3 ms·

Unless I'm dramatically mistaken you don't lose your principal when the bank forecloses. Obviously in many cases during the 2008 crisis the homes were underwat

Unless I'm dramatically mistaken you don't lose your principal when the bank forecloses. Obviously in many cases during the 2008 crisis the homes were underwater (valued at less than the loan amount), in that case then yes, you end up without a house or any equity since it's valued at less than you owe. In the hypothetical where you lose your job and can no longer afford the mortgage - presuming you went an extended period without paying - the bank will eventually force a sale of the property to recover the loan amount. If you have positive equity in a home then you'll have some money leftover after the proceeds of the sale are used to pay off the remaining balance to the bank.

brianwawok 11y ago
What you are saying is only true if the overall market is steady.. i.e. all your friends keep their jobs in case you lose your job. For example: Let's say you save 200k, and buy a house for 1 million. You take out a loan from the bank for 800k. Opps market correction. You lose your job, and a lot of your friends do too. Your house is now worth 600k. You either sell for 600k and pay the bank another 200k for a total loss of 400k, or you go the bankruptcy route and "only" lose 200k and your credit for 7 years. Weather or not you had 200k positive equity for 6 months has nothing to do with it. Positive equity is great when something bad happens to YOU and YOU need to get out, but if it happens to everyone - that positive equity very quickly flips to negative equity.
- ianferrel 11y ago
  California is non-recourse. You don't have to declare bankruptcy to walk away from a house. The bank gets the house, but the most you can lose is whatever you've paid into it (which can still be a lot).
  - brianwawok 11y ago
    Well I think the end result is the same right? Your credit goes down, and you lose your down payment.
- eclipxe 11y ago
  That's why we have government, to save me and my friends. See: HARP.
  - brianwawok 11y ago
    You still don't get your downpayment or any money you put into a house back.

brianwawok 11y ago

What you are saying is only true if the overall market is steady.. i.e. all your friends keep their jobs in case you lose your job. For example: Let's say you save 200k, and buy a house for 1 million. You take out a loan from the bank for 800k. Opps market correction. You lose your job, and a lot of your friends do too. Your house is now worth 600k. You either sell for 600k and pay the bank another 200k for a total loss of 400k, or you go the bankruptcy route and "only" lose 200k and your credit for 7 years. Weather or not you had 200k positive equity for 6 months has nothing to do with it. Positive equity is great when something bad happens to YOU and YOU need to get out, but if it happens to everyone - that positive equity very quickly flips to negative equity.

ianferrel 11y ago
California is non-recourse. You don't have to declare bankruptcy to walk away from a house. The bank gets the house, but the most you can lose is whatever you've paid into it (which can still be a lot).
- brianwawok 11y ago
  Well I think the end result is the same right? Your credit goes down, and you lose your down payment.
eclipxe 11y ago
That's why we have government, to save me and my friends. See: HARP.
- brianwawok 11y ago
  You still don't get your downpayment or any money you put into a house back.