“Under water” mortgages hit new high. Consider a “short sale”!

As the Wall Street Journal Reports, nearly one in four (23%) homes now have mortgages that exceed the value of their houses.  They are “under water.”  Of the 10 million-plus homes that are in this situation, more than 5 million have mortgages that are more than 20% higher than the value of their homes.

Homeowners paying mortgages that exceed the value of their homes are far more likely to go into default, so the lenders are very nervous.  Last year almost 600,000 homeowners who could afford to make their payments chose to default, according to a study by Experian.

If your mortgage balance exceeds the value of your house, you have three choices:

  1. Keep making the payments and hope that the value of your house will once again rise and become more than the mortgage balance.
  2. Walk away and let the bank foreclose.  This could leave you liable for the mortgage balance in excess of the house value and it will certainly put a seven-year stain on your credit.
  3. Arrange a “short sale” with the lender in which you sell the house at a fair market value and the bank agrees to accept that amount in full payment of the loan.  You will have to walk away but your credit situation will be much better.

For more on short sales see our previous entries like this one: Short Sales as Feasible Ways Out.

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