Can a person purchase a home for more than its worth?

Question

My parents have a loan for $489K and the house is now worth $389K. In 2010, they have ARM that will adjust from the fixed rate they are at now. They will not be able to afford those payments can they refinance to a fixed but not show documentation for income or can my sister purchases the home for a higher value than the house is worth. Would it be better to short sale the house. Are there any options???

Answer 1

The answer to your question is yes - if you have cash.  Alternately, it might work if you only had the cash for the difference between the purchase price and the value.  You can't get financing for more than a house is worth, though.  As a matter of fact, you can no longer get financing for 100% of the value of the house anymore.  

They are in deep doo-doo if the housing market doesn't recover by 2010.  No bank will lend more than a house is worth.  Almost no one will do a stated income loan anymore (also called liar loans or NINJA's for no income, no job (or) assets).  

They can't get financed for more than it's worth.  They can't get a no-doc loan.  Your sister can't purchase it unless she has cash for the difference between the value and the purchase price and income to support the loan payments.  It sounds like they will lose the house after the terms reset.  

Do they want to do that now or later?

Sorry that the options aren't any better.

good luck!

Answer 2

Sorry but No, no lender is going to lend 100K more than a house will appraise for. They will not be able to due a short sale either.  

Answer 3

Unfortunately, banks will not finance a house for more than it is worth.  If your sister wanted to buy the house, she would have to put down about $100,000 in cash (the difference between the loan and the house's value).

With the recent mortgage loan problems, few banks will finance without some proof of income, so that is probably not an option, and in any case, if they were to refinance, they would have to come up with the $100,000 differential.

Short sales are an option if the bank agrees, but your parents would lose the house and hurt their credit score.

As a first step, your parents should call the bank and explain the situation.  Next, they need to ask if they are eligible for and sort of help or relief under the recently signed mortgage legislation.  Their bank loan officer should know and/or have this information.

Answer 4

It looks like a short sale would be the only option. No lender will give you a loan for more than the home is worth.

Answer 5

Your parents find themselves in a situation with millions of other Americans, negative equity in the house; Few options besides ridding out the storm; but, Yes as posted above if your sister has 489K laying around in cash she can buy then take a loan for 70%: they can not refinance if the place has negative equity, that leaves: short sale, foreclosure or make deep cuts in house budget and ride out the storm until housing turns around  

Answer 6

How would your sister pay for the house?  Does she have a half-million dollars laying around?  She could buy it if she had cash but no one will lend her $500k to buy a $400k house.

Answer 7

that's a common occurrence these days, it depends on what your sister's long term goals are as far a turnover or keeping the property.