How to Get out of a Mortgage When You’re Underwater
If the total balance of your mortgage is currently more than your house is worth, put on your snorkel because you’re underwater.
It can be pretty disheartening to find out that you’re in this position, however, there’s really no need to panic.
Read on to learn how to get out of a mortgage and how you can get out from under the scary situation of being underwater so you can breathe again.
Default on Your Mortgage – Strategically
Believe it or not, there are ways to get out of a mortgage that involves more than just stopping payment. These strategic methods can save you extra headaches and get you out of the home with less drama.
While many people opt to quit paying on their mortgage and move out, some people settle using something called a deed in lieu. This form of foreclosure means that you’ll deed your property back to the lender.
When you choose a deed in lieu of foreclosure, the lender will take over the deed and forgive you the remaining amount. If your lender is willing and everything goes through, it’s a much better option than going into bankruptcy or facing eviction.
The deed in lieu allows the lender to sell your property and recoup a portion of the unpaid mortgage amount. Many banks will allow you to go this route because they’ll at least get some money back for the home and won’t have to worry about collecting it from you.
While this option isn’t ideal for the bank, it’s still a better option as opposed to foreclosure. If you’re honest with your lender and have exhausted other alternatives, you may want to consider talking to them about a short sale.
How to Get Out of a Mortgage: Sell Your Home and Pay Off the Balance
If your home is underwater and you’re tired of paying the mortgage, you can always list it on the market and pay off whatever you owe. Even if you end up owing, it’s still a quick way to get out from under the home.
Once the home sells, you can pay the difference using your savings. Keep in mind that this process only works when you can prove you have the cash to pay off the remaining balance.
On the other hand, if you’re in a hot market, you can always wait to see if your home gains traction and equity. When the home prices rise in your neighborhood, try to sell your place to at least break even, or maybe for a small profit if you’re lucky.
Whenever you sell a home, you’ll be on the hook for closing costs like fees to the realtor and bank fees. Keep those fees in mind when you sell so you’re sure you have the extra cash to cover it. This method might not work for everyone, but for those with extra money who just want to get out of the mortgage, it can be a viable choice.
Stick it Out
Even if you’re wondering how to get out of a mortgage, it might be worth it to hang tight until the market improves. When house prices rise, your home should also start to gain equity.
Once the amount of equity is more than you owe, you’re no longer underwater. If you plan to stay where you are for a long period of time, it could be best to just wait things out and see where the market takes you.
If your home starts to gain equity, you can then sell it for a profit to get out of the home. Another option would be to refinance, which is a great way to stay in your house and get a lower monthly payment.
Keep in mind that you can only refinance when your home has equity in it. That means if you’re currently underwater, you likely won’t be eligible for a refi.
Consider a Cash Sale
For people who want to unload their homes quickly, a cash sale is ideal. Many of these home buyers are just ready to move on, and a cash sale can help you avoid excess fees and paperwork.
Selling your home to a cash buyer can help you avoid an appraisal. This means that even if your home is underwater according to the lender, a cash buyer may still be interested.
Remember that a foreclosure should be your last resort, so consider hanging tight until the market improves if you can. Being underwater doesn’t always mean you’re in danger of losing your home. It simply means that at the moment, you’re probably paying too much.
In some cases, an underwater market can turn around quickly. Talk to a real estate agent and see if they can help you pull some comps and get a feel for where your local market is heading.
Don’t Despair if You’re Underwater
Now that you know how to get out of a mortgage if you’re in a precarious situation, there are options available to help you go through the foreclosure process. Consider sticking it out until you gain equity in the home whenever possible.
A cash buyer can get you out of the home fast, or you might need to talk to your lender and see if they would consider a short sale instead of a full foreclosure.
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