Believe it or not, there actually are multiple ways you can LEGALLY get out of your mortgage! Some involve less bruises than others, and we are here to help you figure out which option is best for your situation! If you have been thinking about how getting out from under your mortgage could help you, then it’s imperative you keep reading and educate yourself. There are many mistakes you can make along the way.
Need to get out of a mortgage? (2 most common reasons for Atlanta homeowners)
A. “I Can’t afford to make my mortgage payment”
This may not be you, but I would say it’s the most common occurrence. The MacArthur Foundation issued a survey that found 45% of homeowners have made at least one sacrifice to cover their mortgage payment in the past three years. If this is you, then don’t worry, as you do have options in which we are about to discuss.
B. “I Need to get out of my mortgage to sell this house” (and buy another house)
Are you looking to downsize, transfer to a new area, or just move in general, but the debt on your primary residence is holding you back? You are not alone. Because of debt to income ratios, this factor holds many homeowners back from getting a second home before selling their primary. This could mean you are left to find an intermediary place to live in until you find and purchase your next home. There are ways however, to have someone help find you a place to move, and wait to close on your home, until you are ready to move straight into your new property. Keep reading.
Strategic Default or “walking away”
In a strategic default, the borrower (usually an investor) does the math and makes a business decision to voluntarily stop making payments, even if it is within their ability to keep up on the payments. This decision would be made because the property is worth much less than what the mortgage amount is, and the investor is losing money each month and has no chance of selling for the current amount owed.
This method is not recommended, as the negatives far outweigh the positives. If there are any positives, it would be that you are no longer making the monthly payment to the bank in the short term. The negatives start with the bank foreclosing on your property. This is not a fun process to be involved in, and is not over quickly. An article with Business Insider says “Completing a foreclosure takes more than a year, on average, in the U.S.” In addition, depending on the laws in your state, once the bank forecloses, they can come after you personally for the deficit if they do not recoup the entire amount from the foreclosure sale. This is the difference in amounts of what you owed, versus what it sold for at auction. This can also turn into a lawsuit, in which the bank can garnish your wages or levy a bank account.
Deed in lieu
Otherwise called “Deed in Lieu of Foreclosure.” This occurs when the lender agrees to accept the deed to the property instead of foreclosing on the owner to obtain title. However with a deed in lieu of foreclosure, you could face a deficiency judgment as well. Again, the deficiency amount is the difference between the fair market value of the property and the total debt. This method eliminates a foreclosure on your record, but still has negative ramifications. As we will discuss below, there are better options for you.
A short sale occurs when you try to sell your home for less than the total debt remaining on your mortgage. On important factor to note here, is that this must be approved by your bank. Once the bank agrees that you can sell your home for X amount less than your current mortgage amount, it is called an approved short sale. People would choose the short sale option if they have no equity in their home, and their monthly mortgage payment would not allow them break even or profit if they moved and rented it out. The benefits are you get the property and monthly payment off your plate. The downsides are similar to the above, as depending on your state, you might be subject to a deficiency judgment. In Atlanta, Georgia, and other areas around the state, a short sale involves a good bit of time and paperwork, and will go on your credit as a derogatory mark for up to 7 years.
Renting out the house
Don’t want any derogatory marks on your credit? This might be the solution for you. Ever thought of being a landlord? Now you can, and it might save your butt! As long as you can collect monthly rent of the same amount, (or more preferably) as your monthly mortgage payment, you can move and have your mortgage paid for! PRO TIP: If your looking for tips on this route, I highly recommend reading The Book on Managing Rental Properties by Brandon and Heather Turner.
Sell to a Cash Home Buying company
Searching for that little red easy button? Here it is. It won’t work in every situation, but these companies have gotten pretty good and designing a solution that fits your needs. The quickest and simplest route is available if you have some equity in your home. Meaning you have paid your mortgage down to a point where your home would be worth more to an investor that what the bank is owed. The company could pay you cash for the home, buy it as-is, and the mortgage would be paid off at closing. Simple as that. Your done and can move on with your live.
However, I feel that some of you may be thinking, “I probably don’t have enough equity to qualify for the option above.” That’s OK! We actually offer another strategy that is a little more complicated, but has worked great for others we’ve done business with in the past. See the specific testimonial by Benjy & Colin from Marietta, Georgia. It’s called selling your property “Subject to” the existing mortgage. Similar to what we discussed above with renting your property. As long as your monthly mortgage payment is somewhere around 60% or less than the max market rent your property could generate, this might be an option you qualify for. If you have any equity in your property on top, we can pay you cash for that equity as a bonus!
So now you have a good understanding of your options. Don’t let your mortgage take advantage of you! Your educated on plenty of ways to get out from under it, or at least make the right moves before you get to that uncomfortable situation in the first place! Please reach out to us if you have any questions about what you may or may not qualify for. There could be some tricks up our sleeves that could help your situation today.