My husband and I bought an aging farmhouse in rural Ohio at the top of the market. Almost ten years later, housing prices in our area still haven’t bounced back up. We’re underwater, and there are big repairs we could never afford to make, which will make it even harder to sell. There’s no way to get our money back, and I can’t afford the debt after the cost of divorce. (I only work part-time for just a little over minimum wage.)
This house is bleeding money, and I just want to get rid of it so I can finally start over. What can I do? – Nancy M.
Housing prices have largely recovered in America’s most economically robust cities. However, many cities and towns across the country – especially where you are in the Midwest – continue to lose people, jobs, and economic resiliency. It can be incredibly difficult to sell a home in a town where more people are moving out than in!
None of this is news to you. It’s good that you and your ex have both agreed to sell the house, but selling it will be very difficult because the house is underwater, with a mortgage that is greater than the value of the home. That means that you will have to get creative. Here are a few options to consider:
Option One: Stay Put
The easiest option is for you or your spouse to take over the mortgage and stay put. Since the mortgage is a debt, your spouse and you will both be responsible for it. That means, if you stay in the house, your spouse may have to help you continue making the mortgage payments until you build the equity up enough to sell.
Option Two: Refinance
Paying the mortgage on your home will likely be difficult on your part-time salary. One way to pay less is to refinance at a lower interest rate. No bank will allow you to refinance an underwater home, but if you meet certain conditions, you may be able to take advantage of a special refinancing program by the federal government called the Home Affordable Refinance Program (HARP).
Option Three: Short Sale
If you absolutely do not want to stay in your home, the only way that you’ll be able to sell it is by convincing your bank to allow a short sale. This will allow you to price the house more competitively. Best of all, your bank will accept the loss between what you owe and what you sell the house for. This is a difficult process, but if you can manage it, you’ll walk away home free and debt-free at the end of it. Contact the bank that holds your mortgage to discuss this option, or have a knowledgeable real estate agent do it for you.
Option Four: Trade Spousal Support or Other Assets
In a divorce, everything can be negotiated if both sides are willing to come to the table. Does your ex-husband owe you spousal support? If the answer is yes, you may be able to “trade” what he owes you for your debt responsibility in the home. This will mean giving up monthly payments, but you could also walk away from the home and let your ex deal with it (however, your name will still be on the mortgage). Even if you are not going to receive spousal support, you can potentially trade any assets you are entitled to in order to cover your debt. Definitely discuss your strategy with your divorce attorney before making any deals.
Option Five: Fix Up the House
You mentioned that your home needed repairs. If you believe that these repairs could dramatically increase the value of the house, it may be worth considering making them. Large home repairs are expensive, but it might be worth putting up the money if this will allow you to sell the home to break even or even realize a profit. You may be able to use assets you have or take out a personal loan.
Option Six: Rent the Home
By renting your home, you can turn your money pit into an income stream if you are able to attract reliable renters. The rent payments can help you cover the monthly mortgage payments until you can sell or at least give you breathing room while you negotiate a short sale with your bank. You can either try to rent the home as a long-term rental or put it up on a vacation rental site, like Airbnb or HomeAway. You might be surprised at how many people would enjoy spending some time in a quiet little farming town in the middle of America. Turning your home into a vacation rental will require time and commitment from you, but the income can definitely be helpful!