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What's the best option?

We bought our house in 2005 for 164k. The house is now worth only 107k, we still owe 50k more then what it's worth but we're outgrowing it with a new baby on the way. What do we do?! We don't want any money out of the house, we just want out with our good credit and some dignity! Any advice or experiences appreciated.
  • January 18 2012 - Forest Grove
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Answers (16)

I've seen many similar situations.  it's amazing where you can find space if you stop by an Ikea or similar store.  you may find a way to stay in your existing house long enough to get some equity back....if not...

A short sale will damage your credit about 75 points, but if you're considering it, do it this year.  most likely your lender will forgive the deficiency, but at the end of 2012 the law forgiving debt forgiveness income expires., so there is a huge incentive to do it now vs later.  you may have to rent for a few years while credit recovers...
  • January 24 2012
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It is amazing that anyone - predominantly Agents - would suggest the first option as a short sale. 
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true.  I saw a commercial on TV today, the NAR was touting how much they're doing to promote home ownership and "keeping Americans in their homes".   I think they even said it with a straight face.
  • January 22 2012
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I see many agents offering "short sale" as a solution. A short sale will damage your credit and you can still be held liable for the difference between the sale amount and the amount you owed, even after your home is sold. First, have a licensed appraiser do an appraisal to determine the most accurate value of your home. If the value is significantly lower than what you owe, you have two options if maintaining your credit is your goal. You can either rent it or stay put.
  • January 22 2012
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There should be no amazement in people offering short sale as a solution. When someone needs to move and is under water it is one of the few viable options available. The short sale seminar is great for general questions, but no one on here, unless they are an attorney should be giving you legal advice, nor should anyone make blanket statement about what will qualify you for a short sale etc. As each file is determined on a case by case basis. All of this being said under the pretense that living in your current home simply will not work any longer with your growing family. If you can tough it out, it may be worth it. Regardless of what path you choose, it has to be right for you and your family. No one but you can determine that. Once you decide the direction your family needs to go, seek out the best help you can to guide you along the way.
  • January 22 2012
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I choose the stay put option keeping your credit rating in tact.
  • January 21 2012
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Profile picture for funds2
It is amazing that anyone - predominantly Agents - would suggest the first option as a short sale. Besides not being eligible, if one was it would likely mean they are behind on payment. This can preclude another purchase for several yrs, plus credit score would have tanked. You will not suffer a loss of $50K unless you are forced to sell in the current market conditions. Fortunately, you still have option of enjoying your home until it is practical to move. It may not be ideal but all of the negative results of short sale or renting out current house is not a good option.
You did not mention what your current rate is or type of loan. If an FHA loan and rate is above 5.75% it may make sense to consider an FHA streamline refinance including lender paying closing cost since they can not be rolled into the new loan. No appraisal would be required so value is not an issue. Otherwise be patient and keep your good credit and all of your dignity!
  • January 21 2012
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Profile picture for sunnyview
I just can't agree with agents encouraging short sale right out of the gate. If you can pay, you should first see if you have another workable solution that will preserve your credit. A refinance through HARP or a streamline may reduce your expenses to give you the breathing room you need to get on another path that may allow you to buy before your baby hits the end of preschool.

You bought the house and no lender will approve a short sale without a hardship described more here. Pregnancy or the house being smaller than you'd like is not going to get you approval for a short sale without a qualifying hardship.

As for legal advice, I would not listen to an attorney at a short sale seminar brought in to extole the virtues of or gloss over the financial pitfalls of short sale. You need to bite the bullet and pay for a 30-60 minute consult that can sit down and tell YOU what YOUR best options are. Most attorneys will discount the first consultation or even give you the first 15-30 minutes for free.

