How To Get Out From Under a Mortgage

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How To Get Out From Under a Mortgage

In today’s economic times, it’s not uncommon for homeowners to find themselves in a situation where they’re dealing with negative equity on their house. Often referred to as an underwater mortgage or upside-down mortgage, it means that the balance remaining on your mortgage loan exceeds the actual value of the property. For example, you might owe $200,000 on your house but it is assessed at $175,000, which puts you at a disadvantage when it comes to trying to sell your house and not get stuck with a large bill afterward. So if you’re in that situation, here are 5 ways to get out from under a mortgage.

How To Get Out From Under A Mortgage

Strategic Default

Quite simply, the strategic default strategy involves walking away from your mortgage and not looking back. You literally stop making payments and let the bank know you’re walking away from the home and loan. Sometimes homeowners see this as the easiest option because it’s better to just walk away and start fresh rather than continuing to throw away money at a bad mortgage. This is an easier solution for those with a lot of cash in the bank who can take the equity hit.

Of course, you still have to find new housing without having any extra funds from the sale of your old home. Not to mention that a strategic default will be reported to credit agencies as a foreclosure, which will negatively impact your credit across the board. That’ll make it hard to get a good mortgage loan the next time around. 

Deed in Lieu of Foreclosure

Deed in Lieu of Foreclosure

Much in the same vein as the strategic default, a deed in lieu of foreclosure means the homeowner simply hands back ownership of the residence to the lender or bank. Unlike strategic default, you’re actually handing the keys back to the bank. In fact, some people use the term “jingle mail” to represent when you put the keys in an envelope and send them back to the lender.

The main benefit of going this route is that you avoid foreclosure proceedings. That also means your credit score won’t take as much of a hit as it would if you went into foreclosure. It also releases the homeowner from being personally responsible for the outstanding loan amount. Lenders often prefer this method as well since it means they don’t need to deal with the time and resources necessary for a foreclosure process. It also lowers the risk that the borrower will do any damage to the home or will declare bankruptcy before closing the loan.

You’ll still have to deal with the negative credit impact of not paying back the loan in full, but at least you can walk away in a little better shape than a foreclosure or strategic default.

Short Sale

Short Sale

You can always get out of an underwater mortgage by trying a short sale. By definition, the proceeds from the sale of the house on the open market with fall short of the total debt, so you’ll have to get the lender’s approval in order to do this. It might seem strange for the bank to agree to get back less than the value of the loan but it often beats the grueling and costly foreclosure and financial recovery process.

The other requirement of a short sale is that the agreed-upon sale price is at or less than the appraised value of the home. That means you’re not going to be able to set the terms based on your outstanding loan amounts. The sale’s value is set at whatever the home is actually worth. Be warned, however, that the lender might hold you responsible for the difference between the sale price and the whole mortgage value, which means you’ll be on the hook for the difference.

Rent the House

Rent the House

If you have the ability to live elsewhere, you could always offer up the residence as a rental. This way, you could use the monthly rent to pay for the mortgage payments. So long as you’re able to find housing elsewhere that doesn’t cost a lot of money, you can put yourself in a good position to turn things around, especially if your house or condo is located in an area that’s in high demand.

Of course, you also have to consider what it means now that you’re a landlord. That involves getting particular types of insurance and paying new forms of taxes and fees. You also have to worry about tenants sticking to the terms of the lease and not failing to pay rent or causing damage that requires expensive fixes.

You’ll also want to make sure you are squared away financially because the last thing you need is to get hit with some more payments out of nowhere, thereby eliminating the value of this arrangement in the first place. Consult with an accounting or insurance professional before going down this road.

How To Get Out From Under a Mortgage Sell to an Investor

Sell to an Investor

Rather than go crawling to the lender or compounding your frustrations by taking on a rental tenant, you can always find a legitimate company in your area that buys homes. They will often buy a home at a fair price, put cash in your hand quickly, and then fix up the house to sell it themselves. You might not get the value you’d get on the open market but you’ll avoid all of the costs and fees involved with listing your home, which means more money to put towards paying off the loan.

The entire process can be completed in a matter of days, which means you’re able to move on from this stressful situation without incurring any further penalties or fees. Plus, you don’t have to worry about foreclosure or the bank coming after you. Ultimately, the bank doesn’t care how it gets its money, it either wants the property back or it wants the money to cover the outstanding loan debt.

If you’re interested in receiving a cash offer on your home, whether you’re upside down on your mortgage or not, click here to get started.

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