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When Are You Too Far Under Water To Hold Onto Your House?

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MINNEAPOLIS (WCCO) — Do you know what your house is worth? For most of us, it’s pretty depressing. More and more houses are worth less than the owners paid, or worse yet, less than the owners owe.

That’s called being under water, and it raises the question, if your value keeps sinking, is there a time you’re actually better walking away?

In many ways, Matt Weber is the face of the suburbs. He’s got the standard package with wife Breanne, three cute kids and a very comfortable home. And, he’s dealt with a now very common problem.

“We had it for sale the day I was laid off,” he said about his last home. “We got with a realtor right away, tried to sell it, nothing happened.”

That house cost the couple everything. They bought it in Marshall, Minn. about four years ago, and had to sell it when Weber got laid off two years later.

“We were at $40,000 under what we owed for it when we finally did a short sale,” he said.

And they’re not alone. By one estimate, 23 percent of the homes in America are worth less than their mortgages. And 29 percent of the new listings in the Twin Cities this month are either short sales or foreclosures. So, when is it time to panic? When are you too far under water to hold onto your house?

“You’re not losing any money until you have to sell,” said Terri Harder of Keller Williams Realty.

And that’s the rule of thumb. Under water only matters if you need to sell. So, if you can make the monthly payments, you should. Because the alternatives have lasting consequences.

“Nobody wants a foreclosure,” said Harder. “Nobody wants a bankruptcy. But if it’s imminent, then yeah, you need to plan for it. You can’t just slide into it.”

Nicole Middendorf of Strategic Financial Inc. agrees.

She said it’s doubly important to protect retirement money, because it’s taxed when you pull it out, and can often be protected in bankruptcy. So, if financial disaster is inevitable, take care of it early instead of waiting. But realize that it will ruin your credit.

“Any time you aren’t responsible with your money,” she said, “any time you don’t pay your bills, it’s going to hurt you.”

Which brings us back to Weber, and his new house. His short sale took care of his primary and secondary mortgage — without going on his credit report.

“At this point, our credit back is up to where it was before,” he said. “We could purchase again, but we really have no interest in purchasing again.”

Instead they rent, from a family that moved and didn’t sell, because they’re under water themselves.

“They’re really in the same situation if they tried to sell,” said Weber. “So it works out great for us.”

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