If you owe more on your mortgage than your home is currently worth, you’re considered “underwater” or “upside down” on your loan. Unfortunately, despite rising home values, many local homeowners are still underwater on their mortgages. As a result, we continue to see short sales (more on that in a minute) and homeowners who are financially unable to sell.
Here are your options:
Stay in your current home. This is an obvious one, but if you can continue to pay down your mortgage, you will gain more equity in your home. Plus, it’s likely that home values will continue to steadily rise in 2016. Unfortunately, this is typically the best option and results in no financial loss — but of course, staying put isn’t always feasible.
“Bringing money to the table.” This option isn’t for everybody, but it may be the best and easiest option if you have a comfortable cushion in your bank account. Let’s say, for example, that you owe $225,000 on your mortgage and your home sells for a net price (less any commission fees and taxes) of $218,000. In this case, you would be $7,000 “upside down” and would bring a cashier’s check in the proper amount to the settlement table on the date of the closing.
Rent it out! This increasingly popular option allows you to continue paying down your loan and move to a new home. In theory, you’ll recoup your monthly mortgage payment through the rental fees, and wait for home values to rise further. Be sure to ask an EveryHome agent if your home may be a good candidate for a rental.
Consider a short sale. While this option may be the least ideal from a financial perspective, it continues to be popular. Short sales occur when homeowners find themselves struggling to make payments and underwater on their loan. These homeowners convince their lender to allow them to sell for less than they owe, although it’s important to note that not all lenders will allow short sales. Here’s the bad news: it can be extremely damaging to your credit.