> ## Content Index
> Fetch the complete content index at: https://www.mortgagemomradio.com/llms.txt
> Use this file to discover other available public pages before exploring further.

# Homeowner In Debt: Refinance, HELOC, Sell, Or Short Sale?
- URL: https://www.mortgagemomradio.com/homeowner-in-debt-refinance-heloc-sell-or-short-sale/
- Published: 2022-11-09T21:00:00.000Z
- Updated: 2026-09-04T21:32:03.000Z
- Description: Two real consultations worked start to finish on air: a homeowner with $50,000 in cards and a 3% mortgage, and a buyer who put 3.5% down last year and cannot reach the equity he can see. Plus what a short sale actually is, and the myth that you must be behind on payments.
- Author: Deborah Marcoux
- Tags: Podcast, Mortgage Mom Radio, #episode-backfill

Mortgage Mom Radio • “Are You A Homeowner In Debt and Not Sure What To Do?” • Live show from Wednesday, November 9, 2022 • 68 minutes • Hosted by Debbie Marcoux, NMLS #237926

**Please read first — some details in this episode have since changed.** This show aired on November 9, 2022\. Two things discussed here work differently today: the estimate of seller closing costs at five to seven percent of the sale price assumed the pre-2024 convention in which the seller's side customarily covered both agents' commissions, which changed with the 2024 National Association of Realtors settlement; and the passing comment that FHA mortgage insurance is tax deductible reflects a deduction that has not been reliably available in recent tax years. **Confirm both with your own agent and CPA rather than relying on this page.** The reasoning about equity, short sales, and hardship is the durable part.

The phone calls that week were all the same shape: a homeowner with credit card debt they cannot outrun, sitting on a low mortgage rate they do not want to give up, wondering whether the answer is a refinance, an equity line, or selling. Debbie brought on a licensed California real estate agent from her team and they worked it as role-play — two real consultations, start to finish — then explained what a short sale actually is, since most people had not heard the term in a decade.

**Editor's note, added later:** this show refers to FHA mortgage insurance being tax deductible. The federal deduction for mortgage insurance premiums has since expired and is not available today, and whether any such deduction ever applied depended on your own tax situation. Talk to a tax professional before counting on it.

## Key takeaways

- **Do not blow up a 3% first mortgage to reach the equity behind it.** Refinancing $400,000 at 3% into $450,000 at high-sixes or low-sevens more than doubles the payment. Leave the first alone and look at a home equity line or a home equity loan sitting behind it.
- **Compare the new payment to the minimums you are paying now — not to the interest rate.** If the credit card minimums total $500 a month and the equity line to retire them costs $700, the consolidation has made your month worse. A blended-rate calculation is what settles it.
- **Equity you can see is not equity you can borrow.** A cash-out refinance generally requires you to keep about 20% equity, and the combined first-and-second ceiling discussed on air topped out around 90–95%. A buyer who put 3.5% down last year on a home that has not appreciated has no room, however large the number on the valuation site looks. VA is the exception that can reach 100% of value.
- **Selling to raise cash usually does not raise cash.** Once the loan and the seller's costs are paid, a recent low-down-payment buyer typically walks away with nothing — and loses the mortgage interest and property tax deductions on top. Debbie's read on that caller: stay, rent the spare bedroom, deal with the debt separately.
- **You do *not* have to be behind on your mortgage to do a short sale.** Debbie called this the single biggest misconception. Staying current protects your credit and makes it far easier and faster to get you into another mortgage later — and a short sale is much better on that score than a foreclosure.
- **The bank wants a real hardship, and it will look.** A short sale package is a full financial file plus an explanation of what changed — a job loss, a death, a divorce, a pay cut. If you still have the boat, the RV, and money in the bank, the answer is no. Expect roughly six to eight weeks for the lender to even respond after an offer comes in.
- **A second lien has to agree too.** Every lien on the property must be satisfied to sell. If you are short on both a first mortgage and a HELOC, both lenders have to approve — and the first dictates what the second is offered.
- **Debbie's order of preference is to keep the house.** Sell the toys, look hard at whether bankruptcy is the better tool, cut what you do not need — because a wrecked credit file is far harder to live with when you then have to persuade a landlord to rent to you.

