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What do I do when I owe too much on my house?

First things first. If you are reading this then you are gathering all the information you need to make the best decision. There could even be a chance that you are not as upside down as you think.

At the time this is written property values have been on the incline in the Dayton, Ohio area and even though the interest rates went up in 2022 properties haven't dropped the way they have historically when interest rates rise.

... But you didn't come here because of property appreciation. You are here because want to figure out your options. You have likely: over paid for your home, your area dropped in value or most commonly; something happened in your life that made it too hard to keep up with your home. All of these happen all the time and you are not alone.

Being in the property buying business we have encountered all types of situations. These situations break into two categories.

1st- I owe too much on my home but I don't need to sell.

Owning too much on your home but not needing to sell gives you what I think is the best option. The option of staying in the home and making the payment. If you owe too much you have what is called negative equity. Negative equity doesn't affect the payment or the quality of your home and doesn't have to be a bad thing.

If you are happy in the home and able to make the payment then you won't even "realize" the negative equity as that only matters when you sell. If making the payment is difficult but you know you want to stay, perhaps looking into renting a room, garage or a part time job to stay in the home.

By staying in the home even though, for example, you owe $250,000 and the home is only worth $200,000, you won't take the $50,000 loss (plus cost of sale $$$) by staying in the home. You have to live somewhere and your mortgage should be less than cost of rent for the same lifestyle. By staying in the home for 15 to 30 years you will have a significant amount of equity at that point if you keep up with repairs and it would be very unlikely you are still upside down after continuing those payments for that amount of time given you are not in an interest only loan.

Maybe, you don't need to sell but instead need better loan terms. As said above if you are in an interest only loan then you won't be paying down the mortgage and may never get your head above water. This will require you to make payments to the principle of the loan on top of your interest payment or perhaps a refinance is in order. Note that a refinance could prove difficult as lenders want equity and that would mean bringing money from your pocket to the table.

Can I turn the property into a rental? Many people have taken this path to call me again later as it is not as easy in real life as it sounds in theory but it can be done! Sadly, it is outside the scope of what I can write here but I'll try to come back and leave a link to "Should I become a landlord". If this is the path you decide to take, know that it takes a lot of hard work but can be very rewarding to help others by providing housing and perhaps even generate extra income if you find good tenants that can pay over what you owe and still take care of the property. Feel free to give us a call in the meantime and we can talk about what you need and I may even be able to get you in touch with people to help!

2nd- I owe to much and want or need to sell!

You have determined that saying in the home will not work and something needs to be done. You consider keeping it as a rental but the lack of knowledge in real estate law, capital for home improvements, reserves for things going wrong, etc have made you want to take the option Honest Homebuyer Dayton provides.

Here is what we don't do! We don't make you bring money to the table that you are lacking in equity. We don't make you pay agent fees on top of that. Agent fees on top? What I mean is if you owe $250k as said above and an agent sells your home for you for $250k you should break even right? Nope. Because as the sell you need to pay the agent commision for doing their job. That's only fair but the problem in this situation is that you didn't have equity to pay them like in a normal situation. You will have to pay them out of your pocket by "bringing cash to closing". All of this leaves much to be desired when you have another option.

This option allows you to not only lose no money out of pocket but also not be responsible for making your payments anymore. It's one of the ways Honest Homebuyer Dayton can help when you owe more than your house is worth and our offer can't cover what you owe. It's called "subject to" meaning subject to the mortgage. Honest Homebuyer Dayton takes over the payments on your loan while your name remains on the loan. We would then need to determine one of two things with you, the seller. Can we fix it up and sell it for you to get you out from under it and still make a fair profit or are we able to manage it as a rental so that you don't have to. If we are able to do either of these things then this could be your best option.

Lastly, and these are not a choose first option. Short Sale and Default.

Short sale: This option involves selling your home for less than the amount owed on the mortgage. While this can negatively impact your credit score and may require lender approval, it allows you to avoid foreclosure and discharge the remaining mortgage debt. We have helped a few people down this route and could be one to take if you are already behind on payments.

Default: Defaulting on your loan means you would be going into a foreclosure process. This is where the back takes ownership of your property, sells it at auction or on the market to recover the loan amount. If they can't sell it for what you owe, the remaining debt after the property is sold may still be owed by you the borrower and could greatly impact you credit and ability to find a place to live even as a renter.

What do I do now?

You have the facts and some options. The road ahead may have a shining light or could be rocky with many challenges. I hope yours is one with a bright light and an easy way forward. Even if the road isn't so clear, you have people here who are happy to help. Help by buying that unwanted property. Help by taking over your mortgage you no longer want. Help by getting you to the next step whatever that may be. All of the challenges we face, we can face together as a collective and a few good decisions will have you regaining control and moving forward with confidence.


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