[Myo]

Hi Everyone,

I hope I am putting this post in the right spot!

I am wondering about experiences that other people have had, and if there is any advice they can share.

My husband and I have been talking about downsizing for some time and we were finally ready to put our home on the market. Long story short, we found out that we are "upside down" in our mortgage.

So we have been doing some reading/research on the internet. Seems like the only "solutions" are short sales or forclosure, neither of which is right for us. We can make the payments (barely) we just want to downsize and move to a more affordable area. And we don't want to see our credit damaged by a foreclosure or a short sale. It's so hard to believe that we "can't afford" to downsize because we can't sell our house! It's almost like we're being punished for wanting to do the right thing.

I am wondering if anybody has been in a similar situation and how you have coped or if there is any realistic advice that anyone can give. Most websites say things like, "buy several acres of land, build a house out of scrap wood," etc, etc. But how is a person supposed to do that if you can't sell the house you are currently in!

It's so frustrating!

Thank you for taking the time to read my post!

 

[Birdie]

I have read that some banks will not ruin your credit if you sort sale your house. But, you do need approval from the bank. Some will forgive the difference and some will consider it income and give you a 1099 with the difference from what you owe vs the sale price. You should speak to your mortgage holder if you have not already done so first. Then proceed. Good luck

 

[Frugal Nurse]

My sister was upside down and did a shortsale. Ruined her stellar record. AND it was a 3 year PAINFUL process. She wouldn't do it - ever again. It was worse than a divorce.


People get nervous when they're upside down. Almost get PO'd about it and want to unload the property. But my recommendation is to stick it out. the rebound is bound to happen.

If you're barely making the payments, cutting back in many areas of your life is very possible. Just poke around here for a while and see for yourself. Maybe you'll find enough extra money to pay down that mortgage you took out for better or worse

Downsizing seems so enticing because the costs of homes are low, but like they say, if you can buy land - hold off for a while till the market turns, sell higher and then build a little house or get a prefab.

Just my musings. and probably not really good advice - but it's what I would do.

 

[CookieLee]

I also would hold tight. You have a place to live and enough income to make the payments. You're better off than a lot of other people.

In the meantime you can:

~ Declutter, declutter, declutter. Seriously! I sold our home last year and it was a lot of work to get it ready to show. Decluttering - strictly erasing any evidence that you live there - takes a lot of time. The more you declutter, the better your house will show, the easier it will be to inspect, the higher price you can charge, the faster it will sell, the cheaper it will be to move the stuff that really matters and the quicker you can close. Besides, you're going to downsize, right? That means there should be a lot of empty space (especially empty rooms) in the house where you live now.

~ Fix up your house. Add value to the property. A lot of home buyers are looking to "turn-key" homes now. Competition is stiff so make your house stand out. Paint in neutral but pleasant colors. Fix all the little annoying problems that you've been 'just living with' for years. Upgrade and update where it matters without sinking too much into the house.

~ Look into re-financing with a HARP loan. HARP Loans, HARP Loan, HARP Program If you get a re-fi where they lower your principle, you might be required to stay in the house for X-number of years. If so, you have to decide if that is worth it to you. If your mortgage was lower, would you want to stay in the house? Even if you don't qualify (or don't want) a HARP loan, still ask your current lender if you can re-fi or re-amortize your mortgage. You'd still owe the same amount but your interest rate or mortgage payment might go down. It is a long shot, but it never hurts to ask.

~ Lower your mortgage payment by asking for an adjustment to your assessment and shop around for new homeowner's insurance to lower that bill. In other words, pay less in property taxes by fighting how much the givernment thinks your house is worth. This is the right time of year to start doing that. At the same time, if you have an escrow on your mortgage, if you reduce your homeowner's insurance premium you also lower your monthly payment. When we bought this house, I found homeowner's insurance for $1200 a year. The previous owners were paying $2400 a year for their insurance. I am paying $100 a month less for the same house just by shopping around for more affordable insurance.

~ Accelerate payments on your principle balance of your mortgage. The quicker you can close the gap between what you owe on that mortgage and what you can sell your house for, the quicker you can sell.

~ Talk to real estate agents. Have them come by the house and give you ideas on what to do to prepare the house to sell. See if you can find a real estate agent who is willing to put your house on the market for what you need to sell it at. For instance, if you owe $250,000 on your mortgage but they think your house will only sell for $200,000, try fixing up your house them put it on the market for $250,000 and see if there are any bites. In the meantime, reduce your principle as much as you can, in a few months if you can drop your principle to $247,000, drop your price. If a real estate agent doesn't want to work with you, look into using a flat-fee agent or a For-Sale-By-Owner agent. Your house won't sell if it isn't on the market.

