General advice to homeowners in most parts of the country today is that if you can stay in your home for the next 3-5 years, settle down and get comfortable. That is exactly what you want to do.
Not everyone can stay in their home for another 3 to 5 years however. Then what? If you have purchased your home within the past five years in Ravalli County, Montana, you are probably going to lose money if you sell today. Prices are at the 2004-2005 level and then you have the closing costs to consider.
It may not be a bad idea to sell your present residence even at a loss to take advantage of some of the other deals available, however. If you buy low today, your new home will follow the market and when it starts to appreciate again in the next several years, you will be able to sell your new home at a profit or at least break even. More importantly, you can just have more home for your dollar. Obviously, this strategy is something that each individual will have to evaluate on their own.
Let’s explore our possibilities if your loan payment is manageable and the home has a decent amount of equity. You may not be locked in to staying there for the next 3-5 years if you look at a few creative options. Each has inherent dangers and you don’t want to jump into any of them without doing some homework and getting professional advice but one or more of these options could be just the key for you.
Are you able to sell your property and carry the financing yourself? There is a great deal of money to be made in the banking industry! Become the bank. This is one of the strongest, safest methods out there of making a very good return on your money. Maybe you’re not comfortable with carrying a mortgage yourself or you still have a mortgage on your property that will not allow you to sell the property without paying that first mortgage off first. A lease-option could be a good alternative. I have found them much safer than a rental, mostly because of the frame of mind of the optioner. They think of the property as theirs, not just someone else’s that they’re using for a short period of time and giving back. They are also putting money up front.
The last resort is possibly to rent the property. There are many good renters out there that will pay on time and return your property in just as good a condition as they received it. Regretfully, the ones you hear about are the ones who do not pay, who trash the property, and who cause problems the entire time they’re occupying the residence. There is no way anyone can guarantee you that you will not get one of those renters. Using a good property management firm, having written guidelines that are adhered to, requiring a hefty security deposit and good paperwork will increase the odds of getting a good renter but you do have to consider the worst case scenario.
What if you are upside down in your home? You can’t sell it but you can’t afford to stay in your present situation? Let me warn you about what you do NOT want to do before I tell you about what you can do. Do not bury your head in the sand and ignore the situation. That will not help anything and can end up hurting you a great deal in the long run.
The first option you may have is requesting a loan modification. These have become popular in just the past year or so. Lenders are encouraged to keep present home owners in their homes and are actually rewarded for working things out so you can stay. Regretfully, most lenders are taking an enormously long period of time, asksing for the same items over and over again, and there are no guarantees that you will receive a modification at all. Statistically, most people who do receive modifications end up in trouble again within six months.
If a loan modification does not work or you do not want to stay in the house but you owe more than you can sell the home for, you can try to sell your home on a short sale. Simply put, your lender becomes a part of the sale process and agrees to take less than is owed for the property. If these are done correctly the lender will not come after you later for the unpaid balance. Temporarily, at least, the IRS is not requiring you to report the unpaid balance as income either. For more information, go to Short Sales.
The relatively new HAMP, Home Affordable Modification Process, will apply in many cases if you are doing a short sale. If you qualify for HAMP, there are some funds available for second mortgages, which are always a challenge in a short sale. You can even receive $3000 in relocation funds if you leave the property in good shape.
Of course, the worst case scenario is foreclosure and you do want to avoid that at all costs. A foreclosure will stay on your record for 10 years – it’s even worse than a bankruptcy. In some instances they can come back on you for any unpaid amounts. Since a foerclosure is extremely expensive and time consuming for the lender, your property could sit vacant for months and months and who knows what can happen to it. You could owe huge sums of money even if they sell the property for close to what the loan amount is.
Whatever you are thinking of doing, you will want to have professional advice from several different areas. Check with a good accountant to determine whether there are tax consequences that need to be taken into consideration. You may want to talk with an attorney to make sure all those i’s are dotted and t’s crossed, especially if you are thinking of something like a lease-option which is a little more unusual. Have a good Realtor help you finalize your deal. Just because we have a challenging market does not mean you can’t ride it through and still come out on top or at least in tact.For more information or a private consultation, please Contact Us.