Housing Advice - Upside down on Our Mortgage

My friends are renting right now, and renting out their old home in another state. They are similarly upside down and could not sell but had to move for work. Their townhome community works with a management company so that they pay the managers, they don't do a lot of the maintenance, etc. on their own, and they can price the rent to cover their fees, management, and mortgage. I don't know if it would make sense for you to refi, but some people have also done that, buying out points, getting a shorter loan with a better rate, etc. You might want to get someone to crunch the numbers for you.

If you stay put, re-evaluate what you want vs what you can afford vs what you truly need. Kids sharing rooms is not the end of the world, for example.

As my mother says, "A sale is wasted money if you don't need the item on sale." So if you don't NEED a different house, then is it really the right time to buy for you?

You'd be one of the thousands of selfish people out there if you choose to just "walk away" and in all honesty you arn't the best person for even thinking of this...Ya it is harsh but um I assure you that it would not be the right choice.

You have a roof over your head and you can pay for it...you are not jobless, living on the street, or in your parents basement...why can't you be content with what you have...bigger house means bigger bills....if you can't pay
extra on your mortgage now to decrease the interest paid and the years paying on it then you CANNOT AFFORD to by a bigger home!

Stay put.
Renting out a home when you still have a mortgage on it is a recipe for trouble.
And on top of that, rental property loses value faster than if it is your primary residence.
The market will turn around eventually and you should be able to sell it for what you bought it for in 3-5 years.
In the meantime, de clutter and get rid of things you don't need.
Nine times out of ten a house feels too small because we just pack way too much into it.
It can make a house feel much bigger than it is if you empty a lot of stuff out of it.
I know a family that raised 6 kids in a 3 bedroom house but then that was the 60's and we just didn't have the same sense of space that we have now.

You should call a realtor to find out what you can really sell your house for, and ask about the government programs. More people are qualifying for short sales than ever before, and there's even a program to knock part of your mortgage off if you bought during certain years. Don't give up without looking into the programs!

If it turns out that you don't qualify for anything, renting the house is a decent option - but you don't need to show your own rental income in order to qualify for another mortgage. You just need to show decent credit history. So I'd skip the whole living with your parents and then renting for six months. Talk to a bank and see what you'd have to do to qualify for a mortgage for a new house before you jump through other hoops.

Whatever you do, don't walk away!

We are WAY MORE upside down. Like 150K down from what we paid. Not an exaggeration! I know its not a solution but I just try not to think about it! I just feel like it will go up in value again. I would just stay where you are and make the best of it. If you feel cramped maybe you can make more room by getting rid of some stuff you don't need. Anyway for all our sakes, I hope things improve in this housing market.

I don't have a lot of knowledge in this area, but we are currently renting out our old home in Denver and just bought a new one in Michigan, and YES we did have to show that our income could cover both house payments. We also had to show that in our bank account we had enough cash on-hand to cover both payments for 6 months! They are gettting strict these days (probably a good thing).........

I feel for you.

I have a home that has a $475k mortgage and a $220K appraised value.
I'll never get out from under it.

I've always paid my bills on time, but I bought at just the wrong time. I hope to learn something from your answers.

I would not suggest you become a landlord. I'm not ruthless enough to be a land lord. Too many deadbeats to ruin your home and not pay their rent.

Good luck to you and yours.

Never mind what you paid for it, how much do you owe (with your original down payment and history of making payments it should be substantially less than what you paid for it)? Is the gap between what you owe and what you can sell it for small enough that you would be able to just pay the difference if you saved aggressively? And would you then be able to afford a down payment on a new home?

If I were you, I would save up enough to sell the house at a loss, move in with your folks and save up to put a down payment on another house later. I would not play the rental game at all as the risk is huge.

You should talk to a real estate agent and or a mortgage professional in your area, however make sure you do your homework and find a reputable company to talk to and gather all the information you need to make an informed decision.

