You Have Options
When you have little to no equity in your house you may feel trapped in it. With realtor commissions, closing costs and repair requests from buyers, you could be required to bring thousands to the table just to sell it. But there is good news, if you need to move you have several options that don't require any money out of your pocket. Below are four options you have for your property with little to no equity.
1. Rent your house until you gain enough equity to sell
Renting can be a good way to cover your mortgage, and possibly bring in a bit of income while your equity increases over time. Depending on market shifts, this could take a few years. If you don't want to deal with the managing of the property, you can hire a property manager for about 10% of the monthly rent. Or you can keep that money and manage it yourself. You may even find after a few years you like the idea of someone else paying your mortgage while you gain equity, and you may start building your own rental portfolio.
2. Owner finance to another buyer
If renting isn't for you, but you like the idea of potential monthly cash flow, you can try to owner finance your house out. You may think you can only owner finance a house if you own it free and clear, but that is not the case. You can utilize a wrap around mortgage by creating a second mortgage that the buyer pays to you, while you pay your underlying mortgage. You can typically charge at or slightly above retail for your house, and charge interest rates between 6% and 8%. You will want to consult a real estate attorney to ensure you are executing this correctly.
3. Short Sale
A short sale is when a house is sold for less than what is due on the mortgage and the bank agrees to write the remaining balance off. Short sales are typically for no equity or negative equity sales. This is reserved for people who are no longer able to make their house payments as banks will only approve a short sale when payments are being missed. Purchasers of short sales are typically real estate investors as the process can take quite some time and retail buyers don't like to wait months to buy a house.
4. Sell subject-to current financing
In a subject-to transaction, you sell the house with your new loan in place. The buyer is now responsible for paying your mortgage and in exchange they take ownership of the house. If at any time the buyer stops making payments, you have the right to foreclose on them and take ownership back. If you forego a realtor and sell subject-to directly to a retail buyer or investor, the only expense should be closing costs, and you can request the buyer to pay those closing costs. It is common for investors like Justice Home Buyers to purchase houses using subject-to financing. Please contact us if you have questions about this strategy.