Â Â One of the hardest things in life is walking away.Â Whether it is from a job or a relationship or a situation, walking away is generally considered a big â€œno noâ€. The reason is that as a society we are trained to â€œstay the courseâ€ or â€œnever give up â€œor â€œhang in there.â€Â Regardless how dire the situation we are taught to "keep our chin up."Â Walking away on the other hand is akin to â€œcutting and running.â€Â Historically to â€œcut and runâ€ is a term used to describe cowardly withdrawal from battle. Nice right?Â
Walking away however in many cases is what is needed to be done in order to self preserve. The economic situation of the past few years is a very strong example as to why â€œstaying the courseâ€ can often lead you straight to a financial hurricane and then desolate.Â In regards to housing there are two times you should consider walking away.Â The below is not meant as advice to walk away but rather questions to ask yourself before you steer into a financial hurricane.
You Own A Home:
I have heard the situation a million times in the last four years.Â It goes like this: â€œI need to refinance, I make my payments every month but my loan adjusted last year and my payments doubled.Â If I can get into a 30 year loan I can make my payment.Â In a 30 year loan my payment would be $2000 per month.Â Right now it jumped to $4500. I called my bank to see what they could do and they said they canâ€™t do anything because my house is worth less than I owe on it and I am not behind on payments.Â I have liquidated my all my savings and 401k to make the payments but I have nothing left and I do not make enough to pay $4500. Help, I love my houseâ€
In the above situation they are already in a financial hurricane about to be desolate. Â They have liquidated everything they have to preserve a home that they cannot afford.Â A home that ultimately will be shortsold or go to foreclosure.Â You do not want to get to this position.Â If your loan adjusts to where you cannot make the payments or your pay decreases do not touch your retirement.Â You will just deplete your retirement and once that money is gone not be able to make the payment and find yourself right back where you were prior to tapping your retirement.
Here are the 3 basic questions you should ask yourself if you are thinking of walking away
1) Â Can I afford this house based on my earnings?Â If your payment is more than 56% of your gross income then No you cannot afford that house based on your earnings (go to #2). If it is less than 30% of your earnings you can afford the house.
2) Â Do I have equity in my house or can I refinance into a lower rate?Â Contact a local loan consultant (yes, you can call us) to see if there is a loan option to lower your payment.Â If they can Congrats!Â If they cannot got to #3
3) Â Will the bank work with me or modify my loan?Â If the answer is No then you still cannot afford the home
If you have come to #3 and still cannot afford your home it is time to contact a local Realtor about a shortsale.Â Making that decision can be extremely difficult but it is better to make that decision before you lose your house and your future.Â
Life after a shortsale: If you do not go late on the mortgage you can apply for a home loan for a house you can afford right after the shortsale.Â If you go late on the mortgage you can buy another home 2 years after a shortsale with 20% down. 3 years after a shortsale you can do a 3.5% down FHA loan.Â Keep in mind if you go late on everything else it will affect your ability to qualify.Â
As a lender we are seeing people who short sold their homes in 2007 get into new houses now.Â They are buying homes half the price of their old homes and they are getting in payments they can afford.Â
Bottom Lines: If you canâ€™t afford your payment, you canâ€™t afford it. Donâ€™t lose your future and your mind trying to keep something you cannot keep.Â Sometimes you need to call a spade a spade.Â Â In the end a house is nothing more then how you feel when you walk through the door. How do you feel when you walk through that door?