One consideration to avoid foreclosure involves selling your existing home and buying a lower priced more affordable home. Moving down may have an advantage. To consider this option you need to have equity in your existing home. As an example I will use a $350,000 home with a $150,000 left on the loan. The property would have $200,000 in equity. Consider all the expenses of selling. A typical broker fee to sell a home is 6% or $21,000. Look around, you should be able to find qualified Real Estate Agents to list your home for less. Other costs involved include moving expenses, repairs, closing and costs. In this example I will estimate $1000 for each which gives us a total if $24,000. We can round up to $25,000 to make the math easier. The $200,000 equity now comes to a $175,000 profit.
Selling in a bad market like today is not a good idea. We can assume an accepted offer 10% less than list price. This would reduce your profit by $35,000. The actual profit may be $140,000. This is still a sizable down payment used to purchase another home.
If the interest rate was 7% the monthly payment would be about $1000. Taxes may be $500 a month. Here is where investing in a smaller home may save you money. If you buy a $200,000 home you are financing about $65,000. Closing costs of $5000 have been added to the new mortgage. The monthly payment would now be about $450 a month and taxes may be about $300 a month. This example shows a savings of $650 a month.
As the example shows, you will need equity for this to work. If you do not have a large amount of equity you may want to consider government backed programs such as H4H. This new program may be able to reduce your payments but will not reduce the taxes. To use this program you have to agree to pay a percentage of your equity when you sell your home. More information can be found on the Internet site:
Http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL
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