Creative Financing

Housing market changed a lot during the pandemic because as soon as people started to experiment working from their homes, they could spot a lot of different side hustle opportunities to earn more bucks in month! The interest rates were decreased, and a ton of different programs came to the scene to support small business against covid financial crisis. All this meant one thing! Money became really a cheap asset!
So as a result, many people started to buy a second house or tried to upgrade their buildings, or moved to a bigger and newer one. The new demand, caused a price jump in real estate market during 2022-2023 (for example, Florida experienced up to 300% price growth in areas with tourist attractions!)

But as soon as rates got higher and higher, everyday expenses increased, side hustles started to pay less, crypto heat got depressed, and dollar decline showed up publicly, people started to get rid of their second homes, and some decided to go back to their home states for a smaller house with less monthly payments. 

This caused some home owners get behind their mortgage and as soon as housing demand cooled down, prices dropped as a result which meant that many home owners have had lost a major part of their equity!

But what does that mean? Let’s say John bought a vacation home in LA for $380k in 2022, with yearly HOA and maintenance cost of $3,600. His credit score was so cool that he could get a 85% loan-to-value so he had paid only $57k down and 360 payments of $1650 per month! So hit total monthly payments for this home is something around $2,000 that can be easily paid all way before Feb 2023 when he loses his job. Now it’s August and the property’s market value is as low as $330k which means that he has lost all the equity $57k in the house (the down payment amount!) Anyways, he has to get rid of the property, otherwise a foreclosure happens. So total arrears are around $14k, sales agent fees are $9k, closing costs are $2k, to make a lump sum of $25k deduction of what he sells the property for! But he has to pay back bank’s loan reminder which is around $321k!
In other words if he sells the house for $320k, here is the calculation:
Amount sold – selling costs – payment to the bank =
320k – 25k – 321k = – $26,000

Isn’t that insane? he’s been put $57k in cash and paid the mortgage for several months and now when he wants to move out the property he has to pay another $26,000 in cash!?

Let’s read on for the solution!