## Chapters

- 01:00Why this show: homeowners in debt, calling for options
- 14:00Scenario one: $50,000 in cards, 3% first, and equity
- 17:00The questions a lender asks you first
- 18:00Why the refinance is the wrong tool here
- 19:00Compare the new payment to your current minimums
- 28:20The warning: you will use the cards again
- 30:40Scenario two: bought last year, 3.5% down, no room
- 32:20Why you cannot pull out the equity you can see
- 34:30Would selling actually help? Running it through
- 38:40Seller costs, and the deductions you give up
- 45:00When selling *is* the right answer
- 52:30What a short sale is and how it works
- 55:30The myth that you must be behind on payments
- 56:50Q&A: can I still sell if I have a HELOC?
- 59:50Who is — and is not — a short sale candidate
- 63:00Your home is your most valuable asset

## Questions answered on this show

### “Can I still sell my house if I have a home equity line of credit on it?”

Yes. Every lien against the property simply has to be satisfied at closing — a first mortgage, an equity line, a tax lien, an SBA loan, whatever is attached. If you have a $400,000 first and a $100,000 line on a home worth $500,000, the line gets paid off out of the sale like any other lien and there is nothing unusual about the transaction.

It only gets complicated if you are short. Then the agent has to negotiate an approval from whichever lender is not going to be made whole. You can short sale a second on its own: if the first mortgage is covered and only the HELOC falls short, the negotiation is with that second lender alone. If both are short, both have to approve, and the first mortgage dictates what the second is offered — the second then has to agree to it.

### Not sure which of these you are?

That is exactly the phone call this show is about, and the consultation is free. Call [844-935-3634](tel:8449353634) (844-WE-LEND-4), [start an application](https://www.mortgagemomradio.com/apply/), or run the payment comparisons yourself with the [mortgage calculators](https://www.mortgagemomradio.com/tools/). Get the weekly rundown in the [newsletter](https://www.mortgagemomradio.com/newsletter/).

Full transcript (lightly edited for clarity) 

*Auto-generated captions cleaned for readability. Sponsor messages, commercial breaks, repeated housekeeping, and studio banter have been trimmed; licensing information appears at the bottom of this page. Debbie's guest is a licensed California real estate agent on the Mortgage Mom Radio team, working in real estate since 1996; she is credited here by role rather than by name.*

### Why we're doing this show

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, I'm the Mortgage Mom, and today I have one of the agents from my team with me. She's a licensed real estate agent in the state of California and has been since 1996\. We've both been doing this since the nineties, and we've been through the cycles — the up and the down, at least two or three different times. And here we are again in another cycle where a lot of people don't really know what to do.

I brought her on because she's been primarily real estate for most of her career, where I started in real estate but have been in mortgage for most of mine. I named this show: are you a homeowner in debt and you don't know what to do? Are you toying with selling? Are you toying with refinancing and worrying you'll lose the low rate you have? Have you got credit card debt and you're wondering about an equity line?

We're getting these phone calls. Everybody on the team is fielding them. And in last week's show I talked about a friend who texted me saying she had this debt and didn't know what to do — and it really got me thinking about what we should be telling people. Should we be advising them to sell? To do nothing? That an equity line is the way to go? It depends on the scenario and the person. So today we're going through options and giving you the homework to figure out what works for you. We're not here to give advice — we're not financial advisors — but we can educate you and lay out what's actually available.

I can absolutely see that we're probably going to start to see some foreclosures. We are definitely going to see some short sales. And a lot of people don't even know what a short sale is, because it's been eleven or twelve years since they've been common. They don't know it's an option.

