Avoiding Mortgage Financial Freefall

7 years 7 months 1 week ago Tuesday, November 09 2010 Nov 9, 2010 Tuesday, November 09, 2010 10:25:12 PM CST November 09, 2010 in News

COLUMBIA - A quarter of all U.S. Homeowners owe more on their mortgage than their home is worth...right now. If that's you, and odds are it might be, this stretching your dollar has some help to avoid a financial foreclosure freefall.

When Drew Brown and his wife Sarah bought their first home back in 2005. It was exactly what they needed. Three bedrooms, one bath, a big lot with a little brook running through it on a quite dead-end street in Columbia but after a move out-of-state for Drew's education, an expanding family and a tanked economy. The Browns are now trying to sell their house on Flora Drive...again.

"In the fall of 2007 we put it on the market and after about 9 months we realized it wasn't going to sell. That was shortly after the bubble burst," said Sarah.

Now Sarah and Drew hope they can break even, but know buying back when the housing market was peaking and selling now, when it's still in the dumps isn't going to be fun.

"We know what we need to get out of it as far as loans go, we've been able to make our payments but it straps up financially and we'd like to be able to do things other than throw our money at a bank," said Drew.

There are few silver linings when you're one of the more than 11 million homeowners in the country right now who are upside-down in their mortgage.

Meaning you own more on your home than you can get out of selling it.

If that's you, here's some information to try and keep your head above water.

  1. If you can... Stay where you're at and try to ride out the downturn... But keep in mind it might take a while.
  2. Now if you have to move... Make up the difference on your new home. So if you think you're going to lose 5 thousand dollars, make sure you spend at least 5 thousand less on the house you're looking to buy.
  3. Also, think long and hard before you rent out your house.

"We spent way more money fixing up the house after the renters left then the deposit," Drew said.

There's still going to be a mortgage and upkeep... The renters may not take care of the house... And if they flake out, you're still on the hook financially.

     4.   But most importantly, talk to an expert.

If you're really, really underwater... You may be thinking about a strategic default... Or letting the bank take back, or foreclose, on your house.

Before you do that, talk to a hud-approved counselor. It's free and they can talk about the good and bad of each of your options without the vested interest many mortgage officers might have. There can be significant tax consequences to strategically defaulting.    

      5.   Then there's the short sale. That means if your bank allows it, you sell your house for less than the balance on the mortgage.

It can get you out from under the debt, but you'll still face a big tax bill and your credit score will take a big hit. Luckily for the Browns, the outlook isn't that bleak but with two more kids now, they are renting another house since moving back to Columbia. Saying goodbye to Flora Drive will be a welcomed occasion...whenever that might be.

"We really can't move on until we sell this house," Sarah said.

I've got a list of several really helpful websites. You can find one of those free counselors in your area, take a financial risk tolerance quiz and check out some real ways to cut household bills.

National Foundation for Credit Counseling: Find legitimate credit counseling and financial eduation.

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