The Financing
This is part 2 in the on-going saga of selling our house in Virginia with an underwater mortgage. I plan to write one post a week for as long as the process takes us. If you’d like to see the rest of our story, just click on the ‘My Short Sale‘ tag.
Today’s topic is the financing we got when we purchased the house.
We bought our house for $303,000. Looking back, it was more than we could really afford, but I had just gotten a big raise and promotion at work and we were tired of living in the cramped place we were in.
We had no money to put down, so here’s the “deal” we ended up with. Both loans are from Chevy Chase Bank, which is being bought out right now by Capital One.
-
First Mortgage – 3 year Interest Only ARM at 6%. This loan covered 80% of the purchase price, or $242,000.
-
Second Mortgage – 30 year, fully amortized loan at 7.5% with a balloon payment at 15 years. This loan covers the other 20% of the purchase price or $61,000.
At the time (March 2006), this was a fairly common financing scheme. Now, it would be impossible to get anything like this.
Truthfully, it set my family and me up for failure. We agreed to the 3 year interest only ARM knowing the payment would reset, but fully expecting we’d be able to refinance before the 3 year initial term expired.
Do I Hear a Familiar Refrain?
We never actually did the math on what our payment on a fully amortized, 30 year loan would have been before we bought the house. As a matter of fact, I actually thought the loan would stay interest only after the 3 year point. I only found out we would have to start paying principle about a year ago when I started becoming concerned about the interest rate beginning to adjust.
Anyway, the mortgage broker never warned us or told us what the fully amortized payment would be either. Even if she would’ve, though, I seriously doubt we would’ve changed anything. After all, she was getting us into the home we wanted at a monthly amount we could afford at the time.
If you do the math, you’ll quickly find out that a fully amortized payment would be around $2,250/month before escrow rather than the $1,650 or so we were paying.
Another reason we weren’t too concerned with being able to refinance was the fact that the house appraised for $310,000 when we bought it. We figured we had $7,000 in equity right from the start!
Boy were we wrong…like so many others.
Tags: My Short Sale, rental home
Leave a Reply
You must be logged in to post a comment.