Is your mortgage taking a toll on your financial wellness? If so, you’re not alone. According to a recent study, at least 52% of Americans have to make at least one major sacrifice to cover their mortgage payment. This stress leads many to feel they’re one paycheck away from losing their home. While foreclosure is a worst-case-scenario for most homeowners, that doesn’t mean you still can’t get out from under your mortgage.
The most important thing to do is simply to act now. If your mortgage is underwater, you need to start swimming today. Many people are able to turn their finances around, save their homes, and avoid bankruptcy. Reclaim your financial wellness with these 7 ways below.
1. Walk Away
While it might seem like walking away is the last thing you want to do, some homeowners feel they’re left with no other option. This is usually the case when the home has negative equity, or the market value of the property falls below the mortgage amount. Many homeowners chose to walk away from their homes during the mortgage crisis of 2008.
The technical term for this in the mortgage world is a strategic default, and it usually involves informing your lender you wish to abandon the property. In most cases, they’ll direct you to one of the methods below.
2. Deed in Lieu of Foreclosure
To deed your property in lieu of foreclosure means to deed your property to your lender. In this case, you’re usually forgiven for the entire amount of the mortgage. The lender then recoups some of this payment by selling the property.
However, you need to prove an extreme circumstance for this to be approved, and many lenders are unwilling to proceed with this method. You stand a better chance of a deed in lieu of foreclosure if you’re in a government-insured loan. If not, keep reading for alternative ways out from under your mortgage.
Most lenders will default to foreclosure if you are unable to settle on a repayment option. This process is time-consuming and can take months. Luckily, that leaves you time to work with your lender on a compromise to avoid losing your home. If you proceed with the foreclosure, you’ll be forced to leave your home after a court judgment.
4. Short Sale
One possible compromise in the case of foreclosure is a short sale. This is when the homeowner asks their lender to accept less than the loan’s balance through the sale of the property. This gives you as the homeowner more control over your home, and it can be an effective way to escape an underwater mortgage.
5. Sell Your Home
Outside of a short sale, you still have options to sell your home. You’ve likely seen advertisements for companies that exist to fix up homes and resell them. There are legitimate companies that do this, and it can be a quick way to avoid negative equity.
While you’ll get paid a discounted amount for the home, you won’t have to worry about the cost of selling it yourself. Additionally, these companies work quickly so you can beat a foreclosure and liquify your assets without the wait.
6. Rent Your Home
If you’re unwilling to sell your home, you can still make back some of your money to put towards a mortgage if you’re able to rent it out. If you have the ability to live elsewhere such as with family, this can be an excellent way to recoup lost funds. This is particularly effective if you live in an area with high rental demand. Before renting your property, always talk with your insurance company about coverage and look into state landlord requirements.
7. Settle with Your Lender
Finally, it might not be in your best interest to get out from under your mortgage. Remember, your lender wants to get paid. They’re often willing to work with you on a solution that keeps you in your home. Your first line of defense if you’re facing negative equity or an underwater mortgage is to talk to your provider. They likely have a protocol and assistance programs for those struggling to make payments.
These 7 ways to get out from under your mortgage help you gain control of your finances. Nobody wants to lose their home. Yet, sometimes it’s best to lose your home on your own terms to protect your credit and get a fresh start. If you find yourself in this situation, you have options. When in doubt, speak to an expert real estate attorney or financial advisor. Just make sure you think them through carefully before taking action.