Lastly, you're not being punished for wanting to do the right thing, you're paying "tax" for doing the wrong thing. Back when you bought this house you either bought too much house, paid too much for it, or borrowed too much - or a combination of all three. You know better now so you'll be rewarded with a nice little house you can easily afford when you buy your next one. In the meantime, we're all suffer under the same limitations. The quality of decisions we're able to make in the future is often a direct result of the quality of decisions we made in the past.

 

[New2Debt]

Just throwing this out there....

Not sure where you live but could you rent out the house to somebody else until the market picks up? And then when the house is worth more sell it? Maybe you'd even make a profit from the renters, while you temporarily live somewhere more affordable.

 

[scottp999]

Credit hit depends on the way the bank sends the update in. My wife, before we were married, I helped her do a short sale, we were able to get "paid as agreed". She was 90 days late at one point in the process, so paid as agreed 90, but she did not take a big hit and was well over 700 fico a little over a year later. Short sale is one heck of a process, I helped with the details, and getting the property in shape so it would show better than any other place in the neighborhood. Started the process of getting the house prepped in April 09, then it took til late Nov to get the job done. It was a part time job to get through the process. One buyer got impatient while waiting for a lender decision and bailed. Luckily, we got another in time not to have to go backwards in the process, substituted the new offer and it did not bump us back in line with investor review, and mortgage ins co review.

Back then the 1099 for the difference fell under the debt forgiveness act, so no tax on the "gift". That may be expired now as mentioned above. We had to agree to a 0% 25 year unsecured note to pay back a portion of the difference. Not a big payment at all, and they are losing out considering 0% and inflation. They have offered 50% off to pay the balance so far. Did not bite, will negotiate something better when the time comes.

You could at least talk to your lender about current short sale conditions and terms they offer (final reporting status to credit b's, promissory notes, etc.). Keep in mind they will want to see all of your assets. If you have assets (excluding retirement accounts) they will want them liquidated before considering forgiving anything. That means if you have saved up a down payment for another property, they will want it. Most people go short sale to renting. If you have mtg ins, they will have to get both investor and mtg insurance company approval. You can have mtg insurance, even if it it not a line item on your bill. There is a type mtg ins where they stated the terms at closing and it is hidden in the amount of your monthly payment. Would show on your closing docs. I forget the term, but my wife's mtg was like that, and we had to get approvals through Radian in addition to the investor.

 

[Cricketlegs]

Hang in there. It sounds like the US economy is at rock bottom so there is only one way it can go. The value of your home will increase in time so if you can stick it out that will be good. I have browsed around at houses in the city where I live to see if it is worth buying something cheaper as I have a large mortgage, but I found my house (even though it isn't worth much) will increase in value a lot more than some of the real cheap ones I have seen. We maybe sitting on gold mines!

No, we are not at rock bottom yet. It's so sad and so unnecessary too. It's coming. I hope people are at least trying to prepare.....

 

[nuisance26]

~I second looking into renting out your current house and moving into something less expensive.
Another option is to downsize in your current home. If your zoning laws allow, you may be able to split your home in to a duplex or niche out a MIL or studio apartment. Then you can choose which part to live in an rent out the other. Of course this will cost a bit upfront to make the changes(install a kitchenette, new walls, separate entrance, etc)but the rent may well cover your mortgage payments. You may also just rent a spare room to a lodger. I think Peanut here on the forums did that, with a student I believe, if you want some of her experience with that.~

 

[pcaltman]

1. hold tight and pay until your mortgage gets paid down enough to break even, then sell
2. rent your house out and rent a smaller place. Put any extra to the mortgage so you can sell in a few years.
3. take out a loan for the difference on the sale price and what is owed. Then pay that loan off asap.
4. take on extra jobs to pay off the difference to be able to sell.

Good luck

 

[Anna43]

I think the answer depends on your financial situation. Will it be made worse by continuing to pay the mortgage? How long would you be able to do that? Would the mortgage money be better used to help you move on? Or would it be better financially to do whatever is necessary to get out from under?

Some lenders will accept a deed in lieu of foreclosure. I'm not sure how that would affect a credit report, but it is less painful to go thru than foreclosure and less expensive for the lender. I think that only works if you do not have any liens against you or a second mortgage.

Sometimes hanging on is right, but sometimes it just makes matters worse. Only you and your dh can decide what you need to do.

 

[CookieLee]

Concurrent with another thread that is active right now, have you looked into refinancing through the Home Affordable Refinance Program (HARP)? Maybe if you could re-fi it would make it easier for you to stay until your equity position improves. If you can re-fi you might even be able to rent out your house for an amount that covers your mortgage payment.