Money Matters: Should I Ditch My Home?

Maintain your mortgage payments (if you can) even if you're "underwater"

BUSFundingMoneySignsEXCI don’t have equity in the home I bought three years ago. When is it time to ditch a house, even if you are current on your mortgage payments?

—C. Jones
Via E-mail

First off: You’re not alone. Right now, according   to Zillow.com, nearly a quarter of U.S. mortgage-holders are “underwater,” meaning their homes are worth less than they borrowed from the bank. Many of those homeowners, like you, purchased at (or near) the height of the housing bubble in 2006.

If you like where you live, and can still afford your payments, your best option is to continue paying your mortgage and ignore the current market trends. Tara-Nicholle Nelson, real estate broker and author of The Savvy Woman’s Homebuying Handbook (Prosperity Way Press; $24.95), agrees. “Reset your mindset,” says Nelson. “Forget the idea that you have to do anything. Depending on where you live, if you plan to be in your home for five years or longer, you could see your value rebound.” The reason most real estate experts offer this advice? There are few palatable alternatives.

You might ask your bank to modify your loan by reducing the principle, but banks don’t often agree to these kinds of modifications. “That works in about 1% of cases,” says Nelson. Another option: you might ask the bank if they’ll consider allowing you to put the house on the market as a short sale property. The problem: your credit score will take a hit, and the bank may come after you later to pay the portion of the sale that fell “short” of what you owe them. The other option, if you can call it that, is to let the house slip into foreclosure. No one wants that, for obvious reasons.

This article originally appeared in the January 2010 issue of Black Enterprise magazine.

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