UPSIDE DOWN ON MY HOME: An Alternative to a Short Sale
A great post that gives yet another option for those who are upside down on their mortgage!
A few weeks back I contacted a prospective client who wanted to sell their home in Lake Ridge, Woodbridge, VA. As we began our conversation, I quickly realized they were upside down on their home--in the last few years it had dropped about 40% of its value. This couple found themselves in a situation that is playing itself again and again across America. They earned too much to qualify for a loan modifcation and were stuck making very high payments on a home that was not worth what it used to be.
My clients made an appointment to consult my short sale negotiator. After a very long question and answer period, she gave them the bad news. You won't be able to do a short sale either because you don't really have a hardship. But what they weren't expecting, and neither was I, was a bit of good news. She said, "You may still be able to buy." How could this be?
She told them they should rent out their current home and purchase a new one. It would be a little tricky, but it would be possible. They would need to qualify for both mortgages at the same time because lender rules dictate that if you are upside down on your home, you have to rent it out for 2 years for it to qualify as income. However, on paper, they could qualify for another home. And even though the rental income would not cover the mortgage of their first home, the savings on the second home would make up for the difference.
In the next few days my clients put their home up for rent. They were able to secure a renter and sign a lease. Now they were ready to get pre-approved and start looking for their new home. We put an offer on a home towards the beginning of the week that was about 700 square feet bigger than their current home and in a more sought out neighborhood. Since the new home is cheaper than their first home, overall they will only be paying $200 more than if they were to stay in their current home.
The home they found is not their dream home, but they are very satisfied with their decision. They will hold on to their first home until the market improves enough so that they could sell it and pay off the mortgage. In the meantime, they will be able to build equity on their new home because they bought it at a rock bottom price. By the time they sell both homes, they will likely have a significant amount in cash to put towards a down payment on their dream home. However, if they stayed in their current home, at best in five years they might just be able to break even.
This scenario will not work for everybody, but it certainly is worth exploring if you are looking to recover some of the equity lost in the last couple of years. It also demonstrates that you should explore your options before throwing in the towel because you are upside down on your home.
Luisa Rodriguez
The M&L Team
Exit 1st Choice Realty
Woodbridge, VA 22192
240-377-7104
For quality service, please contact us and a member of our team will be more than happy to assist you.
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