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.