Buying a home can be extremely exciting and rewarding, but changes happen. As a result of changes in your financial situation, you may find it difficult to keep up with your mortgage.
Or, maybe you believe the home isn’t worth the investment.
You may be wondering whether or not you can get out of a mortgage contract. After all, sometimes the home isn’t worth the time, effort, and money you must invest.
Do you find yourself in a mortgage you’d rather find your way out of? If so, continue reading below about how to get out of a mortgage.
Contact the Lender First
If you’re struggling to pay your mortgage or believe the property value has decreased too much, contact the lender. The lender may work with you to come up with a solution.
This isn’t a guarantee, but some lenders will allow you to negotiate a loan modification. They may lower your interest rate to as low as 1% to 3%. They may even forgive a portion of the principal.
Before you make a big decision, such as a foreclosure or short sale, speak with your lender. Be sure to discuss your financial situation and all the options you have.
If you can’t reach an agreement, you can consider a short sale, strategic default, a deed in lieu of foreclosure, and more.
Your Short Sale Option
If you decide to go this route, you’ll still need to work with the lending institution. You need to convince them to accept less than the balance on the mortgage.
The bank may agree, as it saves the institution from repossessing the home in a foreclosure. The process of foreclosing on a home is expensive and time-consuming. Foreclosed homes are often difficult to sell.
This means a short sale is more attractive to the lending institution. It poses less risk, even though they won’t receive the full balance of the mortgage.
Keep in mind the lending institution may hold you, the homeowner, liable for the difference in the loan balance and the sale price.
You’ll need to provide documentation on why the short sale may be necessary. Though the homeowner may initiate the process, the bank must sign off on it.
Once the bank signs off on the short sale, the homeowner is responsible for selling the home.
A Strategic Default
You may decide to discontinue paying on your mortgage, even if you have the financial ability to pay it. This is known as a strategic default.
If you have the financial means to pay your mortgage, why would you decide to stop paying? Often, you’d do this if the property value of your home falls well below the amount you owe.
This puts you in a situation where you’re upside down or have an underwater mortgage. Essentially, you hold negative equity in your home.
A strategic default is similar to a foreclosure, but there are some differences. The lending institution may give you more time to exit the property or pay you a fee for maintaining the property.
A Deed in Lieu of Foreclosure
A deed in lieu of foreclosure occurs when you speak to the lender ahead of the foreclosure process. You’ll work with the lender to reach an agreement.
If the lender agrees, you can transfer the title and walk away from the property. When this happens, a mutual exchange takes place.
The borrower exchanges the title of the home to the lender in exchange for release from the mortgage obligation.
To complete a deed in lieu of foreclosure, you’ll need to provide information regarding your income and expenses. This information should include the following:
- proof of income
- recent tax return documents
- a detailed financial statement, including income and expenses each month
- recent bank statements
- a hardship affidavit or letter
Before the lender will approve a deed in lieu, you may need to attempt to sell your home at fair market value.
Why Avoid a Strategic Default or a Deed in Lieu
Strategic defaults and deeds in lieu of foreclosure are certainly options. Each gives you more time and freedom to figure out your next move. For example, you don’t have to pay your mortgage until the bank repossesses your home.
However, each of these options comes with negative consequences.
The biggest impact will likely be on your credit report. Both options will appear as a negative mark on your credit report. This will remain there for the following seven years.
This could leave you unable to secure another home loan for the next three to seven years, even if you seek government agency home loans. You won’t be able to buy a home unless you can buy a home in cash.
You’ll need to look into renting a living space instead.
With a strategic default or deed in lieu, you may experience a long foreclosure process. With these options, it may take a while for you and the bank to finally reach an agreement.
You may even face certain legal consequences, which could damage your financial standing.
Rent Your Home Out
If you think you might fall behind on your mortgage but wish to keep the home, you can consider turning it into a rental property. You can rent out the home and move back in when you can.
This is a particularly good option in areas where rental properties are in high demand. If you can charge a high rent, you may be able to cover the costs of your mortgage.
You’ll become a landlord in the process. This can impact the state of your taxes and insurance. You should speak with an accountant first.
Sell to a Home Buying Company
Your best option may be to sell your house to a home buying company. These companies will often help a homeowner sell a home quickly. They will give you cash even for an ugly home.
What are the benefits of selling your home to a home buying company?
Save Your Credit
A foreclosure will definitely impact your credit for years to come. When you sell your home to a home buying company, you’ll avoid the negative consequences of a foreclosure.
If you’re facing a foreclosure, consider selling to a home buying company. Even if the foreclosure process has begun, you may have time.
You may not have time to sell your home with a traditional real estate agent, but a home buying company can buy your home within days.
Some companies will help you get up to date on your mortgage payments. This can help you stop the foreclosure process. You’ll also avoid a credit default.
You won’t have to sacrifice your good credit history or financial future.
An Easier Way to Get Out of Your Mortgage
Using a home buying company makes getting out of your mortgage much easier. You can receive cash in as little as seven days, and you won’t need to negotiate with your lender.
In a short sale, strategic default, or deed in lieu, you have to spend hours negotiating with your lender. In the end, the lender may reject your proposal. They may decide the offer isn’t profitable.
Instead, working with a home buying company cuts out your need to work with the lender.
Secure Your Financial Future
When you foreclose on a home, there are more negative consequences than just the negative impact on your credit. You need a good credit score to secure future loans and lines of credit.
If you go through with a foreclosure, you’ll forfeit your financial future for the next seven years, at least. If you sell to a home buying company, you’ll regain control of the process.
You can stop any negative impacts you might otherwise face on your credit report. You’ll be free from the obligations to your mortgage payments. You’ll be free to apply for another home loan in the future.
Weigh All Your Options
Consider all possible options before making a decision. Your first option should be a loan modification. When you contact the lender, try to figure out whether or not they’ll accept an offer for a short sale or deed in lieu.
If that doesn’t work, you may need to move on and think about renting or even selling your home to a home buying company. This may give you the most freedom, as you’ll avoid negative impacts on your credit report.
How to Get Out of a Mortgage
Being upside down on your mortgage can be incredibly intimidating. You may feel the home isn’t worth keeping. You may be struggling to make your mortgage payments.
Whatever the case, you need to get out of your mortgage quickly. Try working with the lender, but this could take longer than would be ideal.
You have several options for how to get out of a mortgage. Your best option may be to sell your home to a home buying company.
If you want to find out more, contact us today to regain control of your home’s future.