house refinance on a rental property. I need help?

Question

I own a home and the amount of my mortgage is going to change within the next year to an amount I will not be able to afford to pay. I know that it was my dumb error for getting this loan so you don't need to remind me of that but at the same time I truthfully did not know this would happen otherwise I would not have gotten the loan. The person who did my loan did not explain the loan to me correctly and I was too trusting. Anyways because the house market is going down I can't find anyone to refinance me into an affordable loan and I also rented out the house just recently which is making it harder for me to refinance it as well. I am worried that when my house payments go up I am not going to be able to afford to pay the difference on the mortgage (I already have it rented out for higher then it should be rented for) and then my house is going to be foreclosed on while I have renters in it. Any tips, suggestion, or help would be greatly appreciated. Thanks

Answer 1

OK, it seems as if you've learned your lesson on reading and understanding contracts before signing them or having a lawyer review them first so I'll spare you the drubbing on that issue.

And you can ignore Landlord's post about mortgage fraud. There's no need to refinance to a commercial loan product when you decide to rent out your personal residence. As long as your intent was to occupy the home as your personal residence when you took out the loan then you're good to go on that score. Normally you prove that intent by actually moving into the home and living in it. The law recognizes that intentions change over time and you cannot be penalized for changing your mind. Even government backed (FHA & VA for example) loans are legal as long as your intent at the time you took out the loan was to occupy the property.

What you need to do now is prepare for the financial onslaught that is coming. At least you have time to get ready for it, since you know when the increased payment will kick in. Hopefully you have some idea what it will be as well.

You're going to need to be able to swing the shortfall between the rental income and the mortgage payment as well as other costs such as repairs, etc. Look into additional sources of income or ways to cut personal expenses. Bank as much as you can in preparation for the increased negative cash flow that is heading your way.

As you get closer to the day when the higher payments are set to kick in -- 3 or 4 months would be good, more would be better -- contact the lender and see how far they are willing to work with you to avoid foreclosure. If property values are sagging in your area, they have a vested interest in your success as they will be big losers too if the property goes to foreclosure.

Don't deal with the lower-level customer service folks, they have little or no authority to act. Seek out someone in the Loss Mitigation department. It's their express job description to minimize losses to the lender and they do have the authority to act or at least a direct line to the ones who do. Ideally you'd like them to convert your loan to a fixed interest loan with a manageable payment. Direct conversions are possible though they may not admit to such at least initially. Part of loss mitigation does include maximizing profits so you want them to see that their best chance at a profitable relationship is to be reasonable with the rates.

If they aren't interested in a direct conversion, see what they will do with a fixed rate commercial re-fi. That would be your second best approach but will involve costs that you're better off avoiding.

Whatever you do, continuously remind them that working with you to avoid foreclosure is in THEIR best interest just as much as it's in your best interest.

Of course, don't even THINK of contacting the scumbag spammers who have posted above about companies that can help you out. They'll just take your money and leave you in worse shape than you are right now.

Answer 2

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Answer 3

Can you afford the difference between what the payment will adjust to and what you current have it rented for? Meaning your mortgage payment will be more than the rental amount you collect. Whatever that amount is - can you afford THAT in the next year? If not, I suggest you look at places you can move to that will afford you the opportunity to remain current on the home until you can sell it and break even or make a small profit.
When you obtained the existing mortgage, it was your primary residence . You were given the highest loan to value with the lowest rates at the time. If you also added in a Negative Amortization feature, you are adding on to the initial balance of your loan.

Look at ways to cut down to afford the difference to preserve your credit rating. In the long run it will be worth it. Your credit will remain string because it will show a mortgage being paid on time for XYZ years for you. That will boost your credit score and open the door to more favorable financing in the future.

Best of luck,

Answer 4

This is very complicated since you have already rented the house out. The best option would have been to sell the property for whatever you could get to simply be done with it. The best thing you can do now is to find the least painful of new loan options for refinancing. Certainly the only thing you cannot do right now would be nothing, since you have to avoid foreclosure. If you need to charge your tenants more rent, so be it, as long as it is within the terms of their agreement.

Answer 5

If you can't afford the difference in the rent and the payment work with the lender. Being proactive will get better results than waiting until there are actual problems and late payments.

Go directly to the lender who has the mortgage. Explain to them what you said here about the loan, and the upcoming rate adjustment. Include information about the decline in home values, and you fear that the house would end up in foreclosure.

Ask them to roll you into a fixed rate loan you can afford.

Answer 6

I don't have any good news. You are most likely guilty of freud with the rental. Most home loans have a clause in there that you will be the resident. You were supposed to refinance into an investment loan in order to rent the property.

I am not sure how you did not know what would happen to your loan. Don't you have it in writing?

Your best bet is to sell the house, you obviously are going downhill quickly and things will be worse next year, both with your interest rate and the price you can sell at.

Answer 7

im sure you have checked the internet for loans like lending tree.com..if you have a years time and know already refinancing is a problem..maybe you could sell the home and use the equity to buy another with a better mortgage..sorry just my thought

Answer 8

in order to save your credit, you may need to borrow monies from family member to pay the difference between the price you can sell your house and the note,

Answer 9

Bring your tenants lots of empty boxes.