Low Equity Or No Equity? No Problem

We’ve all heard stories of ordinary people hitting the “house lotto,” buying at rock-bottom prices and cashing out as the market turns red hot.  As lovely as that scenario is, there are a number of ways home ownership can go south. You can get caught up in house-buying fever and pay too much for the house of your dreams. You can move into a home, only to receive a pink slip at work the next week. In other words, you can find yourselves with little or no equity when it comes time to sell.

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As discouraging as the situation may seem, it is certainly not hopeless. The following points illustrate the many ways you can see yourselves out of a tough situation.

  • Be upfront with a Realtor. While there are special challenges associated with paying Realtor fees when there’s no equity to be found, a really good agent may be able to help. It is possible that your agent knows of a party willing to pay full-price for your property, or have a sales-related trick up his or her sleeve. An experienced Realtor who properly prices your home while actively pursuing the right buyer is worth his or her weight in gold. Don’t assume that your situation is hopeless before giving a professional the opportunity to sort things out.
  • Consider a short sale. One of the most common methods used by homeowners owing more than market value on their home is called a short sale. A short sale occurs when the lender and owner agree that a home is going to be sold for less than owed. Both parties benefit. A short sale allows the homeowner to avoid a foreclosure (which is tougher on credit), and the bank loses less money than it would through the foreclosure process.
  • Take advantage of veteran benefits. According to VA Home Loan Centers (1), veterans can take advantage of the HAP Military Short Sale Avoidance Program (2).  In addition, if they do decide to go the short sale route, the Department of Veteran Affairs allows vets to qualify for a VA loan following a short sale.
  • Ponder selling it yourself. There is no doubt that putting your home up as For Sale by Owner (FSBO) can feel daunting. Still, there are a number of resources that can help you feel more comfortable with the process. Respected publications like the Wall Street Journal offer tips, covering everything from how to advertise, what should be included in the sales contract, and when to involve an attorney in the process.
  • Look at government assistance programs. Sure, it can be embarrassing to find yourself upside down on a home loan, but there are plenty of other people in the same boat. So many distressed homeowners that there are government programs designed to help them figure out their next, best step (4).
  • Become a landlord. While it may be true that you don’t have much equity in your home, you are still the owner. As such, you have the opportunity to lease the property until it appreciates sufficiently.

The best advice when facing a low or negative-equity situation may be to take a beat, consider your options, and know that it will all work out.

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