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I want to sell my house, but it seems that in order to do so I may need to lower the price to less than what I owe.

Is it possible to make an upside down sale like this and still make payments on the remaining balance?

Everything I look up is about a short sale which is for people in a hardship and the banks accept less money. This is not what I am looking for as I am employed with a decent salary and not in hardship. However I do not have enough cash on hand to pay the remaining balance of an upside down sale (depending on how upside down it is) in one lump sum.

I just want out of my house. Does this mean I am stuck?

Technically I can lower the price to exactly what I owe but then I wouldn't have enough to cover closing, commission, etc. I would also not like to empty my entire savings and have no room for emergencies.

What are my options?

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what's the reason you want out of the house - do you have to move (say, for work), is it financial (ie, you can't really afford the house) or something else? – Timo Geusch Mar 31 '11 at 21:41
up vote 8 down vote accepted

I see three options, none of them ideal:

  1. Walk away from the mortgage and be willing to endure the consequences of a lousy credit record for 7 years.
  2. Take out an unsecured personal loan so you can make a lump sum payment at closing to pay off the balance. You'll have to pay it back with interest, so this is expensive too.
  3. If you are selling because you need to relocate, you could consider retaining ownership and renting out the house. Obviously this isn't an option if you just want to get out of home ownership. And if you're moving away, you'll have to hire local management to deal with tenants, you may not be able to get enough in rent to cover your costs, etc. But it could be a way to avoid a new loan or a default.
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+1 Thanks for the info, I like option 2 best. – JD Isaacks Mar 31 '11 at 20:44
For option 2, remember that the lending bank already has an unsecured loan for the amount that you are underwater. Sometimes, the lending bank will give you a loan for that difference even if you have trouble qualifying elsewhere. – Alex B Apr 1 '11 at 19:08
@AlexB that is not true because the bank gets to reposses the whole house even though you have paid some of it off already. The borrower is underwater, but the bank is not unless it is a very new mortgage. – JamesRyan Dec 3 '15 at 11:46

You could walk away from your mortgage. When you signed the mortgage you and the bank agreed that if you stopped making payments the bank would get the house. Give them the house. Of course this would be a huge hit to your credit score and you would probably not be able to obtain another mortgage at a decent rate for at least 7 years. You may have trouble obtaining other financing as well (i.e. auto loans). If you plan on moving to an apartment and don't need to finance car purchases this may be OK.

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One issue: many (if not most/all) landlords will run a credit check. (This likely will depend on location.) So, there could be some credit related concerns, even if one were planning on becoming a renter. – George Marian Mar 31 '11 at 20:05
Good point George. – Muro Mar 31 '11 at 20:37
The bank did NOT agree that the house would be accepted as full payment of the loan. If the house is worth less than the loan they are entitled to pursue you for the rest of the money, and may well do it. – DJClayworth Mar 31 '11 at 21:33
@DJClayworth, I believe that's not necessarily the case everywhere, but if the OP is looking at a short sale, the bank might well make him repaying the shortfall a condition of accepting the short sale. And depending on which bank he has his mortgage with, he might have a long uphill battle to get them to agree to a short sale anyway. – Timo Geusch Mar 31 '11 at 21:40
Re: Timo's comment of "not necessarily the case everywhere": Exactly. Contrast recourse vs. non-recourse loans. See – Chris W. Rea Apr 1 '11 at 0:26

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