One more thing before we start: a lot of people assume we're going to judge them. Oh, we're in trouble. That is so far from the truth. A lot of the calls I get off of, people say thank you for taking that half hour and answering my questions, because I really didn't know what to do. I'm not going to tell you that you have to do this or that. I'm going to present you with what's available, and then it's up to you to make the best decision for you and your family.

### Scenario one: $50,000 in credit card debt and a 3% mortgage

*Debbie plays the caller; the agent takes the consultation.*

**Caller:** My name's Debbie, I was listening to the show, and I've got some questions. I need some cash and I'm not sure how to get it. I've got to get some of these credit cards paid off — I owe about fifty thousand dollars on the cards and they're killing me.

**Agent:** Okay. First I'm going to ask what state you live in, so I know what the rules are, because every state is different — on refinancing, and even more so if you're looking at a short sale or a foreclosure. Say California. Then, what county? Los Angeles. Now, what do you think your home is worth?

**Caller:** Probably six hundred thousand, maybe seven hundred.

**Agent:** And where did you get that value from? A valuation website. Fine — I'll ask for your address, because I'm going to look at the same thing while we talk. How much do you owe? Four hundred thousand. Do you have a second loan, or just a first? Just a first.

So we're looking at owing about four hundred thousand on a house worth about six hundred. Right there, as a lender, that tells me you do have some room, whether that's a cash-out or some sort of equity line or equity loan. So I already know I have a couple of different options.

Next: are your payments current? Yes, barely, but I'm making them. So you're struggling every month. And if you had the money to pay off the cards, do you feel you'd be able to make the mortgage payment more comfortably, or would you still struggle?

**Caller:** I'd really like to pull cash out, get the credit cards paid off, and maybe lower my monthly payment from what it is today.

**Agent:** Now, what's the rate on your home? Three percent. So I'm going to be honest with you. Rates are nowhere near three percent right now. You're going to at least double that. If you owe $400,000 and I take you to a rate in the high sixes, possibly low sevens depending on your situation, it's going to more than double your payment. So if it's an option, I'd like to leave your first mortgage where it is at three percent, and look at a home equity line of credit instead. The rate on that is going to be higher, but there are a bunch of different options to look at.

Then I'd ask what your payments are — how many cards, what are you looking to pay off, what are the monthly minimums. Because if you're only paying $500 a month in minimums and the equity line is going to cost you six or seven hundred a month, I have been detrimental to you by giving you that line. So I dig in. Three credit cards, a personal loan, a student loan, whatever it is. We have a blended rate calculator: I put in all your debts with their interest and I can see what your overall rate actually is.

**Debbie:** And we both know credit cards are well into the twenties right now. I was looking last night, because I wanted to know where they'd landed after the prime rate has gone up so many times. What are they advertising for a new card *before* they've even seen your credit score? Between twenty-six and twenty-eight percent.

**Agent:** If you have really great credit there are cards with zero interest for the first twelve or eighteen months, which is fabulous. But if you've already run up the balances and you're close to your limits, your score is already lower and the chances of qualifying for those are very slim.

**Debbie:** Keep that in mind. Many of you have not actually stopped and looked at what the rate is on the debt you carry. And a lot of people right now are using the cards just to live month to month, because the cost of everything has gone up. So look at it: where am I, and am I adding to this?

So scenario one comes out as either an equity line of credit, or literally keeping what you've got. And one thing I'm going to say, because I've said it many times — listen to Mom. You will pay the credit cards off, you will have every intention of never touching them again, and you will touch them. It'll be just for this one thing, I can pay it off. And then just for this one thing. And the next thing you know you're back in the cycle. You have to get very diligent and very budgeted right now. Put them away. Because if you get out of the hole today and get yourself back in it, there's a very good chance you don't get out the next time.

