Should you do a short sale?
A lot of people are upside down in their mortgage (owe more than their house is worth) and they are wondering if a short sale is the way to go.Â It looks like an easy solution to get out of a negative equity situation and start to move on.Â While this can be a viable option in a situation where you need to move for a job, or can no longer afford the monthly payments, it is really not a good solution if you are just looking to eliminate debt.
The fact is that if you short sell your home, you will not be able to buy another home for at least 2 years.Â Your credit will be severely impacted for up to 7 years, which means that even after 2 years, there is a good chance you will not qualify for the best rates on a mortgage.Â So even if you can buy after two years, you may not be able (or willing) to afford the payments.
Realistically, you could be looking at about 4 years before you buy your next house.Â In that time, you will be living in rentals and no longer enjoying some of the privileges and pride of owning your own home (including the nice tax deduction on the interest that you pay).
Also in that time, you will be paying down the principle on your balance and there is a good chance that your home will start appreciating (even if it is just a little bit).Â After 4 years, you may find that you are no longer upside down in your home and can now sell and move on to your next home.
For some, the current house is no longer working and it is time to move on.Â If you are in this situation, you may want to consider renting your home out.Â Even if you don't cover the full cost of the mortgage, you will hopefully be covering enough to allow you to keep current and get out from under your home.