Took On Too Much House? Here Are Your Options
Here's what to do if you've gotten in over your head.
- It's not uncommon to sign up for too high of a mortgage payment.
- If you can't afford your home, there are several solutions you can explore rather than resign yourself to foreclosure.
There's a reason home buyers are advised to be careful when taking out a home loan. If you borrow too much, you might struggle to keep up with your mortgage payments. Furthermore, buying a home that's too expensive could put you in a situation where you can't keep up with your peripheral housing expenses, from property taxes to maintenance.
If that's the boat you've landed in, you may be worried about losing your home to foreclosure. Or, you may be resigned to racking up scores of credit card debt to keep up with your non-housing bills. Rather than risk those scenarios, here are three options worth looking into instead.
1. Sell and downsize
These days, home values are up on a national level. If you're sitting on a home you can't afford, you may be able to sell it, pay off your current mortgage, and then buy a smaller or less expensive home -- one your income can more easily handle.
If you can't afford to part with square footage, you can look at selling your current home and moving to a different neighborhood where housing is less expensive. Similarly, you may want to consider relocating to a different part of the country where housing is cheaper on a whole.
2. Rent out part of your home
Sharing your home with a tenant may not be ideal. But if you're not looking to move and you can't keep up with your housing expenses, then collecting rental income is a good way to offset them.
Now not every home is conducive to a rental situation. But if your home has a separate wing or finished basement, you may be able to find a tenant, at least temporarily, and coexist peacefully until you've arrived at a better solution.
Just make sure to research your local zoning laws before advertising your rental. If you're looking to rent out your basement, for example, it may need to conform to certain guidelines, like having a specific number of windows or exit points. Be sure to follow the rules so you don't wind up with any fines on your hands.
3. Refinance your mortgage
When you refinance a mortgage, you swap your existing home loan for a new one. And if that new loan comes with a much lower interest rate, it could shrink your housing costs significantly.
Now the higher your credit score at the time of your refinance application, the more likely you'll be to snag a competitive interest rate on your new mortgage. But right now, refinance rates are sitting at attractive levels, historically speaking, so you might shave thousands of dollars off of your yearly housing costs by going the refinance route.
As a general rule, it's important to keep your housing costs, including your monthly mortgage payments, property taxes, and homeowners insurance, to 30% of your income or less. But if you've gone overboard in that regard, these options could be your way out of an otherwise tough financial spot.
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