Selling your house when you owe more on your mortgage than you’ll be able to get for your home is a huge challenge. Many homeowners struggle with what to do; it can be tempting to agree to a short sale just to get rid of the property, but there’s also the option of renting out the home until its value increases enough that a profitable sale becomes possible.
You cannot do a short sale unless your lender allows it. Most banks and mortgage companies will only approve a short sale if you have a financial hardship that prevents you from making mortgage payments. While a short sale will relieve you of the burden of paying for your home, your credit will suffer. The short sale will stay on your credit report for several years and it will be difficult to qualify for another mortgage in the future.
Short Sale Financial Liabilities
When you get rid of your home through a short sale, you may be responsible for a deficiency judgment. That’s the money you still owe on the home – the amount that the short sale didn’t cover. Some lenders will try to get that money from you, and it can mean ongoing collection activities until the balance is paid. If you aren’t accountable for a deficiency judgment, you’ll still have to answer to the IRS. The amount of the debt that’s forgiven could be considered taxable income.
Renting Your Property
The best way to preserve your credit is to rent your house instead of handing it over in a short sale. You won’t have to worry about a negative credit history and there will be no tax consequences or deficiency judgments to fear. This is also a good option for homeowners because it will buy you some time. The market will continue to improve and your home’s value will grow. Prices will continue to go up, and while your mortgage is being paid your asset will be gaining value. You’ll even be able to move back into the home in a few years if you decide you want to keep it instead of selling it.
One of the reasons people choose short sales over renting is that they’re worried about how they’ll take care of tenants and a rental home. A professional property manager can manage all that for you, and you won’t have to worry about screening tenants or taking care of maintenance issues in your free time. You’ll also need to take a look at your budget and make sure you can cover your mortgage payments, even if the amount of rent you charge doesn’t match your loan payment. A property manager can help you with the budgeting as well.
Whatever you decide, the goal is to avoid foreclosure. If the bank forecloses on your home, the damage to your credit will take years to overcome. Contact Hoffman Realty if you need help with renting out your property, or if you decide to move forward with a short sale and you need legal help.