Why Should I Short Sell My Home?

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Are you stressed out about your mortgage payments? Are you thinking that bankruptcy is your only option at this point? Maybe a Short Sale is right for you, millions and millions of homeowners are in the same position and many millions more will come to the realization that they can not keep up with the current decline of home values. They are paying for a home that is only worth half or less then what they paid for it when they purchase the home.

It is projected that 20,000,000 homeowners will have negative equity in their homes in the very near future and this may short of the real number. In other words, they will owe more on their homes than they are worth for many years o come. Over 2.9 million homes have been foreclosed on in the last three years and this number is expected to grow much larger in the next two years or more.

So how did we get where we are today?

Well it all started with the government not watching over the financial market and allowing mortgage companies to have a free run of the money and to let it flow like a fire hydrant. In the years between 1999 and 2007 the mortgage and banking were legally giving away the store. Many people were given the opportunity to purchase homes where the values ​​were inflated and the money up front was cheap. They also made the approval process so easy that anyone could get a mortgage if they just made their situation fit into the mold. The mortgage and banking industry found a whole in the donut and filled it with green filling.

Because of the flow of money and the ease of access, coupled with corruption and greed this real estate recession will be around for many years to come. There is expected to be massive tsunami of homeowners who are simply making the decision to sell through sort sales versa staying in their homes and hiring that one day their home will be worth what they paid for when they purchased it.

No one is safe! News Stories across the nation tell tales of people from every level are considering selling by way of short sale. Selling your home by short sale does not need a shameful or a life running experience. It should be looked at as a way to structure a broken market and return the real estate market back to where I should be if the financial industry had not inserted huge profit mortgages into the economy.

To really look at a short sale it should eyed as a smart economic strategy to be used by many people who are totally upside down with no hopes of recovering losses. It should also be looked at as a way to combat the greed and ignorance of the financial system who capitalize on the back of the American consumer.

The Real Estate Market will recover when it has been stabilized and this will happen when values ​​get back to where they should have been before the boom years of the early 2000's. If the market did not see appreciation of 20, 30, 40 and in some are 100% appreciation per year. If we had stayed at or around the historic 5-10% appreciation, homeowners today would not be where they are today.

We are clearly in uncharted waters. The current housing crisis is different from all the previous housing recessions. It is well known that many financial institutions sold mortgages in a deceptive manner – for example, by approving people for loans they could not really afford – then why should homeowners feel obligated to honor their commitments?

From a homeowner's perspective, why should they stay in a home that is depreciating? Often times it's possible to rent the same style home in the same area for half (or less) than their current mortgage payment. Assuming it takes years for the market to recover, the homeowner who sells their home through a short sale now will be far ahead of the person who 'stuck it out'.

Here is a simple example that explains what is happening!

Starting May of 2008:

Homeowner paid $ 500,000 at the market peak in late 2006. Homeowner put down 5% and did a 7 year interest only mortgage. Monthly payment including principal, interest, taxes and insurance is $ 4200 per month. Assuming the property has depreciated 30% and is now worth only $ 350,000, the owner has negative equity or is 'upside down' by $ 150,000.The market is continuing to depreciate and was projected to level off in mid to late 2009.

Option 1

Homeowner can 'stick it out' and keep the home. They will continue to make their monthly interest only payment / house upkeep of $ 4200 per month. They will pay $ 50,400 per year to keep the home. They are deeply 'upside down' in the home with massive negative equity. By late 2009, the home's value has stopped depreciating. The market stands flat for at least a year thereafter. The inventory levels have to sell off. In late 2010 or early 2011 the market then starts to slowly appreciate again. Best case the home starts to appreciate at 5% per year. Based on this rough example it will take at least 7 years for that home to be worth what that owner paid in 2006. During that time the homeowner will have paid $ 50,400 per year. Do the math. That's $ 352,800 spent to stay in the home and 'stick it out'.

Option 2

Homeowner lists the home with an agent trained in doing short sales. The home sells and the bank agreements to accept the loss in equity as the short sale . Bank loses $ 150,000. Homeowner moves to a rental home in the same neighborhood and pays rent of $ 2000 per month. Half of his previous house payment! Homeowner saves the difference between what he had been paying for the owned home and his new rent payment. $ 26,400 per year! Yes, the homeowner does have significant negative credit ramifications as a result of their short sale. This negative credit will prevent them from buying a home for the next 18-24 months. With this option he can sit out the real estate recession and jump back in when the market has hit bottom. If he times right he can buy at the markets bottom. This time he will have a more significant down payment and a better quality mortgage.

Let's be clear about this next point, yes they will have damage done to their credit the hit will be less than a foreclosure and they will recover quicker. When the Real Estate market finally hits bottom these same people will be in a position to enter back into the market and start the cycle to make the market strong again. Which would you rather have 18 months of diminished credit or total damage for 10 years and not to mention what a foreclosure does to your neighbors home, the short sale saves more than just credit it can save a neighborhood.

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Source by Tim G Robbins

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