Home Selling in 14006>Question Details

Sara, Home Buyer in Derby, NY

What happens with our mortgage payment when our house is sold at a loss?

Asked by Sara, Derby, NY Thu May 30, 2013

Hello,

My husband recently enlisted in the military and we will have to sell our house. Unfortunately we just bought our house in December 2012, so we are prepared to sell at a loss.
What happens with our mortgage payment when our house is sold at a loss? Do we continue to pay our full mortgage payment until it the remaining balance is paid off? Is it refinanced into a smaller loan with different terms/amounts? Are there other options available? What is the most common?
The remaining amount is pretty important. He can only enter the military with a 40% debt ratio to what his salary will be, our current house payment puts him over that, obviously. So I'm trying to figure out what our biggest loss could be while still abiding by the military guidelines, so I have a base line to discuss with the selling agent. Thank you!

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Answers

6
Hello Sara...
My advice to you (recently retired after 26 years of military service, and have given LOTS of advice to young soldiers, sailors, airmen, marines and coast guardsmen!) would be to hold onto your home and rent it out. You will likely be able to cover your mortgage cost with the rent coming in every month and you will be building equity in the home while someone else pays your mortgage for you. The military will provide you with a home, or at least with a housing allowance (BAH) so that you can rent you're own home at or near your husband's duty station. And if you live near a military installation now, the Department of Defense offers a website (AHRN.com) that allows military members to advertise their rental (and sale) properties for free. This site also attracts many good military renters to homes, which is good because military renters are typically the best kind of renter. Feel free to give me a shout if you have any questions...Jim
1 vote Thank Flag Link Fri May 31, 2013
Definitely talk to the VA to see what they can do and renting it out might not be a bad option. I would think that the income from the rent would get you under the 40%. Find out if your state is a deficiency state. If it is, the bank may or may not come after you for the shortage - depends greatly on your income and assets.
0 votes Thank Flag Link Fri May 31, 2013
Okay, I know it was well intentioned advice...but do NOT waste any time going to the VA, they can't do anything for you (and as a disable vet, I know the VA well). First of all, your husband isn't a service member yet, and second, the VA is not in the business of making loans on houses that vets are selling, they only deal with houses vets are BUYING.
0 votes Thank Flag Link Fri May 31, 2013
Go in to your local VA office and tell them what's happening:
They are not in the habit of throwing servicemen to the wolves.

Good luck, and thanks for serving.
0 votes Thank Flag Link Fri May 31, 2013
Hi Sara: You would be responsible for the difference in what you sold your house for and what you still owe. Because the loan will no longer be attached to any real property the loan would have to be closed at closing. You would have to find an alternate source of funding in order to repay the bank, i.e. loan from a 401K, credit card, personal loan, etc. I am not sure if the military offers any type of personal loans to cover such debts.

Although if you just bought it in December, hopefully you will get your money out of it. There are also the expenses in selling your home which are a couple of thousand. My office also offers a discounted commission for those in the military. We also take care of everything should you need to leave before your home closes.

You could also do a short sale. although the bank would have to agree. In your case if you are not behind in payments or both have good jobs that you could afford to pay it, I am not sure if you would qualify. I would also contact your lender to see if this would be an option for you just in case. If you are close though I would try and explore selling your home first.

we are seeing a slight upturn in sales and prices in this area, but just a little. If you would like to give me a call, I would be glad to stop over and see what we can sell your home for. I live the Town of Evans so I am familiar with what is going on in the area. I look forward to speaking with you.



Lee Ann Obenauer 983-3607
0 votes Thank Flag Link Fri May 31, 2013
To sell your home at a loss, you would need to do a short sale with your bank. A short sale will erase all remaining debt but it will also trash your credit and will keep you from being able to get another bank loan for up to 5 years.

Have you looked into getting a VA loan. They offer really low interest rates, no mortgage insurance and low closing costs. Refinancing may be a better option for you.

Since the market is improving quite quickly, are you sure you will need to take a loss? It is possible that values have grown considerably in your area over the past 6 months. I would check with a real estate agent to see what they say.
0 votes Thank Flag Link Thu May 30, 2013
We can't short sale since my husband is in the military it would ruin his credit and security clearance. I'm thinking about a personal loan to cover the difference? I'm not sure if it will be a loss, I justed wanted to know what my options were if it happened. All of this will be in my dialog with my agent when we meet next week. Thank you!!
Flag Thu May 30, 2013
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