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Blog Home > Loans > Mortgages > What to do When You Owe More than a House is Worth and Want to Sell

PublishedAugust 29, 2019 | 5min. read

Gerri Detweiler

Gerri Detweiler focuses on helping people understand their credit... Read More

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Javier Gonzales is legally ahomeowner, but he says his first instinct is to say “no” if someone asks. This is because he hasn’t made themortgage on the townhome he bought in years, and he doesn’t live there anymore. Gonzales says he owes $476,000 on the townhome, which is only worth around $263,000. “I don’t care about it. I don’t want it,” he says, and he’s not the only one in such a situation.

When the housing bubble popped in 2007-2008, millions of homeowners ended up with homes that are worth less than they owe on them. This can be a big problem when they’re ready to sell. If youowemore than a house is worth and want to sell, but aren’t sure what to do, here are six options.

1. Stay andPay

There are several reasons you might choose to keep making thepayment on a house, even if you owe more on it than it’s worth. You might have a strong attachment to your home and wanttoavoid foreclosure. Maybe you’re worried that yourcredit score will be damaged because of missed payments. Regardless of the reason, it may be best to stay and keep making thepayment until the home’s value recovers.

While this is an option, it’s one that should be thought about carefully. It can take many years before you get back to right-side-up. Cathy Moran, a bankruptcy attorney in California, says, “I am spending a lot of energy talking people out of homes on which they are spending too muchmoney and have no hope of having anyequity in for at least a decade.”

If you decide to stay andpay, you may be able to getfinancial help to catch up with payments if you run intofinancial hardship. For example, the Emergency HomeownersLoan Program(EHLP) provides interest-free loans that may be forgiven over time to homeowners who have fallen behind on their mortgages. Because these programs change frequently, it’s a good idea to work with aHUD-approved housing counseling agency in your area to find out which programs may be available.

2. Refinance

If you want to move in the next few years but can’t afford to take the hit onselling your house immediately, refinancing can be a way to get out from under yourmortgage faster. This is especially true if you’ve been in the house for a while and have made decent progress on the principle.

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Refinancing for a traditional 30-yearloan with a better interest ratecould lower your payments into manageable territory if you’re struggling. But if you have thecashflow, refinancing for a shorter-termloan can help you get what you owe in line with what the house is worth faster.

What happens if themortgage is more than the home value? You can still refinance, but it may be more difficult to find a lenderwilling to take it on. If something happens and you default, the lender doesn’t have much hope of recouping their entire investment. However, programs such as HARPcan help if you’re interested in refinancing.

3. Get aLoan Modification

Aloan modificationis another option that can help you stay afloat if the only reason you’re looking atselling is that your payments are too high. But even thoughyourmonthly payment may be lower, you’re probably going to bepaying moremoney in the long term because the modifications are usually for a longer term.

This might be a good option if you’re not too far in the red on your house value and the localreal estate market is back on the upswing. But it may make matters worse for someone who owes $100,000 more than the home is worth and wants to move in five years.

4. Go for aShort Sale

Ashort sale is a way tosell the house for less than it’s worth and possibly not have to worry about the difference. Short salescan be a good alternative for people who are facing foreclosure and can’t do a traditional sale. But they do have to be approved by the lender, which doesn’t always happen.

Before you go through with ashort sale, it’s important to understand what impact it can have on your future finances. Here are some commonly asked questions about this option.

• Can you sell your house if you owe more than it’s worth?Yes, you can, but depending on your state, you may still be responsible for the remaining portion of theloan. In ashort sale, it may be possible to get the lender to sign a waiver of deficiency, which means you’re free and clear at the end of the sale.
• Canyousell a house you haven’t paid off?Yes, a house doesn’t have to be sold to be put on themarket. The majority of sellers still owe on their properties, but if you owe more than the home is worth, you could have difficulty getting enoughmoney for it in a traditional sale.
• What happens if you sell your house and stillowe money?In most cases, you will still be responsible for the rest of theloan amount. However, if you werepaying PMI or your lender agreed to a waiver of deficiency in ashort sale, you may not have topay thatmoneyback.

5. Walk Away/Foreclosure

If you’re not able to makeselling work for you, the last option is to just walk away from the house and let the bank foreclose. While it may seem like this is a straightforward way to get out from under a bigpayment and a bad investment, many people don’t understand what a foreclosure means for them.

First, it will be a big hit to yourcredit. You can still take steps to rebuild, but you won’t be able to just go buy a cheaper, more affordable house. Some lenders require you to wait until the foreclosure is offered yourcredit report to be eligible for anotherloan, although FHA, VA and Department of Agriculture loans have shorter wait times. You could also still end up on the hook for the difference in the home’s value and the total you owe if the house doesn’t sell for the full balance and you don’t have PMI.

When you owe more than your house is worth and want to sell, it can be difficult to know what to do. It’s important to get advice from a qualifiedfinancial professional so you can better understand how each option may affect your particular situation.