In this tough economy, the cold hard truth is that many of us are having trouble staying afloat amid our growing mortgage payments. With that in mind, here's an article from our friends at Wise Bread on the options you have.
Of all the changes you might make to live more cheaply, the most fundamental is finding a cheaper place to live. Sadly, it's an option that's largely closed to people who are underwater on their mortgages. Unless they have cash to cover the difference between what their house will sell for and what they owe, they're pretty much stuck. Here are six options for people in that situation.
Except for option No. 1, you'll definitely want to get legal advice well in advance of actually doing any of these. Situations differ and the rules are different in different states. In particular, the option to just "walk away" from a mortgage is not available in every state! There are tax consequences to doing that, and to several of the other possibilities. A consultation with a lawyer could save you tens of thousands of dollars.
With that proviso, here are the options I could come up with:
- Suck it Up
If your house still serves as shelter and you can still afford it, there's no particular reason that you can't just go on living in it, pretty much without regard to its value versus what you owe on the mortgage.
This may be the most expensive option: You can't take advantage of the cost savings of moving to a cheaper place, plus you're putting significant amounts of capital into an investment that might never give you a good return. Still, as long as you can make the payments, this is probably the default option, and it's not necessarily a bad one. Eventually — no matter what happens to the real estate market — you'll be above water on the mortgage. (In fact, eventually you'll pay off the mortgage and own the house free and clear.) Continue reading for more tips.