Introduction
Selling a property when you are dealing with an underwater mortgage can seem impossible. An underwater mortgage is where you owe more on your home loan than the current market value of the property. To sell it, you would normally need to bring extra money to closing to satisfy your loan. However, there are a couple of strategies you can employ to avoid this. Let’s take a look at them.
Understanding the Concept of an Underwater Mortgage
An underwater or upside-down mortgage is when your home’s market value plunges below the remaining balance of your home loan. This negative equity situation can stem from substantial depreciation in property values, a steep hike in mortgage debt, or a combination of both factors. When caught in such a situation, the money from a sale is not enough to cover the entire home loan. This can create major financial distress for you as a homeowner. Thus, it is imperative to carefully weigh your options and strategies.
Short Sale
A short sale is one viable route when handling an underwater mortgage. In this scenario, you talk to your lender and they allow you to sell the property for a price that falls short of what is left on the mortgage. The proceeds from the sale are then directed to the lender. In many cases, the remaining debt is forgiven. Yet, caution is advisable as a short sale might negatively impact your credit standing, and there could be tax ramifications tied to the forgiven debt. Be sure to consult with a tax professional or financial advisor to understand all potential outcomes.
Selling Subject To the Mortgage
Another way to sell is by selling “subject to” your mortgage. This means that the buyer does not go out and obtain a new loan. Instead, they simply start making payments on your loan. This way, you don’t have to bring extra money to closing, because the loan is not being satisfied at the time of sale. But, there must be something desirable to the buyer about your mortgage for them to want to make payments on it. Usually, this is in the form of an interest rate that is lower than the current market rate. In that case, a buyer might rather pay your lower rate, even if the purchase price is higher than market value.
Conclusion
Thus, whether you want to negotiate with your lender or find a suitable buyer, there are options for selling a house with an underwater mortgage, without having to bring cash to closing. Carefully consider these and consult with professionals to decide on the best course of action.