Almost 2 years ago, we were in the same situation... I'll just start with, IF there's any way you can make the current home work, I'd stick with it for a little longer. If not, you need to do a better assessment of what you owe vs. what you could sell it for. Worth is determined by what nearby, similar properties are selling for (within the last 3-6 or 6-12 months). We had our condo on the market for a year, and even though we had done a LOT of renovations & remodelling, people expected to get it for the same price as a similar or slightly smaller (floor plan) units that hadn't been updated in 20 years! We could not afford to pay the difference (more than $8k) to sell at a loss.
We talked to a mortgage broker about our options--what would we need to do to get approved for another mortgage... that was a huge can of worms. (PM me if you'd like more info on the process WE went through.)
So, we looked into renting it out. Management companies will charge one of two ways: Either a flat rate to do the advertising, screening, & etc to get a tenant moved in for you. Or, they will charge a flat rate PLUS a monthly fee (the few we talked to charge between 10-15% of the monthly rent) and they will do ALL management (including advertising, screening, inspections, maintenance, etc). In our rental market, and for what we need to cover bills (mortgage, HOA, insurance), it wasn't feasible to hire a management company.
We decided to give it a go on our own. We've had very bad and very good tenants, and they each came with their own sets of drama... Fortunately, overall they did pay rent and left the place in good condition. Next set of tenants is moving in this week. I feel pretty good about them.
I'll just say, you have to make the decision that is best for YOU and your family! When we set the condo up as a rental, we moved in with family for 6 months to save up the money for a down payment--it was cramped and stressful! Everything about that time was just CRAZY stressful! But, we did it. And, last summer, we bought an amazing home that we LOVE and can see ourselves raising more kids and growing old in!!
Please PM me if you'd like more info or have any questions about HOW/WHY we did what we did!
Good luck!

We are one of those nearly 50% upside down on our mortgage. No financial difficulties and we love where we live, but it was hard to watch interest rates get so low and not be able to take advantage of them. However, there ARE programs in place to help people now that are in that circumstance. We refinanced and dropped 3% off the interest rate. Which saves us a TON each month. Look again at the refi programs. The one we qualified for only came online in March of this year.
Otherwise, good luck. Banks are huge sticklers these days about qualifications, so you probably would have a hard time getting another mortgage while you have this one. Remember, that with a short sale on your record, that it will hurt your credit score. Not as bad as just walking away from it would, but enough that you might lose out on the good interest rates for a new loan -- or even have a hard time getting one.

JB makes a really good point. How much did you put down on your townhouse? I'm assuming you put something? So your mortgage isn't for $189K? If you can sell it for a *small* loss and move on would you be OK with that? I might be. Interest rates are so low - buying "up" right now might be a good idea. If you can't stomach selling at a loss then I would just stay put.

I feel for you. People like you who are doing all the right things (paying on time, etc.) should be the ones getting some help, but you're not. My brother got into the FBI and when he was assigned his job in North Carolina he wanted to sell his Florida home (which he purchased in 2004). He was much more upside down than you are. He asked for advice and was told "you'll qualify for help when you stop paying your mortgage and get behind by about 6 months." He refused to do that!! He couldn't understand why that was his only option. Luckily for him, he was finally able to short sale it. But his credit has been dinged because of it. It's been 4 years and he's still renting in NC. LOTS and LOTS of people have stories like this. Good luck to you! I hope it works out the way you'd like it to!

Not sure if this is too late but thought I would share. We rent 5 houses right now because we are waiting for the market to go up . If you live in Utah the market is growing and growing and has dramatically changed the last summer. You would be surprised how easy it is to rent out your condo. Whatever you do don't short sale it will destroy your credit and you really will be stuck in a hamster wheel of renting for 5 years! FYI a good lender will look at your lease agreement for the condo and it takes 6 months to be qualified as a landlord then it will count as income not a liability. Good luck

wow. These types of questions sadden me.

Renting it out is the way to go if you just HAVE to buy something.

