It can be difficult to be objective about your home loan because it is not just a financial arrangement, it is where you live. Most home owners didn’t buy their house as an investment strategy, they bought it so that they could live in it and hopefully use their mortgage as a stable financial bedrock. Up until a few years ago, every indication was that this was generally a good policy, as well as a basic American right of passage.
As we all know by now, some bad policies and a real estate culture of opportunism led us down a rabbit hole better known as the housing crisis. The consequences for hundreds of thousands of homeowners across the US have included unemployment, devalued property, mounting debt, and in many cases, eventual foreclosure. It is a terrible shame that so many honest Americans have been flattened by financial events beyond their control, and all because they were trying to do the right thing.
Seeking Alternative Solutions
What’s done is done, and there is no remedy but to push ahead. Even though traditional lenders have frozen up and little help can be expected from the government, there are alternative solutions. What is required is a calm and clear-eyed look at the overall financial picture and a willingness to put all options on the table. Obviously a home is more than just an investment and it is difficult for most folks to find objectivity. Regardless, we must use the tools available to us in order to dig ourselves out of this hole and move on with our lives.
Anyone who now finds themselves in an upside down mortgage, owing more than their property is worth, should probably consider cutting their loses and trying to sell. Waiting for foreclosure is one of the worst things you can do. While it may seem impossible to sell an underwater house, there are alternative investors out there for those willing to look. With a little patience and creativity, it may even be possible to get out from under your house more easily than you think.
If you are stuck in an expensive mortgage and can’t find buyers, you might want to consider owner financing. By selling your property this way, you will attract a new class of investors who are looking for opportunities like the one that you have to offer. The way it works is that the seller offers the buyer financing on a loan just like a bank would. The buyer will make payments, usually including a down payment, directly to you. With this income, you can pay off your own mortgage reliably each month. While most sellers would prefer a faster resolution, this system can provide solutions when others are hard to find.
Although sellers can’t count on an upfront lump sum, they can often negotiate the amount of the down payment and, in some cases, a balloon payment. This is a lump sum payment of the remaining amount to be paid at a specified time in the future. Even better, sellers benefit from interest paid on the loan that banks would normally collect. This is an additional income source that opens up room for creative negotiations. In many cases, a seller will settle for a lower sale price knowing that they can recoup the loss over the long term through interest payments. Once loan appreciation is considered, this can be an attractive option; certainly more appealing than foreclosure or bankruptcy.
Leasing to Buy (or Rent 2 Own)
In another scenario, a seller can make a lease to own arrangement with a buyer. This is a very straight-forward transaction that also opens up several possibilities for both parties. Once again, the seller must agree to postpone a lump sum payout, but they will benefit from monthly income with which they can pay off other debts and expenses. When money is already tight, this can be a great way to maneuver for breathing room.
In a lease arrangement, the buyer benefits from a more flexible time frame. By offering the option to assign the note later, the seller grants the buyer much more flexible payment options. In many cases, the rent currently paid by the buyer will be discounted from the final selling price.
In these and other alternative solutions, sellers must make a compromise, but they earn something as well, be it time, flexibility, liquidity, or all three. The important thing to remember is that even if your finances look bad, there are probably options available to you that you don’t know about yet. The trick is to remain calm, put your emotions on the shelf for a time, and carefully examine the possibilities. Chances are there is a compromise out there that you can live with.