What can I do if I am paying for a house that is worth less than the loan?

If you are making expensive mortgage payments for a house that is now worth considerably less than the loan, you might consider whether a strategic default is the right option for you.

A strategic default is when you can afford to continue to pay a mortgage loan, but choose not to because you see the loan payment as a bad investment, rather than a commitment that you made to your lender. When you choose to strategically default on your mortgage loan:

• You stop paying the mortgage on the house.
• If you are still living in the house, start making plans for where you are going to move.
• Eventually you will have all the utilities turned off to the house, which will save you that money as well.

Be prepared to take a hit on your credit. A foreclosure stays on your credit report for many years, and if you are strategically defaulting on an FHA loan, you will be unlikely to ever get another FHA mortgage.

Strategic default is not your only option if you don't want to or cannot keep your house. If you have suffered a hardship (which can be anything from plummeting market values to job loss to having to move 100 miles away to find a job) your lender may be very willing to allow you to short sale the house. A short sale isn't fabulous on your credit, but it is a little better than an outright foreclosure.

If your lender agrees to a short sale, your real estate agent can list the house for fair market value and if an offer is made on the property your lender will need to agree to allow the house to be sold for less than you owe. You won't walk away from the house with any proceeds, but you will avoid having a foreclosure on your credit report.

Contact a real estate attorney who also specializes in foreclosure work to help you navigate the short sale process, or if you have any questions about what the options are in your state for dealing with property that you no longer want or can afford.