Photo: Marc Royce
Q: During the market boom, I locked into two adjustable-rate home loans that I can hardly handle now. I'm a single 34-year-old woman with a job that pays well, but I can't count on a raise, and I'm bringing in just enough to cover the mortgages and my living expenses. I'm looking for someone to rent a room for the extra income. In the meantime, do I ride this out and hope that the housing market makes an upturn, try to sell the place now, or what?
A: Hope is not a sound housing strategy. I still think real estate is a solid long-term investment—but only if you can afford what you bought. Let's be realistic about your situation. It's better to get out on your own terms than to be pushed into foreclosure because you were waiting for your luck to turn.
It seems you were seduced, like so many buyers during the boom, into financing your home with two loans: a primary mortgage and a second mortgage that covered some or all of your down payment. The fact that both loans are adjustable is a huge concern. It sounds as though you've already been hit with one rate adjustment that boosted your costs, and another reset could happen relatively soon. You already feel pinched, but realize that things can still get worse.
Selling could make sense if you can't find a roommate soon. If you can get rid of the property at a price that covers your mortgage cost and the 5 or 6 percent commission you will owe your real estate agent, consider yourself lucky. You would be getting out relatively unscathed. Then you can move into a rental and start saving for a down payment so that, next time, you can buy with one standard loan.
But if the price you can get today is less than what you owe on the mortgage, talk to your lender as soon as possible. The worst time to ask for leniency is after you're already behind on payments. You may be able to negotiate a deal where you lock into two fixed-rate loans at a better rate than your adjustables.
If that doesn't pan out, ask about a short sale: You unload the house for the best price you can get, and the lender forgives the difference between what you owe and the sale price of the home in today's market. But lenders aren't exactly excited to take a loss, and even if they do agree to a short sale, you may have to pay tax on the forgiven amount. Learn more at HousingEducation.org, a terrific resource with plenty of useful information about home ownership.