Can't sell your home? Profit from being stuck

Tiny man holding up house made of money

If you can't sell your home because property values have tanked, you're a member of a very big club.

Recent studies estimate between a quarter and third of all American homeowners are underwater on their mortgage, meaning they owe more than their home is worth.

That’s a lot of folks waiting for a big housing market bounce.

I’m one of those people.

I bought a condo when I was single at a good price in a prime neighborhood, with a plan to update it and flip it in a couple of years.

After seven years, I'm still here.

The place is fixed up, but I missed the window of opportunity when condos in my building — including a similarly sized unit across the hall — were going for $80,000 more than I paid.

According to Zillow.com, the place is now worth $24,120 less than what I paid for it in 2005.

Yikes.

And now I’m married and sharing a smallish space with my husband and all of his stuff. And two dogs.

But I’m doing what thousands of other homeowners are doing while playing the waiting game: Making the most of being stuck in my home through smart moves like these:

Smart move 1. Take advantage of low interest rates.

If you can't move, refinance, especially if you can cut your interest rate by a percentage point or more. Mortgage rates remain near record lows, a trend that the Federal Reserve is dedicated to continuing.

You could save thousands of dollars while you wait to put your home on the market — money you can use to either pay down your current mortgage or save for the down payment on your house.

Our refinancing calculator will show you how much your payment will decrease as well as how long it will take to recoup fees and closing costs.

You generally want that to be a year or less, but also factor in how long you think you’ll be in your house.

And just because your home is underwater doesn't mean you can't take advantage of these historically low rates. Under the government's Home Affordable Refinance Program, homeowners can refinance a first mortgage no matter how much the value of their property has declined.

Of course, this program isn't available to everyone.

For example, I can't take advantage of HARP because my home loan isn't owned by one of the two big government-owned firms that finance a majority of today's mortgages, Fannie Mae and Freddie Mac

Smart move 2. Take your home out of neutral.

If you’ve tried to sell, your real estate agent probably recommended you strip your home of anything too personal and paint the walls a neutral color.

Stop.

If beige walls are making you blue, brighten them with hues less drab. Put out family photos. Clutter your kitchen countertops.

Enjoy living in your home. Don’t just bide your time until the market rebounds.

Smart move 3. Improve your neighborhood.

I’ve been a member of my condo association’s board of directors for much of my time here. A friend once said that it was “the least amount of fun you’ll ever have.” She was right.

Still, it has served an important purpose: I've been able to see where my association dues go every month and been involved in making decisions on building upgrades and maintenance — important items that could help the property increase in value.

Not everyone lives in a condo, but everyone can get involved to facilitate change. Join a neighborhood association or lobby your municipality for upgrades.

Unhappy with the school your children attend? Volunteer for a committee or run for the school board.

Smart move 4. Fix 'er up.

You can always make your home nicer, and more livable, and perhaps even easier to sell down the line.

Of course, you won’t recoup all of the costs of a home improvement project, so you’ll want to choose your project and decide how much to spend carefully.

If your goal is to increase your property value, make sure your project reflects the neighborhood. In other words, add a bathroom if your home lacks the second bathroom all of your neighbors have.

Smart move 5. Become a landlord.

While it’s not easy to meet lender requirements, you may be able to rent out your home and still qualify for a mortgage on a new home.

This means you’ll be a landlord, a role that shouldn’t be taken lightly.

You’ll want to call a lender to discuss if this is possible based on your equity and reserves, before sticking a "for rent" sign in the front lawn.

  • http://comcast.net Martha

    What banks in Chicago,Il allow rent/lease to rent if ones home is underwater? For example major banks like Chase,Wells Fargo, Bank of America?

  • Jo

    What bank is going to refinance your underwater mortgage and loan you more than the home is worth, especially if it's a lot.

  • tere

    tried to refinance for 6 months with wells fargo. the bank goes thru the motions, but is not interested (why lower the rate if they can collect at a higher rate). PS what a lame article this is. promises a lot and delivers NOTHING.

