How to Relocate for Work When Your Home's Underwater

So, you finally got a job—2 states away. Some steps to take when relocating is in your future.

A toy house with a for sale sign
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During the first half of the decade—with the real estate craze in full swing—purchasing a home was like picking stocks in a bull market. Buy a property, sit on it for a couple of years, and then refinance—even cash in, if you were a speculator. But more than two years into a real estate crash that's already dragged home prices down nearly 27 percent from their peaks, a market once bursting with liquidity has gone dry, leaving many homeowners unable to sell without suffering painful losses. "It's as if you are in a movie theater and they turned out the red exit signs," says Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. "You can't get out the door."

The home-price collapse has dragged 1 in 5 mortgaged properties "underwater"—meaning they are now worth less than the loan's outstanding balance. Fortunately, many owners of these homes can avoid realizing huge losses by hanging on to the property until the market recovers . . . eventually. But those who need to leave town to take a job—at a time when employment opportunities are growing increasingly precious—can find themselves in a real jam. To help homeowners who end up in such a fix, U.S. News spoke with a handful of experts to compile a list of key moves to make:

Talk to your boss. Underwater homeowners who need to relocate for a job should first discuss the situation with their employer. It's not uncommon for a company to provide financial help for employees who move from one location to another. According to compensation consultant Morey Villareal, that assistance could be $5,000 to $10,000 for a midlevel professional. And given the current real estate mess, an employer might be willing to put some of that cash toward helping a homeowner out of a bind. For example, an underwater property owner might ask the employer to chip in to cover part of the deficit between the mortgage balance and the home's sale price, perhaps splitting it fifty-fifty. "I would think that employers in this economic environment would be sensitive to the fact that if they want you to come work for them, they are going to have to give you some assistance in selling your house," says Gail Cunningham of the National Foundation for Credit Counseling.

Contact your lender. Underwater homeowners who need to sell should talk to their lender immediately. By working with the bank, homeowners may be able to reach an agreement that enables both sides to make the best of a tough situation, such as a short sale, in which the lender accepts less than the loan's outstanding balance. Mark Zandi, chief economist for Moody's, expects that some lenders will be willing to cooperate with homeowners facing this predicament. "It's hard to handicap [the odds of striking an agreement], but it's certainly a shot worth taking," he says. Instead of simply hoping that the lender will come through, Zandi suggests asking a community group for additional support. Still no results? "If I was in a pickle, I would call my congressman, too, and see if they can't help me," Zandi says.

Rent it out. Selling isn't the only option for underwater homeowners. Should the mortgage contract permit it, a homeowner could always rent out the property and put it back on the market when real estate values recover. This approach works best if the rent is enough to cover the monthly mortgage payments. (Still, taking a small monthly loss might be preferable to selling into the teeth of a real estate crisis.) However, homeowners-turned-landlords will face a slew of unfamiliar headaches—from locating a responsible tenant to fixing broken appliances—that could make the proposition less desirable. "If you have never been a landlord before and now you are going to be an absentee landlord, you may be asking for a whole new level of complication in your life that you are ill-prepared to manage," says Keith Gumbinger of HSH Associates.

Rent; don't buy. Of course, those who rent out their properties will most likely also become renters themselves in their new communities. (Without profits from a home sale, it could be difficult to make a down payment on a new house.) But even for employees who manage to sell their previous homes, renting isn't such a terrible idea, says Michael Larson of Weiss Research. It offers increased flexibility—in case the new job doesn't work out—while enabling employees to get the lay of the land before buying a house. At the same time, renting provides a viable alternative for those who don't want to put hundreds of thousands of dollars into an asset that could be worth significantly less six months later. "It can make sense, since house prices are likely to continue to decline," Larson says. And ducking losses in a real estate market like this might make a great first impression on a new boss.