an additional 15 for security from somewhere, like your car, stock, another property or whatever. Then, if everything goes to heck and you lose the house, and let's say you haven't yet paid off anything, forfeiting the house to the bank only covers the 70% of the value, meaning you still owe the bank the 15 bucks that's left of the 85 you borrowed. So either you gotta also forfeit the other property you put up as security, or figure out some other way to pay off the rest of your debt. Crappy for bad situations, but on the other hand it leads to more stable banks, and maybe works as an incentive to not buy overly priced property, and also keeps the prices down a bit.
No you paid in the 15 bucks already. So the bank gets it all. No need to forfit anything with simplistic thinking. But it s a bit more complicated than that.
When you take that loan out for the 85 the bank requires a down payment in good faith that you WONT walk out. As well as you sign a contract that requires you to pay on time. they are counting on making money off the interest of the loan. Now I have to go to real money here...
My last house was 96 thousand dollars because of the type of loan I took I had to pay 20 thousand dollars down. So my loan was 76 thousand dollars. Which put my payments at around 500 dollars a month (rounded figures for sure) but if you look at the details of the loan most of that was interest. figure it .... 500 a month for thirty years.... is 180,000 twice what I purchased the house for. and its in the contract. If you look at that 500 dollar payment at most 100 at the time was going to pay off principal. The smart way to get around that is to add on another 100 and designate it to go toward the principal of the loand. This pays your mortgage off in 15 years instead of 30.
If you turn in your keys and walk away its considered default of the loan and it goes on your record.... hosing your credit history.
of course things have changed since 2003 in the US. Different types of loans, Loan chriteria prices of homes and government bail outs. I am so glad i am out of that whole Rat race...
edited to add: I do not understand that upside down buisiness personally but If the industry tanks you can simply continue paying the mortgage till it comes back. I was in the mortgage loan business a Jumbo loan was 300 thousand which is the limit for a conventional loan. Jumbo loans have different chriteria.
for what it is worth I was in the business for exactly six months as a trainee. Stock market crashed and I lost my job.
Edited by perchie.girl - 3/24/16 at 12:36pm
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