  • Cie

    This article is ridiculous! I don't know what world she is living in but I have been trying to refinance for 2 years and NOTHING! Does she work for the stupid banks that will let the house go into foreclosure before they refinace it and then sell it for pennies on the dollar? I have great credit and have never been late but my house is worth less than 50% of what I paid for it; what do you do NOW???

  • Kelly

    If you rent your home out, a portion of the rental income counts towards your income, thus enabling you to qualify for another house. You can rent your home out regardless of whether it is underwater or not. The question is, can you get enough rent to cover your mortgage? If not, then other options might be better (unless you can afford to take a small loss, which would probably be a tax write off). Depending on your circumstance, it might be better to rent it out and break even, to bide your time, vs. going through foreclosure/short sale. But yes, landlording is a job and should be looked at as such. Educate yourself about it before you make a decision based on rumors or stereotypes (such as 4 am phone calls).

  • Dee

    I tried to refinance a house underwater, the banks wont touch it! I agree with most of the comments epecially Cie's.

  • Nancy

    I think the author of this article has some good points and they are trying to be helpful, but missed the mark on a few, such as renting when your home is underwater with the mortgage.

    Say you rent the house for enough to cover the mortgage. What happens if there is a major repair, a pipe breaks, the HVAC system goes left? You're likely to not have enough money to cover major repairs. What if the tenant doesn't pay rent on time, making you late with your mortgage payment? I agree totally with renting the house if you can't pay for it and I have done just that in the past, however, there's a lot more to be considered.

    For those having trouble refinancing, yes, some banks only go through the motions but the refi never goes through. You need to look beyond the bank. Do your homework and search for a mortgage broker in your area, not a mortgage banker. A banker will only give you the rate at his/her particular bank. A broker works with all, or many, of the lenders and will get you the best rate. They make commission from closing loans so it's to their advantage to work with you.

    I also disagree with ignoring neutral colors and painting whatever colors make you happy, and putting out whatever on kitchen counter tops. Potential buyers often have a difficult time visualizing how the house will look when it's empty with all of the homeowner's furniture and personal items removed, and all they see is your bright colors and stuff. Personally, cluttered countertops drive me insane and looks like a junky house. My opinion only. I also can't stand lots of furniture and home decor filling wall and floor space. Again, that's just me. If bare and beige isn't your thing, certainly add pops of color with one or two colorful items here and there but keep your carpets and walls neutral and rooms clean, neat and uncluttered. If I go into a home that has purple walls, orange carpet, and a pink and green bathroom, my furniture clashes with that so I wouldn't consider buying it.

    Overall, I like the article and thank the writer for taking the time to try to be helpful.

  • Mark

    Refinance????????????
    I've been trying to refinance anywhere and everywhere. Nobody will touch my -$40k value %6 loan. I'm not in financial hardship. I've made all my payments. It's the people and mortgage lenders who went crazy with homes that should not have been financed that punish homeowners like me. I've threatened my mortgage company saying "I guess I'll leave the keys under the mat, and it will be your problem not mine". They could care less. I was told I could take money out of my 401K to pay down my loan. That's a wonderful investment. (note sarcasm) The government will help them out if they get into trouble. I guess I'm too responsible?
    Greed and corruption is going to cost this country dearly.

  • Gary

    I have been in my house for over 6 yrs in Douglasville, GA. and have paid down on our mortgage on time. We are underwater and like the others cannot refi with ANY bank, especially Well Fargo who holds the note. If congress was doing their business they'd put forth a program that help out folks like us that play by the rules..With the extra cash freed up we could put back into the economy.

  • Edith

    lived in my home for 25 years remodel it in 2008 to bring value up and now I am upside down more than 50%. Did a consolidation in 2011 and now I have to do a short sale. I don't want to lose my home but I have NO other choice. the bank over enflated the appraisial on my home in 2008. renting the house is not an option. So now I am moving into a Condo( leasing). I don't have the up keep of my home now nor the property taxes to pay. The president should have bell us our , not the banks, they will sale my home for peanuts but not to me. This article is a joke.