Finally, ask a 2-3 local agents in your area how much your house would sell for. Do not rely on Zillow's numbers. You need to get the opinion of a professional selling in your area so you can make a better decision about how far underwater you really are so you can do a better cost/ benefit analysis of which path to take.
  • January 19 2012
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Just a question, but what are you basing the current value of your home on? I am a local agent and (assuming the last poster was correct in their assumption of you having an FHA loan) you could always do an FHA short sale, which a little more work on the front end but overall a much smoother process. There is a class locally every other month (free of charge) about short sales, with an expert panel including an attorney, CPA, and a short sale specialist. If you are interested in attending I can send you the address information.
  • January 19 2012
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I certainly see this situation at least once a week and I have some options for you.

I am going to assume that you did an FHA loan to purchase the property

1. Rate and term refinance on the existing property to ensure that you have the lowest rate/payment combination for the property - rent it out.

2. Traditionally you are not allowed to have two FHA loans at one time except for a little hidden guideline that states you may have two FHA loans if you have had changes to your family size and have outgrown the home.

3. Make sure you qualify with both payments as you will not have enough equity in the home you are renting (20% for FHA) to use the rental income to qualify.

4. If you do not qualify with both payments, you will need a co-signer on the new property to ensure your debt to income ration is in line.

lease feel free to reach out to me if you would like to discuss this option in more detail.
  • January 19 2012
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If your income can support two payments and you have 6 months reserves for each property you can rent it out and buy bigger. Risky, but an option. 

You could tough it out as suggested, find ways to increase your income, and throw as much money at the principal and sell when you can afford to get out without damaging your credit. Good Karma comin' your way with this option.

Short Sale, and rent for 2-4 years depending on the loan program you choose... will hurt your credit.

You are not alone... reach out to a professional with more details your choices will become more clear.

  • January 18 2012
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Profile picture for sunnyview
I tend to agree with Mack. I forgot to include it earlier, but here is the like for basic information on the FHA streamline. That would also allow you to refi if you are current without an appraisal from what I read from the lenders, but you would have to contact one to get the information/requirements firsthand.

Seems to me you best solution is not short selling or walking away, but I would see if you can lower your payment in the meantime to get some flexibility and hopefully so you can afford a different house down the line.
  • January 18 2012
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Well, gosh. Even if the house was worth $160K, you'd still have to write a check at closing.

My advice is this: if you think the market will be better in two years, do nothing. The toddler won't care, and you can cope with the crowding. If you don't think the market will be better, then get out now, wait two years, and hope for the best.
  • January 18 2012
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If you want to keep your credit rating high, then you have to stay put.

Otherwise, try a short sale and rent out a bigger home.
  • January 18 2012
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You are in the same situation as many other people who bought when the market was at it's highest. If you need to sell for a loss but still keep your good credit then you will need to bring money to the table at settlement. That is the only way to protect your good credit.
If you weren't able to pay your mortgage and are at least 2 payments behind, then you would need to ask your bank if they will allow you to sell your home as a short sale. They would need all your finacial info and the reason for the hardship. Then they would evaluate it and let you know if they agree.
A short sale will disrupt your good credit rating somewhat- but not as bad as a forclosure would.

  • January 18 2012
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Profile picture for sunnyview
Many people have or are facing this situation, but you have to get all the information you can before you decide what to do. You can try to negotiate with your bank while you still live in the house to see if a HARP refinance of an FHA streamline might be possible at a lower interest rate. This site here explains more and will allow you to look up the owner of your loan. A good mortgage broker can also help you look at your loan for other options. If can lower your payment enough, you may be able to rent out the house and move to a different one later.

You can consider investigating doing a short sale or deed in lieu, but the bank may not approve it if you are able to keep paying or have no hardship. I also believe that they both have credit consequences. Also, Oregon seems to allow deficiency judgements here, so you need to talk to an attorney to see what all your legal options are even if you walk away.

I would not rely on Zillow for your value. Call a local agent and ask them for their current thoughts on what you could sell for. If they try to discuss short sale before you have spoken with an attorney, do not listen. A deficiency judgement will follow you unless you declare bankruptcy or have an agreement. You need all the information, options and legal advice, then choose your best option.
  • January 18 2012
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an addition may be a good option
  • January 18 2012
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