7 Sep 2010
You have been making the payments, mowing the lawn, making repairs, making it a home. You have it furnished nicely, invite friends over to socialize on the weekends, the kids play in the back yard. It’s what you and your spouse always dreamed of.
House Decreased In Value
When you bought your house you paid $275,000. It was a stretch, but you both loved the house so much you both agreed to make sacrifices. You took out a 30 year traditional mortgage with a fixed interest rate, and have been on time each month with the payment. At the same time, you and your spouse have been seeing on the news how housing prices have plummeted over the last couple of years. You start doing some research and find that your house is now valued at $225,000. You start feeling like you got ripped off. What if you wanted to sell, you would lose money, of course you are not wanting to sell right now, but what if? You start getting bitter, you start saying it’s not fair you what you paid for the house. You and your spouse start looking at the house in a different way just because it isn’t valued near what you paid for it.
You and your spouse start talking about “getting out from under this house” you start considering a short sale, you may even be thinking about not paying the monthly mortgage, even though you have the means to pay. All these thoughts are going through your head just because you owe more than what the house is valued at.
Does this scenario sound familiar? Are you in a similar situation? What I just wrote about is the type of question I get at least once a week if not more. So what should you do?
House Increased In Value
Well consider this. Let’s say you paid $275,000 for your home. The value went up to $337,000, would you then expect the bank to start charging you more for your house because the value went up? Of course you wouldn’t, because you signed a mortgage agreement stating you agreed to pay the selling price of the house, which was $275,000 not the selling price plus future value.
So why is it so many people think just because their house has decreased in value that they have the right to stop paying the mortgage or attempt a short sale and cause the bank to lose money from their original agreement?
Yes, I know there are always those certain circumstances where your work is transferring you to a new location, or you have lost your job, or some other life altering event has occurred that requires you to sell your house possibly as a short sale or even go into foreclosure. I am NOT referring to those circumstances. I am solely referring to those who feel their house has decreased in value, that they are getting a raw deal and want walk away, even though they are totally able to make the payments as agreed on the mortgage documents.
Home Ownership Is A Risk
So should you short sale your home because it is not valued at the price you agreed to pay for it? I would say no, just as the bank should not charge you extra each month if it increases in value. Part of buying a home is taking on risk, if the property value decreases you may lose just as if it increases you will win.