Home Foreclosure Should you sell your home if you owe more than it’s worth? – RISMedia

Should you sell your home if you owe more than it’s worth? – RISMedia


As people buy homes with the intention of increasing their equity, life goes on and sometimes homeowners find themselves underwater, upside down, or with negative equity. What do these terms mean? The balance owing on the mortgage is more than the current value of the house.

Liquidation with negative equity
Housing prices go up and down with changes in the market. If you borrow a high percentage of the purchase price of your home, even a small drop in its value can lead to negative equity. If you spend more on a property than its value, your loan balance can exceed the value of the home. You can also be underwater if your home’s value drops due to damage or neglected maintenance.

Is selling a smart move in this case?
In general, selling a house with an underwater mortgage is not a good idea. If you can, wait until you bring your equity back to positive territory. You may be able to do this by continuing to make your regular mortgage payments, making additional payments, refinancing for a lower interest rate, or simply waiting for the housing market to improve.

What if you had to move?
If you have to move soon for some reason, can’t pay your mortgage payments and aren’t eligible for refinancing, or the home needs major repairs that you can’t afford, you may need to be getting rid of the property. . There are several ways to do this.

An option is a short sale, which means you are selling the house for less than its value. Your lender may or may not agree to this, and a short sale could hurt your credit, but not as bad as a foreclosure. Depending on the state you live in, the lender may or may not have to give up the difference between the loan balance and the sale price.

Another option is to sell your home and then pay the lender the difference between the sale price and your mortgage balance. It won’t damage your credit like a short sale would, but you may need to drain your savings account or take out a personal loan to cover the difference.

Should you accept foreclosure?
You may think that foreclosure is your only option. A foreclosure can hurt your credit, and it can take several years to recover. You may also have difficulty securing another mortgage for a period of time.

Your lender may agree to a deed in lieu of foreclosure. In this scenario, you are voluntarily giving up the deed for your home to avoid the foreclosure process. A deed in lieu of foreclosure can also hurt your credit, but you may be able to negotiate somewhat favorable terms with the lender.

Weigh your options
If your mortgage is underwater, it’s best not to sell your house if you can avoid it. If you need to move, discuss your options with your lender and a local real estate agent.

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