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#370675 - 03/25/11 01:20 AM Underwater in house, but want to sell. Options?
freddy1318 Offline
Junior Member

Registered: 03/25/11
Posts: 1
Loc: California, USA
My wife and I are approximately $90,000 underwater in our house. We both have very good jobs, have never missed a payment and are not in any danger of missing a payment. We are currently in the market to purchase a larger home for our growing family. Because of the situation with our current house, it seems like our only option is to hold on to it and rent it out. However, we would like to sell it so that we can qualify for a larger loan. We both have excellent credit and don't want to damage it in anyway. Also, we aren't looking to pay less than what we owe or anything like that. Is there a way that we can sell this house for less than what we owe, then take out a loan for the difference? Can the difference be added to a new loan? What are my options? The important thing is that we don't want to hurt our credit since the goal is to get approved for a larger loan then what we have already been approved for. Thank you for any help!

#370683 - 03/25/11 07:24 AM Re: Underwater in house, but want to sell. Options? [Re: freddy1318]
Doin' bpose Offline
Major Contributor

Registered: 01/26/09
Posts: 3349
Loc: Old Dominion
Selling short will effect your credit. To sell short you need to show hardship, which can be done in a number of ways. It does not look as though you are experienceing hardship from what you write.

I like your thinkning out of the box about borrowing the negative difference, but getting somone to lend on no collateral is tough, and a loan on negative collateral is even more challenging to find.

You have to explore renting the place out. Generally lenders will grant you about 80% of the rents as income on your new loan app., so do not figure it as $ for $.

Before you know it tenants will have paid down your mortgage suficiently and/or values will hav returned some and you will be able to sell the home without coming to the table with cash.

Remember it's not a loss unitl you sell.

Congrats on the growing family. Have you considered an addition to the house?
I can't. I'm going camping.

#370707 - 03/25/11 11:35 AM Re: Underwater in house, but want to sell. Options? [Re: freddy1318]
BK Estates Offline

Registered: 07/25/10
Posts: 257
Loc: SoCal
I can't think of anything off the top of my head. If you borrow more, then that will reduce your borrowing power on the next house. I know a really good loan officer if you need one, and he might have some good ideas on how to help you. PM or give me a call if you want to talk to him.

(909) 868-1955

#376553 - 05/22/11 01:21 AM Re: Underwater in house, but want to sell. Options? [Re: freddy1318]
ProSnyder25 Offline

Registered: 06/19/07
Posts: 27
Short sale ruin credit? Falacy

There is an article I read that people way over estimate the affects of a short sale. For one, they aren't as bad as a foreclousre, and two your looking at a 20-30 point drop.

So if you're credit score is say 775+, then your credit score afterwords 750, is still considered excellent.

Ofcourse, the banks and media would want you to believe that it's the end of your world if you short sell. I say do do it and buy the other house, or buy the other home first, then short sale before the slight drop in credit.

#376567 - 05/22/11 11:49 AM Re: Underwater in house, but want to sell. Options? [Re: ProSnyder25]
STEW Offline
Veteran Member

Registered: 08/27/07
Posts: 554

I hope no one takes this last post seriously. Multiple credible sources put the damage a short sale puts on your credit rating as an average of 200 point drop; not 20 point drop and most lenders will not consider a new loan on your behalf for 2-3 years. Plus with that drop in credit score everything goes up from auto insurance, credit card interest rates and you may have difficulty renting or obtaining a car loan.
A lot of this dent is obviously time related, as if you have defaulted on your monthly mortgage payments for a year vrs 2 years the likely impact on your credit score will vary.
Seek the advice of a qualified attorney before taking this step with far reaching consequences to your future.

#376588 - 05/22/11 06:23 PM Re: Underwater in house, but want to sell. Options? [Re: freddy1318]
super realtor Offline
Major Contributor

Registered: 05/01/05
Posts: 8596
Loc: georgia
If your goal is to get a bigger house at a great price today then you can do a seller financed note with a balloon note on it putting 10 to 20% down or you can do a lease option on the larger home and lock in prices of today.

Your current home you would just rent out for a few years and wait for the market top return and some principal pay down on your mortgage to get closer to a break even point to get out of it.

What you don't want to do is wait for the market to come back up before buying anything.True your house will break even or have a small loss compared to now but buying power will be severely diminished.

If you buy the larger house later on you can refi out some equity and use the spread to get out of your other house.Many options to structure a deal to help you.

No legal advice

#376589 - 05/22/11 06:25 PM Re: Underwater in house, but want to sell. Options? [Re: freddy1318]
super realtor Offline
Major Contributor

Registered: 05/01/05
Posts: 8596
Loc: georgia
By the way your credit will go down more than 30 to 40 points on a short sale.The main difference with a short sale is negotiating to eliminate a deficiency and get a 1099 instead.On some principal residences bought in a certain time frame you won't get 1099'd.

The other difference is with a short sale some lender will let you buy again in 2 to 3 years.If you have a foreclosure they are making some wait 5 to 7 years before being able to buy again.

#378036 - 06/04/11 06:00 PM Re: Underwater in house, but want to sell. Options? [Re: STEW]
abstractdaisy Offline

Registered: 06/02/11
Posts: 12
Loc: Michigan
Agreed and was glad to see your post; my good friend owns a mortgage company and in his opinion, (which is fairly reliable for what it's worth), a short sale is just a bit less of a hit than a foreclosure on your credit. In essence, any new creditor will see you were struggling and for some reason (finances most likely) needed to unload an obligation for less than what was owed.

#378891 - 06/10/11 04:20 PM Re: Underwater in house, but want to sell. Options? [Re: freddy1318]
Ellen45 Offline
Veteran Member

Registered: 06/13/07
Posts: 1006
Loc: USA
My advice? Stay in the home you're in until the market improves.

#378960 - 06/10/11 07:54 PM Re: Underwater in house, but want to sell. Options? [Re: freddy1318]
SWRSDC Offline

Registered: 08/15/07
Posts: 134
Loc: Bethesda, MD
Absolutely, just stay put. There is no good way to get out of a property you're underwater on. If you have any assets, the bank will want you to spend those assets down before they'll agree to take a loss, and depending on the state may require you to take back a deficiency note for what you're short. That, and whatever loan amount they waive comes back to you on a 1099 and you have to pay taxes on it.

So, you may wind up out of the house with ruined credit (the credit issue is not only the short sale, its the late payments since you'll likely have to stop making the payments to get the lender to even talk to you about a short sale), and STILL be on the hook for the deficiency.

Some good friends of mine called me up the other day and wanted to short sell their house. No hardship, they have assets, it was just a bad investment (I didn't sell it to them) and they want the bank to take the loss. Not gonna happen.
Thanks for reading!



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