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Purchased a home in FL in 2004 and am underwater. Due to the rash of short sales and foreclosures in the neighborhood, we're being told that the home will appraise probably 40k under what we owe (and about 120k under what we originally paid). We have cash that we can bring to close but not that much without touching our retirement accounts.
I will not consider foreclosure (we wouldn't qualify for a short sale because there is no hardship move) because I do not want to ruin my credit which is in tip top shape. I know I have at least two options:
(1) stay in the house
(2) rent the home out
Neither option is appealing. I'd like to move as the neighborhood is starting to turn worse due to the economic situation and I don't want the hassle of being a landlord. However, I will obviously consider these options if I have no choice.
I also read somewhere that folks have taken out personal loans to be able to close. That is something I'd be interested in because I could just get rid of the house and pay off the loan instead of paying off the house. I know my interest rate on the loan would be higher but I just want this house gone.
However, an idea just came to me and I want to know if it is absolutely stupid or something I should consider: would it be absolutely crazy to purchase a new home and take out a HELOC to pay off the first home? I can afford to purchase a new home without needing to sell my current home and would be putting 20% down so I would have equity in the home.
Now, I have no idea if I would qualify for the HELOC but that issue aside, I'm just wondering if this is even something worth entertaining. I never took out equity from my home (thank god) and am not excited about the idea of doing it here but the new home I buy would be a "forever home."
It would be insane and probably impossible to take out a HELOC to pay off the shortage on another house.
That said it is possible to get a lender to accept a promissory note for the shortfall on the sale of the underwater house. Depending on how far underwater you are and what you near term finances are and your ultimate goals are that might be an acceptable option.
You said you don't want to go into foreclosure for credit reasons but there are other thnigs to ponder. Some states are deficiency balance states. That menas if you owe X, the house is worth Y, and the bank forecloses and auctions the house off for Z you could still owe them the difference between X and Z. This may have changed but I'd look into it. I also doubt you can get a HELOC with 20% equity in the property these days. I'd rent it or stay and wait for the value to come back up. Is it really that bad?
Thanks everyone for your replies. Chet Everett, thank you for the link to the post on a short sale with a promissory note. I am going to look into this further assuming that it would not hurt my credit. I have no problem paying off my obligations - it was my choice to take out the mortgage and purchase the house - but would rather do it without having the house.
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