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Underwater mortgage is a term that has become far too familiar in today’s real estate market. Since the market has been steadily declining over the last few years, more and more homeowners are faced with a home that is not worth what they owe on it. In many traditional situations there are really only 3 ways to deal with this. The first way is to tough it out continue paying the mortgage and hope that the value comes back over time. The second option is to sell the property as a short sale and ask the bank to take less than what is owed. This is not a great option because it will hurt your credit even though you have done nothing wrong. The third option in traditional situations is to ask your bank to modify your mortgage. Your bank may then agree to lower the amount of money that you owe on the house. This is usually not a great option either because the bank traditionally only allows a modification if you are several months behind on your mortgage. This will hurt your credit and there is no guarantee that you will get the modification.

Now, for those of you that don’t know, there is a fourth non traditional option that you have that will allow you to sell your home and not take a hit on your credit. In fact you may be able to sell your house for what you owe on it or even at a profit even if you are underwater. Now let me warn you that this method requires you to think outside the box a little and it may seem different but this technique has been used for years and it is often used in commercial real estate. It was used years ago in residential real estate but when the residential real boom hit, it became a lost art. The technique I am talking about is owner financing.

Owner financing is a great way to get a house sold and to get the price you want. You can even get the price you like if the property is valued lower. The reason this works is because a property that is owner financed has a greater value than a property that must be financed with new financing. Most people would prefer to buy a home with owner financing. Less scrutinizing of their credit and finances, less worry about being denied. These reasons make owner financing more valuable to a home buyer than a traditional sale. In exchange for that added value a seller is able to sell their home at a premium in many cases due to the financing. That premium may be enough to pull a profit out of an otherwise underwater home.

There is also value for the seller in this situation because they are able to sell the home quickly. They will attract a much larger base of buyers which allows them a better chance of getting a good price for the home and less chance of buyers trying to negotiate down the price. The seller can choose from a group of buyers. The strongest buyer with the best chance of paying on the house and the buyer with the strongest down payment if one is required.

The negatives of owner financing for a seller are that they don’t get completely out of the house. Many people have the attitude that they don’t want to go thru all of that they just want someone to come in and buy their house now. That may be the case but this is a way to sell your house faster and get an above market asking price. To accomplish that you are going to have to think outside the box in this type of market. If you just want to sell then continue to keep your house on the market and see how that works for you.

Finally, look at what you gain versus what you lose with owner financing to figure out if it is right for you. You gain your house being sold. You gain not making an extra mortgage payment. You gain a possible cash flow from selling the house with owner financing. You gain the peace of mind of not having to sell your house for a loss. Compare that to what you lose. You lose sitting up wondering when this house will sell. You lose having to maintain the house, cutting the grass, paying the water bill, etc. You lose having to negotiate with your bank to try and sell the house at no profit to you. You also lose the negative hit on your credit when you do finally sell at a loss.