When NOT to strategically default

If you’re underwater — that is, you owe more on your home than it’s worth — a University of Arizona law professor, Brent White, can help you sort out your options.

In his new book, “Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth?” Professor White outlines “when it makes financial sense to stay in your underwater home and when it makes sense to get out.”

According to his book, “it probably does not make financial sense to default on your mortgage” and walk away under these circumstances:

1. You’re less than 10 percent underwater (you owe $100,000, for example, and your house is worth $95,000); or
2. Your monthly cost of owning is less, or only slightly more, than the cost of renting. In other words, the net cost of owning your home (your monthly mortgage payment plus all other ownership costs minus any tax breaks you get from owning) is less, or only slightly more, than the cost of renting your home or an equivalent home (Professor White details how to make such calculations in the book); and
3. You don’t need to move.

In addition, Professor White writes that it probably doesn’t make sense to default if you fit certain other conditions, like you “have a particular need for credit,” feel that your house is worth what you paid or you’re employed and know for certain that your credit score affects your employability, among other conditions.

He writes that it may make financial sense to default under these circumstances:
1. You’re more than 10 percent underwater; and
2. You’re paying significantly more on a monthly basis than you would to rent a similar home; and
3. One or more of the following factors applies: “you’re struggling to make ends meet,” you’re using your savings or retirement money to make mortgage payments, or you need to move for a new job.

When do you think underwater homeowners should stay in their homes?