  • Julie

    I agree with Mark, I also have good credit and am not given the time of day by my mortgage co. to refi. -- I have also rented my home and that is a complete nightmare. Mark, find a good mortgage broker and he can tell you over the phone if you have a chance at a refi or not.

  • Flack

    Either Darci Swisher is in the financial sector or she's an imbecile. Few if any of the "options" she lists are valid. Like Gary, I'm in the Atlanta area, have excellent credit and can't get any more than pats and promises from the banks. Underwater and nowhere to go. Whoever/whatever puts these stories together should do a little more real-world research. Sheesh.

  • http://interest.com M.C.

    Before signing a REVERSE MORTGAGE MAY SURE one income can support the taxes, insurance, and maintenance in addition to being able to live.. You will still lose your house as you loss your companion income.. You might get a taxbreak as a widower but not the first year of singleness.

  • Brenda

    I too have done everything the right way. Pay my bills on time. Sadly, I went through a divorce and still have managed to keep it all together, paying bills on time and all! Ex want to buy a new home, must refinance to get him off the mortgage, can't refinance because we are underwater. Thinking seriously about walking away from it all. I love my home, but there is no one out there to help those who try to do the responsible thing. BOA is no help at all. My home value just dropped another $17,000 due to foreclosed homes in my neighborhood that just sold....dirt cheap.Yup...love the help for the honest and responsible.

  • Sandy

    I'm a retired realtor. I agree that most of the suggestions are bunk. However, check the rental rates for your area and see if they come close to your pmt. If so; it's a landlord market at the moment. Even if you have to rent an apt yourself, your mortgage pmt should be "mostly" covered and you'd save your credit. Live in it til you get a tenant, and then pack as fast as you can to get that tenant moved in.

  • PT

    If you have had no success so far, take heart. I tried to refinance for 6 1/2 years, and all the big banks turned me down. A letter arrived in the mail one day from a small, local mortgage company which I had never heard of and was skeptical of. I called the lending officer in the letter and prefaced my inquiry by saying that I doubted that they could help me. But they did and reduced my interest rate by more than two points.
    Never give up! I am now working on transforming my second mortage--a balloon payment--which all the banks and mortgage companies said are not written anymore, into something more manageable. I am going to keep trying.

    Stay away from the big banks and try a reputable, local mortgage company. Go see them face-to-face and telll them your circumstances. They are more invested in the community and the referrals you may give them.

  • http://comcast phil linderman

    first I would like to thank the person who at least is trying to give some POSITIVE advice to try and help somebody. Then there are the NEGATIVE people putting there comments on here, the people who dont deserve anyones help lets start with the people who bought a house they could'nt afford and want to blame the bank for giving them a loan.Your the idiots dont buy what you cant afford the bank didnt put a gun to your head! Then theres the people who puy a home want to keep it for a year or two sell it and make money.You gambled and loss.Who should feel sorry for you??? No different than the stock market, casino ... now you want help!Then theres the people who owned and lived in there house for twenty years or so you want to sell your house and get allyour money back and then some you lived in it for several years and you expect to make money off it get real! Any way for the people who really dont deserve the bad situation the advice was positive and worse case you might have to walk away from your house but it wont be the end of the world,you just have to start over its tough but it can be done i did it and you will to good luck!

  • http://www.britherealestateguy.net Brian

    Hardships are inevitable. They are a part of life! No one that I saw SO FAR has mentioned a SHORT SALE. Through the end of this year, the federal government has options for people underwater on their mortgages. You sell the home for the FAIR market value and the lender forgives the difference. WIN, WIN, for both the lender and the seller. NO, it wont ruin your credit for 7 to 10 years like a foreclosure. Yes, it will take 12 to 24 months of being responsible on the remainder of your bills to be in a position to qualify for a mortgage again in the next year or two. Whats better in your mind? 2 years to home ownership or 7 to 10? Call a local real estate agent thats predominantly SELLS SHORT SALES. Do your homework on the KNOW hows of picking a short sale real estate professional not someone that simply has CDPE credentials. TRUST ME!!! Short sales make up 99% of all my listing business and I am VERY successful at it.
    HARP LOANS are also a VERY GOOD ALTERNATIVE!!!!