The reason I mentioned scenario one is that “refinance, pull the cash out, pay off the debt, and lower my payment” is what I heard for years running — 2017, 2018, 2019, 2020, 2021 — and it was something we could do over and over. People were gaining equity every year while rates came down, so I could finance more at a lower rate and keep the payment the same or better while paying the debt off. People got into a cycle: spend it, pay it off, refinance, spend it, refinance. We are in a cycle now where that just isn't going to keep working.

### Scenario two: bought last year, 3.5% down, and no room

*This one is a real conversation the agent had with a friend. Roles swap; Debbie takes the call.*

**Caller:** Hi Debbie, I'm wanting to know if I can pull some cash out of my house. I bought it this last year with an FHA loan, so I only put three and a half percent down. When I bought it, it was about $460,000\. The market's come down a little, but the valuation site is telling me it's worth about $470,000\. So from what I put down and everything, I think I have about nineteen thousand dollars of equity, and I wanted to pull all of that out so I can pay some bills.

**Debbie:** That's actually not going to be possible. We can't do a cash-out refinance unless you're leaving at least twenty percent equity in the property. Are you a veteran or active duty? No.

**Caller:** But why can't I pull the nineteen thousand out? I have that equity in the home.

**Debbie:** Every loan program has its own underwriting guidelines, and none of them want you to be able to pull out up to a hundred percent of the value of your home. They're concerned that if values drop it becomes that much easier to walk away. It's the risk factor that goes into how the guidelines get written.

If you were a vet, I'd say we might have an opportunity to look at it, because with a VA loan we can go up to a hundred percent of the value — that's the one program that lets you go there. But with an FHA loan and three and a half percent down, and a home worth about what you paid for it, we don't even have room to look at an equity line of credit. The highest we can go on an equity loan is 95%, and I believe the lines are held at 90%. There might be something in doing a first and a second, but we can only go to a combined loan-to-value of 95%, and you're already above that because you only put three and a half percent down. So in your scenario I don't, as the lender, have any options to offer you right now.

How much debt do you have?

**Caller:** About thirty-five to forty thousand in credit cards. I'm really struggling each month to pay my mortgage, and even though I just bought the house I'm borrowing money to pay that and my homeowners association dues. It's more than I can handle. I struggled getting into it. I probably shouldn't have bought it. But now I'm here and I don't know what to do.

**Debbie:** Have you looked at what you could rent for if you sold? Could you get something similar for a lower monthly payment, so you could get the cash you need to pay the debts off?

**Caller:** I've been looking at apartments. I rent one of the rooms out right now just to help make the payment. I've got a two bedroom, two bath, so if my roommate and I rented an apartment it'd be pretty similar — and I'd probably save about a thousand dollars a month.

**Debbie:** A thousand a month, even counting the rent you collect from the spare bedroom. All right.

*End of the role-play.* Here's what I'd actually tell him. It's worth exploring — but even if he sells today, I don't believe he walks away with anything. There will be nothing there to pay off the debts, which is what he came to us for. And although the rent would be cheaper than what he's paying, he loses the tax deduction for the mortgage interest and the property taxes.

So, number one, talk to your CPA first. If he can keep that extra bedroom rented and take the deductions, that changes the math. And number two, talk to the real estate agent who helped him buy, to find out how much he'd actually walk away with — if anything — or whether he'd end up owing money. Then let him make the decision. If I had to guess, he's probably better off staying in the property, renting out the bedroom, and figuring out what to do with the debt separately.

**Agent:** He was really surprised. He kept saying, but I have nineteen thousand dollars. I explained it just the way you did and it was a genuine shock to him that he couldn't get to that money — he was really relying on it. Once we got past that hurdle we talked about the taxes, because he does make good money and he's in a great profession. Could he afford to lose those write-offs? We explored whether he could get more rent for the room. And we explored selling — whether he'd even have enough to cover the closing costs. I don't think he would.

