Hello. My wife and I are about to buy a home for our personal residence. We are trying to decide how much money to put down on the purchase. Here is my confusion. If we were to put for example $100,000 down on a $300,000 home this would leave us with a $200,000 loan. Now if I were to lose my job and not be able to make the payments on the $200,000 loan, would I lose that $100,000 we put into the loan if it were foreclosed on? If that is so, it seems like it would make more sense to just finance more and not subject your cash to foreclosure. Could someone please confirm or clarify my question. Thank you.
sonriffic
Yes, you would lose your equity. There are tons of 95-100% Owner Occupied programs out there. Or look at one of the pick-a-pay programs.
Regards,
Dave
David,
Thanks for the reply. Does this mean that a person could pay on a loan for 29 years and get their loan principle to within a couple thousand dollars of full repayment and then miss a few payments and lose all $300,000 or so of equity in the home? There must be a way around that…refinance the remaining few thousand so that the payment is miniscule and then you will easily be able to make payments. Eventually get another job and kill the remaining couple thousand in mortgage. Is this a possibility? Thanks.
Sonriffic
Theoretically, yes and yes. In some markets; I’ve found that some REO’s will jump at any chance to take back an appreciating property.
Regards,
Dave
Your way around it is to quickly sell and get out as much equity as possible. This is why most people say you need 6 months of expenses in savings.
Missed Fortune by Dana Andrews, I love this book. Some of his recommendations are for sure self serving but the overall impetus for the book are solid.
Read this book, he talks about a person who won a large settlement and used $100,000 to pay down his home loan. However, this person lost their job and was unable to make his monthly payments and lost the house, the 100,000, everything.
One of the lessons that this book teaches that I preach from my soap box is be disiplined, get a big mortgage and big savings account so that you can weather any financial storm.
I love the World Savings Loan, Choice is what the savy homeowner needs. If he/she doesn’t have the credit to get the loan, start working on that.
Don’t pay your money into the structure of the house, diversify and leverage your money in SAFE, Interest Bearing Vehicles that can pay you.
Think about it… If you have 100K in equity in your house and you get in financial trouble, the bank will not lend you money because you have no way to pay them back. your credit will probably suck so you can’t get a good rate. Protect your investment by leaving as little money in as possible. Be disciplined and keep extracting money year after year and put your money in a safe place.
I’m getting off the soap box now
In order to ‘extract money’ as you put it don’t you have to take a home equity line and use it to improve the home? You can’t just take money out and invest it in a mutual fund. Or are you saying to refinance as the home increases in value and pull that equity out? Thanks for the clarification.
Sonriffic
You can take out a home equity loan for anything you want. You just have to meet the lender’s criteria for: debt/income ratio, LTV ratio, etc. What you do with the money is up to you. Tons of people take out HELOC to pay off credit cars, buy cars, buy boats, buy a hooker, do drugs, etc, etc. You get the idea. Some of these are better ideas than others of course 