Q: I am facing a frustrating real estate situation. It began because of good news – I got married in November, 2008. My husband and I both owned homes at the time and decided I would move into his home, which is a single family home.
We have tried, unsuccessfully for nearly 18 months to rent my townhome. I’ve worked with two different Realtors, done numerous improvements, lowered the monthly rent and there are still no takers.
We are now thinking about selling it but I know this would likely be a short sale situation due to the current market in our area.
While it is not a financial hardship to carry the property at this time, it is frustrating to have so much money tied up in a home that is not of any benefit to us.
Would it be better to try to sell the home or continue holding out for a renter? My fear is that a bank would not approve a short sale because we are not in danger of foreclosure. We could pay the balance of the mortgage in that situation, but wouldn’t it still be considered a short sale? I’ve read this could negatively impact my credit. Help!
A: First, congratulations on your marriage. That is good news.
I think you’re a little confused about what a short sale is and when a lender would approve one.
If your home is worth less than the mortgage balance, it is said to be “underwater.” If you sold the home for less than the mortgage balance, and you have the means, the lender will require you to pay the difference between what you owe and the sales price.
This wouldn’t be a short sale because you’d be coming to the table with enough cash to make the lender whole. You’d simply be selling your home.
If you have money, and it sounds as though you do, the lender will require you to make good on the loan you obtained. When you got the loan, you signed a note and in that document you pledged to pay off your debt loan. That’s what you might have to do.
If you don’t have the cash and are truly destitute, then the lender may approve a short sale on the property and forgive the difference between what you owe on the loan and the sales price.
If you do a short sale, your credit history and score could go down by 150 points or more. It depends on what the rest of your credit history looks like. It sounds as though you and your spouse have plenty of cash, and perhaps a true short sale might have a smaller impact.
If you can afford to keep paying the mortgage, you can try to hold out for a renter. But if you can’t find anyone to rent the property or if you have to substantially lower the rent to get someone into the home, it may not be worth risking that the renter will damage the property down the line.
My suggestion is to find a buyer, if you can, and get rid of the property. Pony up the difference and move on with your life, especially if you don’t want your credit history affected by a short sale and your credit score to take a huge hit.