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Make your home work for you

By Judy Martel · Bankrate.com
Monday, February 27, 2012
Posted: 5 pm ET

Carrying a mortgage is no easier on America's middle class, even though home prices have dropped dramatically, according to a new study by Center for Housing Policy.

Nearly a quarter of 45 million households in the study spent more than half their monthly budget on housing costs in 2010. The author of the study, Laura Williams, told the Wall Street Journal that "despite the fact that we're seeing declining home prices across the country, housing isn't becoming more affordable."

So what do you do if your home is a financial burden? While none of the following options is optimal, one of them might work for you, to either help smooth over the short-term bumps or provide a solution for the long term. There are risks and fees involved with many of these ideas, so make sure you investigate thoroughly before making a move.

Obtain a home equity loan: Borrowers who owe more on their mortgage than the home is worth will not have this as an option. But those who need extra cash, have excellent credit and some home equity may be able to find a loan. Be aware that you are increasing your debt, which is how many homeowners found themselves underwater after the housing crash.

Sell the home: Granted, this is not easy in this market, but some homes are selling, particularly in attractive areas. You may not be able to unload your current home for the same price you would have gotten in 2005, but remember that you'll also be buying in a down market, so you'll get a lot more house for the money. Depending on how much home equity you have, you could sell your current home, pay off the mortgage and buy a less-expensive home, thereby either reducing or eliminating your mortgage.

Take in renters: Leverage your extra space by renting out a room. This could be a short-term solution to reducing your monthly mortgage payment and you can still keep your home.

Conduct a sale-leaseback: If you can't afford the mortgage but want to keep the home in the family, consider a sale-leaseback, where a child, for example, buys the property and subsequently leases it back to you. There are a few ways to execute this arrangement, but you can continue to live in the home and eventually pass it on to the next generation.

Get a reverse mortgage: Only homeowners age 62 and older have this option and you must have some home equity. Make sure to shop around for the best deal and understand the various options for payment before you get into one of these. Basically the way it works is that the homeowner continues to live in the home and the home's equity is paid to the homeowner. Fees and payment amounts will vary. Remember that with this arrangement you're decreasing your equity, but depending on your circumstances, this may not be an issue.

Do you have any ideas to share on how you made your home work for you?

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5 Comments
william kidwell
March 24, 2012 at 7:09 pm

Hello ,My name is William,can you tell me how to act on a contact a sale-lease I am trying to save my home I am a disabled man,And have three daughters.

Perfect Mortgage Rate
February 29, 2012 at 12:08 am

i just wish more people understood mortgages. all most people want is the mortgage rates. If consumers would finally realize they are borrowing money rather than deserving this would be a better industry.