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Posted October 31st, 2011 under Upside Down House Options

Should You Stay in Your Under Water Home Or Leave?

Tags: loan modification, how to short sale, mortgage default, upside down house, underwater mortgage

Should You Stay in Your Under Water Home Or Leave?

Heads (you stay) or tails (you move) – this is just the beginning in deciding what you should do about your upside down house (when you owe more on your mortgage than your home is worth). Both sides (staying and leaving) have pros and cons. And while understanding which is better for you can be one of the hardest decisions you may have to make, it’s critically important for your financial health and wellbeing.

So let’s start with heads (you stay). Here are three reasons why you may want to stay in your home:

Reason #1 to stay: Mortgage tax deduction.

Most homeowners benefit from the tax incentives associated with homeownership. Depending on the size and terms of your mortgage and the amount you pay in property taxes, you could end up deducting tens of thousands of dollars from your income at tax time – that could mean thousands of dollars in tax savings.

Reason #2 to stay: “There’s no place like home.”

Dorothy was right – who doesn’t love the comforts of their own home? For one, when you’re a homeowner, you can style your home your way –you can paint your walls zebra striped or plant an antique rose garden. And most important, your home is where your family grew up and where you celebrate your holidays – it’s a lot more than just four walls and a roof.

Reason #3 to stay: Underwater, yes, but maybe you can stay afloat and swim.

If you have an only-slightly under water mortgage (say your negative equity is 5% or so) you can start to rebuild your equity as the real estate market improves. If you can afford your monthly mortgage payments (or you can get a loan modification to make home affordable), then staying might make sense.

Now, tails (you leave). Here are three reasons why you may want to consider moving (whether you do a short sale or a mortgage default):

Reason #1 to move: Start afresh in 3-5.

If you do a short sale and get out from drowning today you may be able to buy a new home at a more affordable price in 3-5 years (enough time to rebuild your credit and allows you to save for a down payment). If you do a mortgage default (foreclosure) you might be able to buy again in 5-7 years.

Reason #2 to move: Save money renting.

In this real estate market, many underwater homeowners find that they can rent a comparable (or even bigger/nicer) home for far less than their monthly mortgage payment. One homeowner we spoke with the other day paid half in rent for the exact same model home as she had been paying on her mortgage.

Reason #3 to move: If you stay, you may drown.

If you’re an underwater homeowner and you have a significantly underwater mortgage, you may not be able to rebuild positive equity for more than a decade – even if you pay your mortgage on time, even when the real estate market improves (which it will, eventually). It may literally be more than a decade before your home is worth what you owe on it.

At Homeowner 101 we understand that calling heads or tails in a situation like this is a difficult process. You shouldn’t navigate it alone. We’re here to help you learn about your homeowner options. Sign up for a one-on-one Underwater Homeowner Assessment and Action Plan and find the smart action that’s right for you.