Home Selling: Owe More Than Your Home is Worth? There Are Still Options!

Selling a home can be tough under any circumstances; however, selling a home where the mortgage is more than the value of the home (being "underwater" or "upside-down") adds a whole new meaning to tough.

Many people believe they can't possibly sell their home if they owe more than what their home is worth. However, that's simply not the case. It's true, however, that it is more difficult to sell a home that's underwater, but it's not impossible. 

When making large financial decisions, make sure to contact a professional to see what works with your specific situation.

Home Selling Options if You Are Underwater

1. Short Sale

Probably the most common option for selling a home that is underwater is a short sale. Talk with your lender to see if you qualify for a short sale and if they would authorize it and what price they might allow. Also speak with a real estate agent that is familiar with short sales.

However, when considering a short sale, know that a short sale might negatively effect your credit. There may also be tax consequences as well.

2. Rent Your Home

A great way to deal with your home, especially if you are underwater, is to rent it out. As with any rental property, there are certain risks associated with this option. However, renting your home may help maintain your credit while someone else is helping you pay your mortgage. And renting your home still allows you to have a valuable asset that you can move back into or sell in the future should you choose to do so.

Before you proceed with this option, speak to a real estate agent that is familiar with rental property. They can assist you with how much your home may rent for, and other positives and negatives about renting your home.

3. Lease With Option to Buy

With this option, you would first rent your home with the understanding that they have an option to buy the home at the end of the lease. This is a great idea to possibly sell the home after a period of time as the renters (the future buyers) are already in the home. Given enough time and (hopefully) a rising housing market, the renters will become the buyers! Everybody wins.

Additionally, check with your lender to see if your mortgage is assumable. If it is, then the renters may have the added advantage of simply assuming the existing mortgage. Be sure and have either an attorney or real estate agent assist you with any questions or documents with a lease option to buy agreement.

4. Deed-in-Lieu

A deed in lieu, if allowed by your lender, is a transaction where the homeowner voluntarily transfers the title of the home to the lender in exchange for the release of the mortgage obligation. There are a number of legalities that go with this option so make sure and seek professional and legal advice should you consider this.

5. Property Exchange

This option is generally only available if you own another property that does not have a mortgage. If this is the case, speak with your lender to see if they would consider a property exchange. In this option, the lender would swap the underwater mortgage to the property without a mortgage - assuming the property is worth more than the existing mortgage.

The lender may also allow for a new loan on the unencumbered property. If so, then the monies from the new loan might be used to pay down the underwater mortgage. The home might then be sold for an amount equal to or more than the mortgage.

Owning a home that is underwater can be stressful, but it is best to stay calm and look at all of the options available to you.  After you do your research and seek legal and real estate advice, you might just be able to change things for the better and move forward with confidence.