From the Inbox:
Unfortunatley my wife and I bought a home in Maricopa at the height of the real estate market back “06”, moved from Long Beach, NY and are still here and are trying to get out of Az. We are misreable where we are. The builder we bought from still has aproxximatley 30 homes to build in our subdivison, Basically the construction stopped as soon as we moved in. If we rent it out it will not cover our mortgage payment. We totally feel stranded and are actually thinking of walking away. The hard part is we worked so hard for the excellent credit we have and do not want to throw that out the window. We keeping asking ourselves whats more important our happiness or our credit? Tough question especially in this day and age when credit is everything!
Maricopa is one of the hardest hit areas in the Phoenix real estate market (Arguably the hardest hit, along with Queen Creek).
Basically, you have six options:
1) Wait it out
2) Rent it out
3) Short sale
4) Walk away
6) Loan modification
1) Stay where you are and wait it out. The question is, of course, how long until recovery? Unfortunately, no one can answer that question. Personally, I think we are heading toward market recovery, but I think we’re at least two years away from returning to a “normal market” (with gradual appreciation rates). It will probably be longer before your home value gets back to where you purchased. And I could be completely wrong on the recovery time frame.
2) Try to rent your home. This can be difficult in Maricopa due to it’s distance from metro Phoenix and the number of homes currently available in Maricopa (and elsewhere). Unless you put a significant amount down, it is unlikely that you could rent it for what your payment is (in other words, you’d be in a negative cash flow situation). There are some tax advantages to holding rental property that could offset some of the expenses. You should consult a tax advisor.
3) Sell the home. Without knowing more details (your purchase price, loan terms, down payment, etc) and the current value of the home, it’s impossible to say how viable an option this is. Given the time frame you purchased in, and the general condition of the Maricopa real estate market, it is quite likely that you are “underwater” on your mortgage (owe more than it is currently worth), perhaps significantly. This means you would be in a short sale situation. Whether the lender would even accept a short sale, assuming a buyer could be located, depends on many factors such as:
- Your loan amount
- Whether you have any secondary lien holders (a second mortgage, HELOC, etc)
- The purchase price and purchase conditions
- The investors in your loan
- The apparent whim of the lender’s loss mitigation department
4) “Walk away” — also known as a “Deed in Lieu”. Fold up shop and hand the deed over to the lender.
5) Let the home go to Trustee Sale (foreclosure).
6) Loan Modification. Another option might be to discuss a loan modification with your lender. SOME lenders are appearing to be more open to this. Typically it requires you to provide proof that you can not make the current loan payments. Just because you don’t like making them, or don’t want to make them won’t be sufficient reason for the lender to modify your loan terms. If you can prove financially that you can’t make the payment, the lender may be open to modifying your loan. Don’t expect them though to just lop off tens of thousands of dollars from your loan balance. In the lenders eyes, declining home values aren’t a reason to adjust loan amounts. They may however, adjust rates and terms to provide a lower payment.
Options 3, 4, and 5 will all have a negative impact to your credit score. The actual change in your FICO score is impossible to know. The general consensus seems to be that you will not be able to get another mortgage for at least two years if you complete a short sale, three years for a deed in lieu and five years for a foreclosure. These are very general time periods and are dependent on many factors including your current credit history, future credit performance and future lending requirements and regulations.
What is more important, your happiness or your credit? That’s a really tough question — and one I can’t answer for you. What compounds the difficulty is that for many, your credit is a component of your happiness.