Being in an upside down loan is a stressful experience. When your mortgage is valued more than your property, it becomes very difficult to sell the property -- you would have to pay off the difference, in addition to real estate fees, in order to get out. So what do you do if you want to move but your mortgage is upside down? Here's what you need to know.
Always Begin By Getting a Professional Appraisal
Don't just assume your property's value. A professional appraisal is very important. The appraisal could come in under or over what you expect, but either way it'll give you a better picture of what you're dealing with.
Look at Your Market and Your Neighborhood
Is your property about on par with other properties out there? Or is it far cheaper or far more expensive? This is going to form your options. If your property is the cheapest house on the block right now, there's room for growth. If your property is the most expensive, it's probably not going to be able to reclaim it's value any time soon -- no matter what you do.
You also want to look at the trends in your market. If the market has been picking up, even slowly, it might mean that you might not be upside down for long. Your real estate agent can give you information about whether it seems the market is going to turn around.
Get Creative With the Home Modifications
If you've found that your home is below average price for the market, you can consider some renovations to boost the price. Many renovations have a high ROI -- that means that for every dollar you spend, the value of your home increases by more than a single dollar. Putting some time into simple things like painting may make up the difference if you aren't too far under water.
Consider Selling Your Home through a Short Sale
On the other hand, if you've found your home is above price for the market, you might want to ask your bank for a short sale. A bank that does a short sale will let you sell your home for less than your mortgage, without holding you accountable for the difference. The catch is that you will need to pay taxes on that interest as income -- and the bank may not allow it.
Finally, what if you're in a house that has simply no chance of ever reclaiming its value? Consider this: an upside down loan really only matters if you want to sell the property. If you convert it into a family home or rent it out, the fact that your loan is upside down simply won't matter. Begin by looking at the local real estate market; you may find that you can still rent the property for more than the mortgage, even if the mortgage is higher than it should be.
For more information, talk to a professional like FCN Bank.