In Too Deep?
By James Vaughn
The prices of groceries, energy, and other goods have gone up a lot over the course of the pandemic. Everyone has noticed that paychecks just don’t go as far these days: A block of cheese costs $12 when it used to cost $9; a car battery sells for double what it used to, and all the while wages have not kept pace. Enter real estate: Interest rates have doubled since their trough a year ago, and as many as 75% of homebuyers over the last two years now report some regret over their decision to buy a home as values have begun to drop and adjustable rate debt payments have gone up.
Does all this sound too close to home? If you are worried about your ability to keep making mortgage payments as inflation continues to raise the cost of goods, interest rates remain higher than they were, and ongoing geopolitical tensions threaten supply chains and further raise the cost of goods, you should know there is hope. Options exist for those looking to mitigate the effects of an expensive mortgage payment or get rid of it completely while avoiding the negative effects of a foreclosure.
Option #1: Sell
This is the easiest and most obvious option. If you still have equity in your home, meaning the amount you owe is less than the amount the home is worth, then you can work with a Realtor to put your home on the market and sell for a profit. Then, either rent until the market reaches a place where you feel comfortable reentering, or use those funds to purchase a different property that fits more within your budget.
Option #2: House Hack
Perhaps your finances are not in terrible shape, but your mortgage payment is more than you are comfortable with each month. Many people are looking for cheap living situations these days, and house hacking could be just the solution you need to balance the check book each month. House hacking is just a fancy name for having roommates- maybe that spare bedroom or downstairs basement could be move in ready with only a little work. Just remember to do a background check on your new tenant and use a rental contract.
Option #3: Call your lender
This may be the simplest solution, but sadly many people never think of it. If you are experiencing financial difficulties, your lender may be able to work out a solution to keep you in your home while lowering your monthly payments, either temporarily or permanently, such as by extending the life of the loan. This solution costs you nothing up front except a little time, but could be the most responsible way to avoid more drastic consequences down the road.
Option #4: Short Sale
This option may make sense for homeowners who are deeper in debt and need to get out of the property quick. A short sale occurs when the lender agrees to the sale of the property at a price less than the current debts owed on it, in exchange for wiping out those debts. While a short sale can cause damage to the seller’s credit score, the damage will be far less than that caused by a foreclosure.
Option #5: Foreclosure
Foreclosure should be the option of last resort for homeowners who simply have no way to repay their mortgage debt to their lender. It is a lengthy process that negatively impacts the borrower’s credit for years to come and the lender’s bottom line. However, know that even during this process, there are ways to lessen negative impacts to you finances and credit.
If you feel like you don’t know what to do, The Sands & Associates team is always ready to help determine your best course of action. Early solutions tend to yield better results than late ones, so if “in over your head” resonates with your situation, contact us today to set up an appointment.