Is it okay to walk away from a mortgage?
Whether or not it’s “okay” to walk away from your mortgage is a question only you can answer – and every situation is unique so don’t expect another’s answer to be your answer.
To help you reach a decision let’s consider the following:
- How far underwater are you?
- Do you have recent financial hardship?
- Have you considered and tried alternatives to walking away… like refinancing your mortgage or a short sale of your property?
- If you wait it out, will you ever reclaim enough value to cover the mortgage?
- Do you have personal or religious beliefs that keep you from walking away?
Let’s take a closer look…
Are you in financial hardship?
If you or your spouse have recently lost a job, you may be able to claim hardship. Most lenders have loss mitigation departments dedicated to helping people in your situation. Call them and try to work out a solution.
If you don’t have financial hardship then simply walking away from your property probably isn’t an option.
Have you tried refinancing your mortgage?
If you are in financial hardship, you need to strongly consider refinancing your mortgage. Lenders are willing to work with borrows in ways they never would have a few years back. Why? Because they don’t want you to walk away from your mortgage… you’re their livelihood.
If your current lender won’t work with you… one company offering free mortgage quotes right now is CapWest Mortgage. Since the quote is free it’s a good way to find out if they can work with you to find a solution. You never know till you try.
Have you tried a short sale?
If you cannot afford your home, and have discerned that refinancing will not work for your situation, you can consider a short sale.
Pertaining to real estate, a short sale is nothing more than a sale of your property for less than the amount of your loan(s).
As mentioned above, contact your lender and ask to speak with the loss mitigation department. They will evaluate the potential of a short sale transaction on your property based on their own pre-determined criteria. In light of the overwhelming amount of loss they’ve suffered from mortgage failures in the last several years they’re often open to offers outside of their existing criteria as well. Put another way, lenders are more willing than ever to accept short sales.
If you’re under-water and unable to cover your mortgage with a sale, a short sale delivers an opportunity to avoid foreclosure.
Will your property reclaim value?
Since we cannot foretell the future let’s contemplate other relevant points.
Find extra work – If you love your home and could make your payments by finding extra work… go find more work. Our generation is certainly not the first to come upon hard times. You could deliver pizzas, wait tables, write online, or even start your own business. If you want to stay in your home then be sure you work hard and give it your best shot before walking away.
Rent out your home – Could you rent out your property and find less expensive housing for yourself? There are currently many people looking to rent homes rather than buy. Try placing an ad on Craigslist to find renters. If you can’t charge enough to cover the entire cost of mortgage, insurance, and taxes… figure out how much less you could charge while still helping to make your payment and reach your goal.
Rent out a room – Rather than renting out your entire home, perhaps you have 1 or more rooms you could rent out. This would allow you to stay in your home while helping you meet the payments. Another benefit to this is the fact that you still reside in the home and can keep a better eye on your tenant.
Does walking away conflict with your beliefs?
A final point to consider is whether or not walking away goes against your personal beliefs. If it does, then be sure to give the alternatives your best effort. If you do everything in your power to make your payments but are still unable to do so, at least you didn’t compromise your morals. Only you know if you’ve done your best.
I was inspired to write this article after seeing this infographic on creditloan.com detailing the statistics of those walking way from mortgages.
It’s amazing how creative the mind is when up against the wall. I was bent on not declaring bankruptcy even when I had 100k of debt (do not own a house). With help from family and educating myself (what you think you know pales to what is really out there) and I’m about 3 months away from being debt free outside of student loans. I am doing this on 15 bucks an hour, and in less than 2 years. How bad do you want it? My car has 6 windows, but only 1 looks ahead, otherwise you will wreck your life. There is always a better way.
Matt Jabs says
Great point of view Matt. Good job with your debt… I’m sure your accomplishments feel great.
Gregg Pechmann says
Here is where I draw the line with my clients.
Simply, can you afford the payment? Does it fit in your budget without jacking up your credit cards/ draining your savings?
Being upside down, in of itself, is not a reason to walk away. You signed the papers, the least you can do is try to short sell your home….even though you will be dealing some unintelligent life…
Thanks for sharing
Matt Jabs says
I think it is good for every generation to go through hard times… few things teach better lessons than hardship.
Mike Holman says
Great point, Matt. Hardship really is a good teacher.
Gregg Pechmann says
couldnt agree more…..it has a way of cementing the memory so you never make the same mistakes again…
Money Reasons says
This article can be used as the ultimate action plan before considering walking away from a mortgage!Great solutions, this post will definitely go in my pf weekly reviews on Sunday!
Matt Jabs says
Because so many people are in uncomfortable financial situations – especially regarding mortgages – we need to increase our study and publication on the topic.
Refreshing to find a write-up like this. There are so many bloggers etc that won’t go into the deep waters of financial hardship like this. Explaining these options are much better so that the lay-person won’t feel so lost if they have their backs up to the wall.Thanks for the good share!
Donald Petersen says
Matt : You didn’t include mortgage modifications. I know the HAMP program was “too little, far too late”. But, many of the mortgage servicers are finally beginning to approve “private” mortgage modifications even when they are not required by HAMP. In areas of the country where prices have declined less than the huge declines in Orlando and surrounding areas, stripping off the second mortgage in a Chapter 13 bankruptcy is a viable option. (In order to avoid the second mortgage, the homestead must be worth less than the balance owed on the fist mortgage). Real estate prices probably still have further to go (down) now that the market is adjusting to the end of the incentives.
Hi. I’m in agony from stress. I did an early retirement from teaching, moved to another state to work full time. All my pension is keeping a house afloat that we haven’t lived in going on four years now. We’ve dropped the price as low as we can go and the realtor says he can’t sale it at giveaway prices. It is a Victorian home and the downfall of the economy has devastated the little town. There’s no hope for selling at any price any time soon. We are renting in the state we live in and have a good deal. Now, my daughter is nearing graduation and I am fearing that I can’t afford college. She deserves better. I can’t rent the house for even half of what my mortgage costs and it needs a heating unit downstairs. I have never been late, but I’m exhausted and I need to focus on my teaching and my family. I’m tormented by my situation.
Matt Jabs says
Hi Don, if you cannot afford the property you can do a short sale on it.
Hi. I wish it were as simple as a short sale. There are 5 houses out of the 7 on my block for sale. Two have tried short sales. Regretfully, it seems as if there’s no one to offer a short sale to.
Matt Jabs says
There are always options. What are yours?
You have been paying on a house you haven’t lived in for a total of four years, draining YOUR retirement to do so. Why do you feel you have such a moral obligation to continue paying? You and the bank both agreed to a contract, a contract that says if you can no longer pay, they get the house back. Give it back, why risk your future for a house?? You cant sustain your retirement, keep paying all your bills, fix the heater in the house and send your daughter to college. Quit thinking this is a “moral” decision and give it back to the bank. They knew the risks when they signed on the dotted line just like you did.