How To Sell A House When You Owe More Than It’s Worth

sell a house when you owe more than it's worth

It’s tough enough to sell a house in good condition, but how can you sell a house when you owe more than it’s worth?  In this article, we’ll go over how you can still sell a house – even if your mortgage amount towers over the value of your home!

Selling A House Can Be Complicated In Good Times

As you can imagine, I get quite a few phone calls from distressed homeowners looking to sell their house for one of the following reasons:

    1. The home needs major repairs that the homeowner can’t make in order to sell
    2. The bank is threatening foreclosure
    3. A divorce or separation is forcing a sale
    4. Quick sell because of relocation to a new city or state for work
    5. The homeowners inherited an aging house that is worth less than the mortgage
    6. Can’t afford to pay closing costs, fees, and the commissions associated with selling a house
    7. Can’t sell the house because the house isn’t worth as much as the mortgage and they can’t pay the difference

This article will focus on the last two items pertaining to how to sell a house when the owner can’t afford to pay the negative difference of what it’s worth versus what is owed.

How Negative Home Equity Makes Selling Difficult

We all know that selling a home isn’t easy. It’s a complicated process that can take months and thousands of extra dollars to get to sellable conditions.

But when a homeowner owes more than the house is worth, selling can turn into a nightmare.

How do you pay a realtor, appraiser, contractors, inspectors, banks, and the title company when you can’t even afford the house you are in?

How did we get underwater so quickly?

When you owe more than your home is worth, it’s is called an underwater mortgage.

Underwater mortgages occur when the housing market declines by a double-digit percentage. Your mortgage was $200,000 and the value was $200,000.  Then the housing market dips by 10% and now you owe $200,000 on a house worth $180,000,

Another reason a home can be ‘underwater’ is that the house is in poor condition and needs significant repairs to be get up to market value.  For example, the value of your neighbor’s house, which was in great condition, was $220,000.  But due to a leaky roof, poor foundation, mold, and other issues, your house with the $200,000 mortgage note may only have a market value of $150,000.

3 Typical Situations of Underwater Mortgages

When homeowners call me, they want to know just how bad their situation is. It’s the Texan in us that wants honest, straightforward advice. Take a look at these three situations below and what you can do.

1. No to slight negative equity with minimal repairs

This situation is most common in a healthy real estate market.  You’ve recently purchased with a low downpayment.  For whatever reason, you need to sell your house fast.  You are slightly upsidedown on your mortgage or maybe even a little ahead, but by the time you pay all fees for selling, closing costs, and Realtor fees, you’ll have to come out of pocket $10,000 and can’t afford to do this.

2. Slightly upsidedown and behind on payments

This situation occurs when people have the same situation as above, but they’ve complicated things by not making mortgage payments.  Maybe they were working with the bank on a loan modification that didn’t go their way.  Now they’re several months behind with no equity and can’t afford to come out of pocket to sell their home.

I’ve sadly witnessed people in these situations stop paying the mortgage and voluntarily walk into the foreclosure process because they look at that as a cheaper alternative than coming out of pocket for $10k.

Don’t Do That!  There are specific strategies we can do to help you sell fast without the homeowner having to come out of pocket for any fees or closing costs AND without negatively impacting their credit.

3. Big time underwater, behind on payments with Lots of Repairs

This situation is common in houses that are in older neighborhoods that haven’t seen any price appreciation.  Bad things happen to good people, and something bad has happened in the homeowners’ life where they’ve fallen behind on payments and need to sell but the house is in disrepair.  In their economic condition, they can’t afford to get up to code to sell at market value.

What option does a homeowner in this situation have other than foreclosure?  A ‘least worse’ option called a short sale.

What Is a Short Sale?

Foreclosure is a scary word that every homeowner dreads. I know if my family was facing foreclosure I’d be worried, afraid for my family’s future. What the banks won’t often tell you is that there are alternatives to foreclosure.

Foreclosure can hurt your credit score up to 100 points and can take up to 10 years to recover from. Declaring bankruptcy isn’t much better. A short sale is the best alternative to foreclosure.

A short sale is usually used to avoid foreclosure. Simply put, the homeowner and bank both agree to sell the house for less than it’s worth to guarantee the home sells. The remaining debt is usually forgiven. This is good for the bank because they get a portion of the loan repaid and can clear it off their books.  It’s a win for the homeowner because they’ve managed to avoid foreclosure.

Relief is Just a Phone Call Away

Our mission here at Clean Slate Homes is to help homeowners in distressed situations sell their houses so they can wipe the slate clean and move on with your life.

In the case of negotiating a short sale, we will work with the bank on selling your home and fund it with cash for a quick sale to motivate the bank to work with us. This solution will help you avoid foreclosure, bankruptcy, and the atomic bomb of credit disrepair.

Summary Of How To Sell A House When You Owe More Than It’s Worth

No, you don’t have to let the bank take your house. You don’t have to ruin your credit through a painful foreclosure or bankruptcy.

Whether you are just slightly underwater or severely underwater with countless repairs, you still have options.

Listen to Jacquelyn as she tells her story of getting out from under the painful burden of an upside-down home. She was underwater, drowning, and couldn’t find her way out. But with us, she was able to sell her home, get out from under the debt, fix her medical debt problems, and get on with her life.

If you are worried about your home, if you owe more than it’s worth, call me. The sooner you call the more options we will have.

If you have any comments or questions about how to sell a house when you owe more than it’s worth, please leave them below!

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