First a little background...
I'm a 29 year old woman who lives with her boyfriend of 6 years. The house I am in now I bought prior to really getting involved with my male counterpart. When I bought the home I had no intention of staying in it forever. At the time I bought the house (2007) I thought the houses had come down as far as they would and the crash was over. I bought a house I felt would be fairly easy to flip when the time came to move.

• Is near both major high-ways of the metropolitan area
• Is within walking distance of a major university
• Is at the center of several bus stations
• Near a military base
• Is within a 5 minute drive of the train station
• Is within a 10 minute drive of one of the predominant shopping/eating areas of the town

Location wise the town-house is perfect. A 3br, 2 1/2 bath 1500 sq ft piece of fabulous. I adored the open-layout downstairs and the little white-wash porch reminded me of the old-style southern homes. It's a great town-house--but it's not a place I want to raise a family in or stay forever. My boyfriend and I really want to settle down, get married and start a family. He's a country boy and wants a yard and honestly I don't blame him. I want a dog our yard is smaller than the tiniest of the bedrooms and most of it is cement. It barely holds our garden every year so there's no place to let an animal run free. There are dog parks in the city but realistically my life is so busy I doubt I would consistantly find the time to take her.

On top of this our neighborhood is deteriorating. The majority of the properties around us have turned into rental homes over the past few years. Only one of our original neighbors remains and many of the renters near us are absolute pests. Like the playing loud music, parking behind your driveway, letting their children run over your flower garden sort of pests. Crime has gone up, burglaries have gone up, vandalism has gone up and last year a woman was even shot in the face 3 blocks from where I live. While it's fine to live in as an adult I wouldn't want to raise children here. I want a traditional suburban or rural home complete with a yard, a garage and enough space between me and the next guy that when we both exist our house at the exact same moment I cannot count his nosehair.


Here's the problem
I owe about 160k left on a home that Zillow estimates to only be worth 140k. There's a 20k shortage there if I manage to find a buyer to pay it at-market-value.

The delima
I've talked with my boss, several friends and a lot of different people trying to see what options I have. I originally had planned on going with Plan A below until my boss mentioned that I should not wait. That it is definately a buyer's market right now and real estate loans were at their best. If anything I should not wait and instead go forward on trying to find the best deal now.

Solution 1: The Slow Road
In order to sell my house I will attempt to flip it back right-side-up. I will do this by paying extra on principal every month. This plan will have my mortgage "right side up" in 2-3 years so I would be able to sell this home and buy another in 2015/2016 depending on the market.

Solution 2: The Alternate Road
My boss' suggestion is as follows.

1. Find a forclosure property that meets all my real estate credentials--basically find my 'dream home' as a forclosure. (Just out of curiosity I did a seach and found several houses that meet my requirements in a nearby city. It's a longer commute but potentially worth it).

2. Do a 'short-sale' on my existing home.

3. Roll over the difference from the short sale into my new mortgage. The forclosure or bank-owned property will be selling at below market value of the home so basically I would eat the equity in the new home to pay off the old home.

~*~

The goal is to move into a new home that I will stay in for the forseeable future. A home to raise children in, a home to stay in for the long haul.

As far as your bosses suggestion:

1. Keep in mind that you will need to qualify with both mortgage payments to get the new loan

2. You probably should have a conversation with your current lender, to see if they will even consider allowing a short-sale for someone that has been making on time payment. Kind of hit or miss with lenders these days.

3. More than likely, you will not be able to get "cash-out" when you purchase the foreclosure. So you would need to buy it, then turn around and take out a 2nd mortgage to pull out the equity. This 2nd mortgage would probably require an appraisal, and the appraiser is going to see what the property just sold for, and if there are other recent sales in the area that are foreclosures as well, those will be the comparables. So you will need to be careful, and have a back up plan, if you plan on going this route. As it is entirely feasible that the appraisal for the 2nd mortgage (after you purchased the property) will come back close to the purchase price.

If you live in a deteriorating neighborhood, the sooner you get out the better. The problem with trying to be right side up in 2 to 3 years is you are basing that on the 20k shortage. Home values in that deteriorating neighborhood could fall even more, and you may still have a shortage after the 2 or 3 years.

I watched this happen with the home I grew up in.

I forgot to add that you should contact a realtor for a market analysis instead of relying on Zillow.

I am completely unqualified to answer this question, but this is the internet!

I am assuming your "male counterpart"/ BF is someone that you are really very committed to, but perhaps with the government sanctioned certificate to prove it.

Could you, talk to your lender about a shortsale and have the counterpart buy the suburban house? Then, your situation with this house doesn't have to taint the new purchase. If they deny the shortsale, you could let them foreclose, and since the counterpart is the one getting the new mortgage that won't hurt you. (I know some people are morally opposed to this.)

Another choice: Could you rent your townhouse for an amount that covers your mortgage, insurance, and taxes? If so, you could rent it, and instead of you getting it above water in 2-3 years, your tenants do it while you live someplace you like. Not everyone is cut out to be a landlord, and I have no idea how this would affect a new mortgage, or the property value of your townhouse. But, the reasons its renters around you is because its a great place to rent! Ask your neighbors what they are paying in rent! While you are at it, why not ask the mortgage company for a modification? The worst they can say is no.