But keep in mind you're buying an investment. It's a THING. It's value is based on what the next person will pay for it.

You aren't in financial distress - you just want to take advantage of other low prices. Do you throw away all your food in the freezer everytime there's a sale in the grocery store?

That may be ludicrous, but so is your solution of walking away/short sale/etc. Not only will this demolish your credit - but what is the real world implication? Simply stated - you bought an item hoping it would be valued higher when you sold it. It's value is currently low, so you now you HAVE to sell it.
Why? Because it's value is lower.
Does that affect you? Nope, but it's value is lower.

What would be your advice if you bought stocks? Buy high, sell low? Of course not.

So I know this is your house. And I know the people on the TV and radio are saying all kinds of silly things. But please - look at the whole situation, not just some made up number of "value".

Who cares if I say it's worth $1,000. It still provides shelter and does all the things it's supposed to. Not only will the market come back, but really focus on whether your investment strategy is truly "buy high, sell low". If it is, I'm sure you'll have no shortage of people willing to pay lower than $165.

Yes - lower. There is nothing magic about it's "worth" being $165. It's only value - the ONLY number that counts, is what the buyer pays. Forget the appraisal, forget the economy.

You want to buy b/c the economy sucks and you can get bargain prices. Don't you think that's who's going to buy your house? Shoot - you might even get offers of $125, then you'll REALLY be motivated to sell, right?

I sincerely hope you can rent it and buy another. Well, I hope that A, you can afford that scenario (and plan for worst case when you have no renters). Otherwise, you're just selling things out of restless wallet syndrome - there's other stuff out there to buy, so forget that my house is an investment - sell it at a loss so I can make money on the next one!

No advice here. Just wanted to say that really does suck!! Good luck with everything!

A couple things to consider--are you REALLY that cramped in the townhome? From what I could gather from your other questions, there are currently 3 of you in the home, and you are expecting a baby. That's 2 kids, 2 adults, right? I'm assuming that your townhome is at least 2 bedrooms. Is that correct? If so, you can have your baby in your room for the first few months and then have the kids share a room after that. It is not that big of a deal--my 2 oldest are sharing a room now, and I grew up in a 3 (small) bedroom home and 5 siblings.

I would never risk your credit by taking out a 2nd mortgage that you can only afford if you have a smooth rental experience.

Please don't even think about just walking away from your home. Not only will you destroy your credit, but you will also contribute to keeping your neighbors' home values low. One of my neighbors wanted a bigger house and a change of scenery, so they walked away from their home, although they had plenty of resources to pay it. It was foreclosed on last year. Guess what happened to our values? They plunged another $20k within a few weeks.

Can you afford your current mortgage? Will you be working in the same town, not moving away in order to get a better job?

Then you need to stay put and not worry about being 25K down. Instead, downsize. There are so many people who CAN get by with much less stuff. It's hard - I know. But you can do it.

Sell stuff on eBay or Craigs List. Take children's clothes to a consignment shop (you'll get more for them than in a garage sale.) Re-organize. But most of all, pare down.

Do you REALLY have an interest only mortgage? Check that out. Surely you don't? (I HOPE you don't!) When you are paying down a 30 year mortgage close to the 30 years, the interest payment is a lot higher. Remember though, you signed a 30 year paper - in 30 years total, the debt is paid off. Meanwhile, you can deduct the interest you are paying off of your taxes.

It's hard to want what you can't or shouldn't have. Try to get past that and just stick it out. You can always pay a couple hundred a year down on the principle and it would lessen what you pay totally in interest by a large amount. (And you don't have to "pay" anyone to help you do that. You can do it by yourself anytime you want, by designating it to be paid toward the principle.)

Busymom is right in what she is saying about people just walking away from their debts. It hurts us ALL in the longrun. Don't be one of those people. Your home is NOT a "sinking ship". It's your home and it was good enough for you to have purchased it in the first place. Just stop putting more and more stuff in it, clear out what you truly don't have to have, and it will be what you need.

Dawn