If your home is unaffordable, selling the home seems like an obvious solution. However, if you have little equity in the home, a traditional sale is not possible. However, there are a few options can help make a property more affordable or assist homeowners in ridding themselves of a home that they cannot afford.
1. Refinance Your Existing Mortgage.
If you have a small amount of equity in your home, you may be eligible to refinance the balance owed to make the payments more affordable. Refinancing starts your mortgage amortization schedule over and can result in higher overall interest expenses.
For example, if you purchased your home for $200,000, currently owe approximately $150,000 on your home, and have 18 years left in a 30-year mortgage at 4.5 percent, your monthly principle and interest payment is $1,013.37. By refinancing the balance owed into a new 30-year mortgage at the same interest rate, your payment drops to $760.03.
2. Sell the Home Using a Short Sale
If the balance owed on your home is more than the market value of your home ("upside down"), your options are limited. Conventional refinance programs will not refinance an upside-down home; the Making Home Affordable program does enable some upside down homeowners to refinance their homes, but it has stringent guidelines.
Selling your home as a short sale is a viable alternative for a home that is outside of your budget. When you short sale your home, the bank agrees to take less for the home than it is worth. A short sale is a win-win for the lender and the borrower. The lender does not have to go through the expensive process of foreclosing on a home, while borrowers are able to avoid having a foreclosure on their credit report.
The process of short selling a home can take up to 120 days. All lien holders must agree to the sale, and the transaction requires extensive paperwork.
3. Allow the property to become a foreclosure.
If your lender will not agree to a short sale, permitting the property to be foreclosed upon can help you get out of the home. Though a foreclosure remains on your credit report for up to seven years, the negative impact lessens over time. Your lender will begin the foreclosure process approximately three months after you miss your first payment.
In most cases, homeowners are able to remain in the home for three to six months before they are legally evicted.
Knowing that you are unable to afford your home is a daunting feeling. Take solace knowing that you have alternatives to help you get into a dwelling you can afford, even if you have little or no equity in your property. Whether it is refinancing, a short sale, or permitting your home to foreclose, there are options available that can help your situation. Speak with experts like Iannello Anderson for more help.