Oddly, the best way to deal with being upside down on your home mortgage
may be to just go out and buy a second house.
As housing values
spiral down and people increasingly owe more on their loans than their homes are worth, many start to look longingly at a different house -- perhaps something smaller and cheaper and that better reflects their new financial reality.
But can you even consider buying another house while you need a snorkel on the first one? Surprisingly, the answer is a strong "probably."
1. Your Credit
If you have continued to make your mortgage
payments and pay all your other bills on time, your credit is untarnished. In order to get a loan for the house you hope to buy, you will need untarnished credit.
2. Your Income Stream
You need a job that pays you enough money to cover the debt of a new mortgage as well as your other existing expenses. If you are self-employed, you need two years of income tax filings showing a profit.
You probably are among the millions of people who can afford one house -- in your case the upside down one -- but not a second home. One way around this is to convert your existing home into an income property where you collect rent. That will boost your income stream.
3. Assets and Debts
Lenders will look at your assets and debts. Your upside-down house is not an asset and your mortgage on it is a debt. The answer is to have other assets -- such as your savings, stocks and bonds, 401(k), IRA., your paid-off cars, boats. Yes, we all wish that we had more equity in our homes, but those days are gone.
To buy another house, you will need cash to put down, which is where the rub comes in for a lot of people. Do you have enough money to put down what the lender will require, figure 20 percent of the purchase price?
With good credit, money for the down payment, a steady job and assets outside the ownership of your underwater home, your chances of being able to buy another house are good.
Once you close escrow on your new home, you might try for a loan modification or a short sale on your first property. Both of those actions will tarnish your credit, so wait until the ink dries on your new place before starting down that road. Short sales will render you unmortgageable for about two years, say experts.
Another way to avoid those credit dings would be to embrace your accidental landlord status. Renting out your first home can cover or at least help offset the expenses and comes with a whole set of tax advantages that you should speak to your accountant about. This would buy you some time for the market to recover and for you to again be building equity in your home instead of being upside down. The less optimistic crowd says that might be when hell freezes over, but you probably know your local market better than they do.
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