4 alternatives to a short sale

Owning a home that you can no longer afford is like being underwater, gasping for air and asking the bank for a helping hand -- which they are often unwilling to provide. Unfortunately, some banks refuse the homeowner's request for a short sale.

credit: homestarblog.net

So what options are available to a homeowner when a short sale is out?

1. Loan modification programs

The Obama administration recently expanded the criteria in various programs to include more homeowners who need help with mortgage payments or a dignified exit via short sale. There are several options available, like HAMP or HARP via the Making Home Affordable Program. Check them out to see which might be right for your situation.

2. Deed-in-lieu-of-foreclosure

This option is for homeowners who have already been unsuccessful selling their homes via bank or government short sale processes. It allows them to transfer the property back to the bank to satisfy the debt. Keep in mind, however, the effect on your credit is just as bad as any other similar arrangement (short sale, foreclosure), and the points you lose depend on the current status of your credit.

3. Talk to your bank about in-house modification options

Talk to your bank about what other options they may have in-house outside of the short sale. This may include the deed-in-lieu, as discussed above, or a loan modification that allows you to reduce payments or the principal balance owed. But you won't know unless you call and find out what options are available to you. They may not be publicized on their website.

4. Rent out your current home, and buy/rent a new home

Depending on your situation, this may be the best option that allows you to save your home and your credit. Everyone isn't cut out to be a landlord, but with a good warranty company and stringent tenant screening you may actually not mind being one at all. Put a plan together which involves a timeline of how you will go from fixing up your current home, preparing to show it to potential renters, screening tenants, securing a warranty company and then searching for a new home for yourself.

Being educated about your options is crucial to choosing the best one for your situation. While a short sale may not be possible, the others may be worth looking into as they can prove beneficial in the long run.