**Debbie:** That's where I was going next. He bought with three and a half percent down, and he probably bought at the highest of the high — likely the highest price to close in his condominium complex. Prices have already come down. And depending on where you're located, your seller's closing costs — real estate commissions, title policies, escrow, or attorneys if you're not in an escrow state — usually run anywhere from five to seven percent of the sales price. He doesn't have the equity to cover that. He'd have to bring money out of pocket to sell, and then go rent and lose all his deductions. He's best off staying.

### When selling actually is the answer

Let's talk about when it does make sense to sell — not an equity line, not a refinance, but actually selling. Somebody who is behind on their mortgage, who has racked up credit card debt, who isn't making enough to maintain the property, who bought twelve months ago for more than the home is worth today with three, three and a half, or five percent down, or zero down as a vet.

This can happen to anybody. It could be financial mismanagement — they went out and bought a bunch of brand new furniture and had a heyday setting up the new house, and now they're paying the consequences. It could simply be inflation: gas costs more to get to work, groceries cost more, utilities cost more, and it wasn't something they budgeted for. It could be a job loss, and the new job doesn't pay what the old one did. There is absolutely no judgment being cast here.

**Agent:** And you don't have to be behind on your payments. If you're struggling with the payment, or you know that in the near future you won't be able to make it, this applies to you.

**Debbie:** You might be getting close to the point where you're deciding whether to eat or make the payment. So here's the first thing to think about. Your home is one of the most important things you have. It doesn't matter what it's worth, it doesn't matter what you owe on it. Do the homework: where could you relocate to — across the street, across the city, another town, another state? What kind of property do you need for you and your family, and what is that rent going to cost?

If your mortgage is three thousand a month and the rent is going to cost you about the same, maybe more, maybe only slightly less — it may not make sense to lose your property. It might make more sense to look into a bankruptcy. It might make sense to ask what you can do about the credit card debt, whether you need the expensive car with the expensive payment. Is there anything at all you can do to keep yourself in the home, if where you'd be relocating to costs roughly the same? Now, if you can go rent for half the price, that's a different ball game.

### Upside down, and what a short sale actually is

**Debbie:** Say I owe five hundred thousand, my house is worth four hundred and ninety, I'm not behind yet but I'm getting close.

**Agent:** We're going to talk about where you live and what you could rent for. If you tell me you just can't do it, or you have to move out of state, or you know you're going to lose your job — it depends on your situation. If you tell me you're not losing your home, you have to stay, then we're going to have a bankruptcy talk: how much debt do you really have, and is filing right for you? If that's off the table, we're back to looking seriously at selling.

Upside down means you owe more on the home than it's worth — or that you do once you're done with the seller's costs. In your scenario there's a ten thousand dollar deficit on paper. But add a minimum of another five percent to sell, and that's twenty-five thousand. You're now thirty-five thousand upside down, minimum. So the question becomes: do you have thirty-five thousand to bring to the table? Because if you do, maybe you should be using it to pay the debt off instead.

**Debbie:** So what is a short sale? You owe more on the house than it's worth — or than you can sell it for once all the closing costs and seller's fees are accounted for — and you don't have the cash to bring in to make up the deficit. A real estate agent has to go to your mortgage company and negotiate for the bank to take less than the full payoff, to help you sell the house.

**Agent:** The first thing the bank wants to see is an offer on the home. So we get the property on the market, and it does have to be aggressively priced — you're probably going to be the lowest one out there. The property is always sold as is: you're not making repairs, you're not making changes. Don't worry if your walls are dented or your carpet is stained.

Once we have that offer, I put together a whole package for the bank — the offer, plus your financials, just as if you were applying for a loan. They want to know why you're not making your payment. What is your hardship? Did you lose a job, did somebody pass away, did you go through a divorce, did you take a pay cut? Why do you have this hardship now that you didn't have when you purchased?

Then we negotiate on your behalf. It's back and forth, and it generally takes about six weeks, possibly eight, to even get a response. We submit the package, they review it, they send out an appraiser, the appraiser values the property. Then they come back and say whether it's approved, and give us the terms and conditions. At that point it's a bit like the bank selling your home — but you still sign everything, because you're still the homeowner.

