I recently met with a divorced single mom that was struggling with the decision on whether or not to short sale her home in Menifee CA. First I wanted to make sure she contacted the bank and went through the appropropriate steps (I always recommend this to anyone considering a short sale). Her interest rate is 6% and her payment is $3200 per month.
She did attempt getting the interest rate down by refinancing but since she didn't have any equity in the property the lender denied her. So her next step was to try for a loan mod. She was approved a loan mod trial period but the payments would only be lowered by $200. She decided this would not make any financial sense to hold onto the house for a payment that would be lowered to $3000. Not to mention, she simply couldn't afford it any longer due to a one income household.
So when we met we took a look at what her payment is verses what she could rent the same house in the same neighborhood for. She wanted to keep her son in the same school so he did not have to be uprooted from all his friends. Her son had already gone through enough through the couples divorce. So we determined that she could rent the same floorplan in the same neighborhood for about $1800 per month. The house has most likely been purchase by an investor and instead of a $450K mortgage (which was her mortgage) we determined at todays value an investor would have picked up the same property for just under $250K. We looked at how much she would be saving in mortgage payments and being free of a pretty hefty debt.
It just made financial sense to her to rent for a few years and take a breather. She'll be able to buy the same type house in just a few years for considerably less than her current mortgage. She is relieved knowing how much she will be saving over time.
If you are faced with this situation, I can help you better understand your numbers, total savings and whether or not this is a good option for your particular situation.
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