  • http://Interest.com Terry

    Bought a house in Florida in 2009 and the next three years watched the value drop by more than 25%. It was a brand new house back then. Forget neutral colors and clutter. Please folks, just keep your house CLEAN for potential buyers. If you haven't painted the walls, just keep them white, as potential buyers will want to add their own colors. The market is coming back in Florida. I hope you all can hold out a while. The best to all of you.

  • jasper

    Like many, I needed to refiance due to a high interest rate. When I contacted our lender (a bank), we were informed that we would need to have an appraisal on the home. We already knew that we would appraise for less than owed due to recent sales in the neighborhood. The only way to refiance with the banks was to pay a pmi or put money towards the refiance. Who wants to invest more money in your home if the value has dropped? One day we received a flyer in the mail from a mortgage broker and decided to give them a call. We were able to refiance without an appraisal, received a much lower rate and were able to recoup the cost of refiance in 3 months. Again, we did not refiance through a bank. Before you throw away those refi flyers, give them a chance. This option may not be available for everyone, but hope this info will help.

  • Christopher Redmond

    Darci,
    Thank you for posting such a great article that encourages responsible alternatives! There is a sea of articles promoting short sales, bankruptcy and abandonment as a viable, simple, relatively positive solution to owing more than the value of a home. This irresponsible attitude is one of the keys to the failure of the houseing market and the sagging economy the last five years.
    Thank you again! Keep up the great work! :-)

    • michaelraffaele

      Sorry Christopher, but I have to disagree with you. The banks got greedy and sold mortgages for homes that were way way overvalued. While I agree some people should have never been qualified for mortgages, many people were responsible and only bought what they could afford and now are way underwater and stuck with properties that have over valued mortgages. Now the banks will not do anything to correct the issue other than "refinance" which does nothing for the principle that is owed and just delay the inevitable. The failure of the housing market was the Govt' interference and coercion of the banks to write mortgages to everyone with a pulse no matter if they could pay for it or not.

      • VP

        Individuals gaming the system by using gov't policy to acquire property they could never afford with the intention of "flipping" combined with real estate sales pushing individuals to take advantage of the same said policies to purchase "as much home as they could get a loan for" artificially drove up prices. No one was forced to sign anything, anyone that is "underwater" is there because they agreed with the paperwork put in front of them and signed it. Blaming the bank or the gov't for this is like blaming the bullet and the gun for the guy who shot himself in the head.

      • DJW

        Banks got greedy and sold mortgages with NO DOWN PAYMENT, and adjustable-rate mortgages and relaxed standards on income to debt ratios, which made homes affordable for all - including those that couldn't afford them. So, if the buyers got into a financial bind, they abandoned their mortgage and home -- they had no investment in it to begin with. That flooded the housing market with available homes, which drove prices down.

  • Julie Lorraine Muir

    Any idea when an "affordable refinance program" might be available for those of us who's mortgages aren't insured by Fannie Mae and Freddy Mac? It's frustrating not being able to refinance to take advantage of the low rates, just for the mere fact that I wanted to give my business to my local credit union. Now I realize what a HUGE mistake that was!

  • butthatsjustme

    If you refinance you can't sell for two to five years because of prepayment penalty clauses.

    • Pamela Hodgkins

      That's only for 1st time buyers and it is usually only for 1 year. Also it depends on your bank but I've dealt with two banks and both had no prepayment penalty and no waiting period for selling.

      • butthatsjustme

        I am not a first-time buyer, and that is what I was told by my bank.

        • butthatsjustme

          I definitely didn't misunderstand. Thanks for your response. I will go to a different bank.

  • michaelraffaele

    This advice is great if you are only $25K underwater but if you are $50K to $100K underwater then this is worthless. You need to dump the property. No amount of refinancing or "Shining the turd" will get you from being underwater. I never understood the popularity of refinancing. Bad debt on loss of value will still be bad debt. I don't care if you are paying 2% interest or 20%, you will never get back what you owe on that house. Dump the property take the loss and start over.