**Debbie:** If you can continue to make your payments, I would highly recommend it. I don't even want to talk about foreclosure on this show, because I'd hope anyone listening to me would call us at the first point of emergency rather than getting there. As the lender looking out for your best interest: if you don't miss mortgage payments, it's easier for me to get you into another mortgage down the road. And a short sale is easier and faster to come back from than a foreclosure.

There is a huge misconception that you have to be behind on your mortgage in order for the bank to accept a short sale. That is absolutely false. Back in the day, when everyone was trying to do loan modifications, people were actually told to stop making payments so the bank would look at helping them. That is not the case. Anything you can do to save your credit is going to make it easier for you to become a homeowner again in the future.

### Who is not a short sale candidate

**Debbie:** Give us an example of somebody who should be considering a short sale.

**Agent:** Somebody who owes more on the property than it's worth — and it doesn't matter to me whether that's twenty, thirty, fifty thousand or a hundred; by the time you add selling costs you are definitely upside down. Best case, you're not behind on your payments yet, so you protect your credit while we work it out with the bank. But the bank is going to want to see a hardship. Being behind usually demonstrates one.

**Debbie:** But say I make good money and I just got myself into massive debt. I bought a boat, an RV, a trailer, jet skis, a sports car. I've got so many payments that the debt ratio isn't there — but if I didn't have all those toys, I could make my mortgage payment.

**Agent:** You're probably not a good candidate, because the lender is going to say: so you're going to sell this house and still have all these toys? You need to do some homework beforehand. If that boat is too expensive, if the RV is too expensive, you really need to get rid of them — because they will look at your credit report and see what you have. If you're only delinquent on your house but current on all the toys, they're going to tell you no.

They'll also look at how much you have in the bank. If you sold the toys but you're sitting on a hundred thousand dollars, they're not going to help you out. You truly have to have the need: you can't pay because you don't have the money, you've gotten rid of everything you could have, and you still can't pay. It can also be something like a relocation — they're moving you to another state to keep your job, you planned on staying in the house, but you can't rent it for what you owe and you can't afford to cover the shortfall while renting in the new state. I've seen relocations cause short sales.

### Your home is your most valuable asset

**Debbie:** One thing I want to end on. I really believe your home is your most valuable asset, and it doesn't matter what it's worth today, next year, or the year after. Your home is your home. You're not a renter. Nobody can tell you what to do. You can live there as long as you make your payments.

I would much rather see you sell all of those toys. I'd rather see you file a bankruptcy, even though that stinks. I'd rather see you lose the things you don't need than sell your property, become a renter, and have your credit fully messed up. Because it's one thing if your credit is messed up but you own your house and you don't have to apply to anybody. Imagine going to apply for a rental, and the landlord is looking at your credit history and sees you didn't make your mortgage payments. That was something we dealt with quite a bit during the great financial crisis.

We're not advocating for anybody to sell. We're in the mortgage industry and the real estate industry — we're here to help you buy homes, keep homes, and get your debt paid off. But these are very hard situations that are coming up frequently right now, and we think they'll come up more often over the next couple of years.

If there's something you want us to dig into, go to mortgagemomradio.com, click contact us, and send me an email — tell me what's happening with you or with a friend. If it's a good one, I'll make it a show. And if you want the consultation, call the office at 844-935-3634, 844-WE-LEND-4\. We're back every Wednesday right about 1 PM Pacific. To know when we go live, text the word MOM to that same number. Talk to y'all real soon.

Debbie Marcoux is licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, NMLS ID #237926, and additionally licensed in AZ (0941504), FL, GA, HI, ID, IL, NV, NC, OR, TN, TX, and WA. Rates and figures discussed were current as of the air date of Wednesday, November 9, 2022, reflect national conforming averages, and are not an offer of credit or a rate quote. Debbie Marcoux is not a financial advisor; consult qualified professionals about your individual situation.