Ask Money

"Stuck" with house

Chris Farrell Mar 30, 2010

Question: I bought my house in 2006. We want to move within the next 3 years, however estimates from the State of Maryland (through property value assessment) and indicate my house is worth from $50,000 to $90,000 less than what I owe on it. I am at a loss on how I could sell my house in the next 3 years and purchase a new one.

Any suggestions? In your experience would a bank currently holding a mortgage on a property worth less than the principle be inclined to lend money for a new property and roll the loss from the first property into a second mortgage on the new property? They are undersecured anyway – so what does it matter what the property is??

My only other thought is to start playing the lottery – I have learned through the commercials that anyone can win and you cannot win without playing.

Am I missing something or just stuck? Staying in this house really isn’t a good option.

Thanks, thanks, thanks for any assistance you can provide. I love your show. Melissa, Baltimore, MD

Answer: Ah, winning the lottery. It would solve a lot of financial problems, wouldn’t it? But the odds of winning a single state lottery is around 18 million to 1 and with multiple state lotteries the odds can soar as high as 120 million to 1. It isn’t fair, but once again Mark Twain was spot on when he observed that “the best throw at dice is to throw them away.”

All right, let’s get serious. To your specific question, no bank will roll over an underwater mortgage on one property into a new loan on another property, at least not with residential real estate. The risk of default is way too high for banks to consider that kind of financial engineering.

I don’t think your missing anything. That’s why my advice is to wait. To put it somewhat differently, turn being “stuck” to your advantage. I’m not sure why staying in your current home isn’t a good option after three years. But that’s still 36 months before you plan on moving. My reading of the economic tea leaves is that the recovery is starting to gain traction. The housing market still has a ways to go, though. For instance, the latest real estate numbers from the S&P Case-Shiller national home price index–a major urban real estate benchmark–has home prices in 10 major metropolitan areas were flat in January from a year earlier. The index for 20 major metropolitan areas dropped 0.7% year over year.

Still, I think time is an ally. Meanwhile, I’d take advantage of the next few years to explore your options. Does renting or homeownership make better financial sense for you? My own sense is that many folks are realizing that renting is the better financial and lifestyle option, especially if they might have to move for work within a 5 year time period. You may have no other choice, either.

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