Home Selling in 55379>Question Details

Tony, Home Seller in 55379

I just got married, we have 2 homes. How do we sell one of our houses that is valued under loan amount?

Asked by Tony, 55379 Tue Sep 8, 2009

The smaller house valued 20K under loan amount. The other is 100K to the good with current deflated market value. We need to sell the smaller one.

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Ron Rovtar’s answer
Hi Tony:

You should check with an attorney in your state to fully understand your options. However, Denise is almost certainly correct. You will have trouble showing financial hardship with the equity in the larger home. And foreclosure will trash your credit score for a long time, so that may be out of the question as well. A lot of people in your situation are renting homes, which could be a good option for you.

As for using the equity in the larger home, I would consider talking to a mortgage broker about refinancing that home to come up with the extra cash. This may be a better option than taking out a second mortgage. Seconds have higher interest rates. At a little over five percent, the interest rates on first mortgages are very good right now. If the original loan on the larger house has not been refinanced, you may make up some of the $20,000 loss on the second home through lower payments on the larger home. Also, if you do not plan to be in the larger home for many years, you might consider a five or seven-year adjustable rate mortgage, which would lower your interest rates and, thus, your monthly payments even more. These loans will likely go up after the initial period, but many people, especially newlyweds, move before the rates jump. Five-year ARMs are now running about four percent.

I hope this helps.

Ron Rovtar,
Boulder, CO
0 votes Thank Flag Link Sun Jan 24, 2010
As others have mentioned, I'd look at renting the smaller home until you're ready to sell. You can look at doing a short sale, but I wouldn't recommend it as it's hard on your credit and I simply don't think it's good to walk away from a debt you can cover. Talk to a real estate attorney to see if a short sale is possible for you.

Assuming you're not going to do a short sale, you need to figure out how to come up with the difference between what you own on the loan + closing costs and what someone will offer for your home. If you don't have savings or other liquid assets available, then you can consider refinancing your other home. If you have a 401k, you might be able to take a loan from your own 401k account. There's trade offs and additional expenses with either of these options. If you don't have liquid assets, I like the idea of renting the home out for a while. If you can rent it out and get enough to cover the mortgage and all other expenses plus bank a couple hundred a month, then you can use the rent to give you time to save the $s needed to bring to close and the rent can even help build up this sum.

Good luck,
0 votes Thank Flag Link Mon Oct 14, 2013
Where did the rental issue come in? Did I miss something with the previous answers? Not knowing where you live and the marital property laws makes this question a little fuzzy but the bottom line is if you need to sell the smaller house for a loss then that is what it is. Since you are now married MOST states (check with an attorney) consider both homes marital property and you will not be able to sell the smaller house as a short sale because you have equity in the other house which you could use to pay off the lender. You can let the smaller house go into foreclosure - not only bad for your credit but the lender can attach a lien to the other house (if you are on title or in a marital property state), rent it out OR sell it for what it is worth NOW and use the equity in the other house to pay off the deficiency.

Unfortunately this is a painful financial decision any way you look at it.
Good luck.
Web Reference: http://www.denisetower.com
0 votes Thank Flag Link Sun Jan 24, 2010
You could try to sell it at breakeven price. Mortgage plus all expenses. But, the biggest problem is that even if you get an offer for full price, if buyer requires financing, appraisal might show a lower price.
In FHA financing the sales price is protected and if property doest not appraise sales price, purchase contract is canceled.

In a conventional mortgage, lender, to my understanding, will lend under the appraised value not under the sales price.

Another option is, set it at current market value and bring the difference at closing so credit is not damaged.

It seems that the smaller one is a rental, check with your accountat the tax repercutions of selling such property in Short Sale, wich is your last resort. It might show up on credit report as a foreclosure.

Keep asking questions!

Web Reference: http://benitogarza.us
0 votes Thank Flag Link Mon Sep 14, 2009
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