[M04/S16] Selling your home with little or no equity

After you have crunched the numbers it may be apparent that, after including the costs of the sale, you are in a situation where you’d be selling your home with little equity, or worse – negative equity. Put another way, you are going to come up short – considering the current market value of your home, as-is or as-repaired, there won’t be enough money from the proceeds of the sale to pay off the lien holders (your mortgagers), taxes, HOA dues, commissions, and other costs of sale.

If you need to sell your home but discover you have little or no equity, what are your options? If the reason you need to sell your home is because you cannot afford to make the payments but otherwise desire to stay in the home, you may be eligible to get a loan modification from your lender. For the best chance of success, you must be able to demonstrate to the lender that you have a genuine hardship, that some circumstances have changed since you first took out the loan. For more information on doing a loan modification, look in the resources section of this website for our loan modification guidebook.

You may also be able to just give the title back to your lender, in lieu of foreclosure. For this to happen, there must be no other liens on your property other than a first mortgage lien. If that is the case, your lender may be willing just to take back the property. Of course, if you are behind on your payments, your lender may ultimately choose to foreclose on the property, which is something generally to be avoided as it can have negative effects on your credit.

If you have no equity in your home, and you do want or need to sell it, many home owners will choose to do what is known as a “short sale.” This is a sale where your lender (or lenders) accept less than the full amount of what is owed to them to settle the debt – a “short payment”, hence the name short sale. With a short sale, a homeowner can avoid foreclosure, which is one of the primary benefits of going this route. For more information on the Short Sale process, look in the resources section of the this website for our short sale guidebook.

Point. Click. Offer. Sell.