Profile picture for ms.bowen

Selling when you are underwater

My husband and I are underwater on our home. We were able to refinance through the HARP program, so that should help some. However, we have been in our 2 bedroom, 1 bath house for six years and we would really like something bigger. We are about $11,000 underwater. Any advice for how to move forward? We have thought about buying a new home and renting the one we are in right now, but that seems like a risky move. So are we stuck in this house or what? 
  • June 24 2013 - Champaign
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Answers (7)

Your situation is common. The answer really depends on your market so I would meet with an experienced local Realtor who holds CDPE and/or SFR designations. They are specially trained to help and offer advice in these situations.

I advise many of my clients in this situation to rent the home out with a reputable management company for a few years. However, you will need to check with a mortgage broker/banker first and see what you would qualify for and if renting the home out is even an option.

However, unless you have a very compelling reason to move (like work), many people find that the best option in the end is to just stick it out for a little while longer until you have positive equity again. If you can afford a slightly larger home now then maybe your best option is to take some of the money you could put towards a new home and pay down your current mortgage faster so that you can be at the break even point faster and move on free and clear of the old home.

  • June 24 2013
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Profile picture for Andrew Malak
Your options are bring money to closing or rent the place out. However ask your loan officer if you need to show profit from the rental place to qualify for the new mortgage. And, if you can even rent it out as they might consider it as extra debt without income. [Website removed by Zillow moderator. Please see our Good Neighbor Policy.]
  • June 24 2013
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Good news or bad news first? Bad news...

  Renting to a stranger can be a nightmare.  They could possibly move into your home, fail to pay you and destroy your property before the legal system intervenes.  Rentals should be handled by a professional company with very strict standards to minimize the possibility of that scenario.

  Assuming you get quality tenants, renting can be an excellent path.  Why not let someone pay your mortgage while you move on to your home of choice?  This might also allow home prices to catch up so that you aren't underwater.

Step One is to gather specific information from professionals in your marketplace.  A local realtor can estimate the rental income that you would receive and what your home of choice would cost.  If you like the outlook, then consult a local lender to get the approval.

 There are tax considerations when converting your primary residence to income producing property, some good, some not so good.  Consult your tax professional for your specific situation.

 In summary, gather as much info as you can and make the best decision for you and your husband. I truly wish the both of you the best of luck :-)

  • June 24 2013
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If you afford to rent and buy that is a great choice. The market has changed and prices are moving up finally so maybe in a year you can break even. Get some estimates of value from a few agents. Otherwise you need to do a short sale and your credit will be messed up preventing you from getting a loan.
  • June 24 2013
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$11,000 is not that far under. Depending on where you are located, the market MAY catch up with you rather quickly. All of the options mentioned are very realistic for you but I'd suggest speaking with a qualified agent and discuss possible strategies which might include their opinion of how long it may be before you are not underwater!  : )
Good Luck,
  • June 27 2013
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Profile picture for jimstarwalt
One other possible option is to ask your current lender if they will give you a personal note for the difference. If you are willing to do this (and can quailfy for this and the new loan) this may be an option for you. 
Sometimes you need to get creative!! You may ask the seller of your new home if they will credit you $11,000 (pay them list and ask for the credit)  There are many possible scenarios and you are not far off the mark! Think outside of the box and buy now! Prices and interest rates are going up fast!  Sell your car, pay off the balance, close on new house then buy a new car! Think hard and be creative!
Jim
  • June 28 2013
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My wife and I were in the same boat, we new we were 5K to 10k underwater on our house that we bought in 2007 just buy looking at what was selling around us. We thought about renting but eventually just decided to make up the difference on the sell with part of our down payment we had been saving up for our new house. Eventually sold with a 6k difference on what we owed and what we sold for. After adding in realtor commissions we had to bring around 13k to closing just to get out of the house, which sucked and took a lot of our down payment we had been saving on the new house but we were out. We did not have to worry about a renter and could start looking for a new place. Yeah it sucked, but sometimes you just have to chalk it up as a loss and a bad decision on the old house and just move on and thats what we did. So glad we did, so glad to be out of the old house and biulding our new house.
  • July 17 2013
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