Our House Isn’t Worth What We Paid: What Are Our Options?

It’s a sticky situation: you felt compelled to buy real estate in 2005/2006, but now in 2010 your property isn’t worth what you paid. Or worse, what you owe. So what’s a homeowner to do? Keep in mind, as always, my advice and opinions are generic. Depending on your specific situation my advice might be different!

You’re stuck. You can’t or don’t want to pay to get out of the house, meaning, you really don’t want to come to the table with that $50k check to payoff the balance of your loan amount. Your option: rent it.

• How much does it cost you each month to keep it (mortgage + taxes + HOA/Condo Fee)? How much can you rent it for? If rent > costs… definitely rent it. (also consider refinancing if you’re going to keep it)
• What if rent < costs? How much is the difference? Say the difference is $500. In a year, you’ll be out $6,000. If you keep it for 3 years – that’s $18,00. Is it better to take the loss now or over the span of a few years? Consider things like interest, tax implications, etc. This is where I suggest you talk to a qualified CPA.

Short Sale. Take a 3-year credit hit – that’s the biggie everyone’s concerned with…how will it affect credit?

• Ups: saves you years of holding onto the property that may or may not increase in value.
• Downs: hurts your credit for at least 3 years, can take a long time (long time in limbo), may cost you cash to get out (they can negotiate an additional cash value on top of a purchase agreement from a buyer), “reputation” amongst friends and family.

Foreclosure. Take a 7-year credit hit but walk-away from it.

• Ups: you get out of a property that’s probably making your life hell, draining your savings accounts, and by now, the bane of your existence.
• Downs: hurts your credit for at least 7 years and you’ll have to spend time after that rebuilding it, may end up paying a deficiency judgement, reputation.

No matter what your situation – you have options. Let’s talk.