If you’re “underwater” or “upside-down” on your home, you owe more than it’s worth. For example, if you still owe $220,000 on your mortgage, and your home’s approximate value (as estimated by a licensed real estate agent or appraiser) is $210,000, then you’re about $10,000 underwater. For homeowners in this situation, it’s not a big deal if you’re not planning on selling for a while. The market will likely continue to improve over the next couple of years and you’re likely to regain equity in your home.
However, some people need to sell for a variety of reasons, including a pending divorce, a job (and location) change, or maybe the monthly mortgage payment is simply too high. Whatever the reason may be, there are a few options:
The first, and most idyllic, option is to simply pay the balance at the settlement table. Using the above example, you would likely owe approximately $10,000 (plus any commission fees and transfer tax) on the day of the closing. If you absolutely must sell your home and this option works for you financially, it may make the most sense in the long run; it won’t hurt your credit score, and you’ll be able to purchase another home right away.
Of course, stroking such a large check understandably isn’t an option for many sellers. Some homeowners choose to rent out their current home while buying (or renting!) a new one. While this is a great choice for some clients, others may struggle to qualify for a new home with the mortgage on their existing property.
If you’re struggling to pay your monthly mortgage payment and can no longer afford your home, you may be eligible for a short sale. A short sale occurs when all lien holders (the mortgage company) agrees to sell your home for less than you currently owe. It’s important to note, though, that this option can significantly affect your credit score and you’ll be ineligible to obtain a new loan for three or four years.
If you’re considering a short sale on your current home, we would love the opportunity to meet with you. In addition to having experienced short sale agents, we are pleased to work with a team of experienced real estate attorneys who may be able to assist you.