Q: I bought a home about three years ago while working as a contract employee at the Boeing Co. The contract was supposed to last 5-10 years, but it only lasted one. I was laid off and have been struggling ever since to find a stable, living wage job. My wife is a teacher and it looks like we will be finding a place to rent in Pasco within 30-60 days. I still have no income. We have been trying to sell our home for over a year. I have gone through three real estate agents and the selling price of my home has been reduced from $235,000 to $206,500. I owe $180,000 on the home and this current selling price is at its lowest. For the past two years I have tried to keep my house payment current by using up all my investments and savings. With our pending move to Pasco, a rental there will cost me about $700 per month. Adding my house payment of $1,450 will financially do me in. The VA loan people stated I could give the house back to the VA, I guess this is a foreclosure, which will kill my perfect credit. The VA might sell the home at a reduced cost and bill me for the rest. Then I might have to claim bankruptcy. Either way I could lose big time. – S.K., Camano Island
A: You are in a difficult financial position, and as we are now unofficially in a recession, more and more people may find themselves in a similar predicament.
First, I commend you for keeping up on your mortgage payments. Maintaining an excellent credit rating is the key to surviving tough financial times. If your credit is good you can borrow the money that you need to get you through.
You should establish credit lines and credit cards and put them away to be used only for emergencies. Don’t wait until you have no income to apply for credit.
Get it when you have a steady income and good credit so that you have credit available when you need it most. But even if it’s now too late for you to get new credit, it’s very important to maintain a good credit rating so that you can easily get a loan or new credit cards after you find employment.
That’s my general soapbox speech on credit. Now on to your specific situation. I hate to tell you this, but there is basically only one reason that a home doesn’t sell: It’s overpriced.
If you have been trying to sell your home for over a year, you should have dropped the price a long time ago. Even in a slow real estate market, a home will sell if you price it correctly. By that, I mean price it below your competition to encourage buyers to make an offer.
I know that is easier said than done, but if you had started with an asking price of $206,500, your home may have been sold by now and you would not have been forced to use up all your savings to keep making the monthly mortgage payments. If you can drop the price some more, keep cutting it until it sells.
If you don’t want to cut the price, offer the home for sale on a lease-option. That means you are leasing the home with an option to purchase it within a year at a set price.
Typically, a portion of the monthly rent is applied to the down payment when the tenants exercise their right to purchase the home. I have found that this to be an excellent way to quickly sell homes in any kind of real estate market because it allows prospective homebuyers to move in with very little cash out of their pockets.
They can save the money to buy the home while they are living in it, and since they treat the home as owners rather than renters, they are ideal tenants. The other advantage of selling your home on a lease-option is that you can quickly get somebody in the house to cover your mortgage payments and preserve your credit rating.
The only drawback is that the tenants might not exercise their option to purchase the home, but then you can just turn around and lease-option the property again to somebody else. Or, if the real estate market heats up, you may be able to find a cash buyer at the point.
As a last resort, you could offer a deed in lieu of foreclosure in which you deed to the property to the VA and let them sell it an auction. That would put a huge black mark on your credit rating for several years, but if it is the only way out, you may not have a choice. The good news is that even if you are forced into a foreclosure, you can rebuild your credit within four years by paying all the rest of your bills on time each month.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435, or e-mail him at economy@heraldnet.com
Steve Tytler is a licensed real estate broker and owner of Best Mortgage, Inc. You can visit the Best Mortage Web site at www.bestmortgage.com.
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