Here’s my bigger concern: Since we are current, I don’t want the bank to reject the offers just because we have been current, although our financial papers will prove that our debt exceeds our income. — Stephen F.

Stephen…There are a number of schools of thought and approaches to deciding whether to continue making your mortgage payments while you’re selling your home on a short sale, and your ultimate decision will require you to weigh a number of factors and see where your personal calculus of your own values and interests comes out:

Legal: Legally speaking, you have an obligation to pay your mortgage and property taxes as long as you own your home. While you might very well make the decision not to for a number of reasons (see below), it’s important to keep the legal contract you made to pay especially your mortgage in mind, as some lenders make efforts to reserve the right to come after you later for the deficiency (i.e., the difference between the sale price of your home and your mortgage balance). For this reason, it’s not a bad idea to have a local real estate attorney involved in your short-sale transaction, to help you negotiate a complete release of liability for the mortgage.

The moral/ethical perspective: Morally and ethically, some homeowners view themselves as having an obligation in line with their legal commitment to pay all these items. Others look at the various factors beyond their control that have forced them to short-sale their home, like the decline in property values and the weak employment market, and have made a decision that their personal moral imperative weighs in favor of protecting their family finances and children’s education funds. In that vein, some make the conscious decision to stop paying once they’re in a short-sale situation or on a clear path to foreclosure.

Financial/business: Once you know 100 percent that you’ll be divesting of your home in some way, shape or form, continued investments in the property can seem to easily fall into the “throwing good money after bad” bucket, looking at the situation from a strictly business and financial perspective. There is also a strong sentiment among many real estate professionals that if you keep your mortgage current, while applying for a short sale or loan modification of any sort, you decrease the chances that your lender will approve of the sale.

The theory goes that if you are current on your payments, you can’t possibly have the level of hardship you must claim (and the lender must believe you have) for them to agree to waive the deficiency amount and release you from the mortgage.

I’ve seen very mixed feelings on this in the real estate industry; on this point specifically, you should definitely talk with your listing agent and your local attorney, and take their advice into account — they might have worked with this bank in the past and be able to shed light on how staying current or falling behind may affect the success prospects of your short sale application.

Credit/ability to buy again: Right now, you are probably fixated on getting out from under his onerous debt, as virtually every homeowner in your situation is as a matter of course. But I’ve worked with a number of folks through this entire experience of going upside down, losing a home through a foreclosure or short sale and financial recovery, and I know that before too terribly long, you could very well be looking to buy a home again. Just be aware that most lenders will impose a two- to three-year waiting period after you have a short sale, if you were in default on your mortgage at the time the short sale closed (sometimes the waiting period is as long as seven years, depending on what type of loan you’re trying to use to buy your new home).

However, if you do not default on your loan and are able to get your lender to green-light your short sale, you can qualify for an FHA mortgage immediately. I don’t know your personal situation, and it’s been my experience that the majority of homeowners who have a financial hardship severe enough to even attempt a short sale need a couple of years to get back on their feet, but if you think you’ll want to buy another home anytime sooner than two years from now, you’ll need to stay current on this mortgage.

Just as there are many factors your bank will weigh in determining whether to allow your short sale to close, and on what terms, you have a lot of considerations to weigh in deciding whether to continue making your mortgage payments while you await their decision. I can’t urge you strongly enough to include your real estate agent and an attorney in your decision-making process.

Regardless of who you’re dealing with, you’re more likely to grab a seller’s or lender’s attention if you are preapproved for the mortgage you’ll need and can provide verification of cash for the down payment and closing costs.

Many buyers feel that cash is king. If buyers are willing and able to pay all cash with no mortgage, no hassling with the lender and no appraisal contingency, they feel they’re owed a price concession.

Not all sellers agree. Some, who are confident in the value of their home, would rather work with an offer from a well-qualified buyer who needs to obtain a mortgage but who will pay a higher price.

Before you start negotiating, you should understand as much as you can about the other party. For instance, if the sellers are moving to a retirement home, they might go for the highest-priced offer in a multiple-offer situation, even though it might not be ideal in other regards. If they are liquidating their last asset, every penny will count.

An all-cash or large-cash-down buyer might not be able to negotiate a “deal” based on the fact that no lender will be involved. But if the home is a good value and suits your long-term needs, you might increase your offer price and include a mortgage. This way, you conserve cash for other uses.

HOUSE HUNTING TIP: Many buyers don’t want to negotiate. They want their first offer to be their best offer. Usually, the only time this is effective is if yours is the only offer, the house is priced right for the market, and you offer full price. In this market, you’re better off planning for some negotiation, and not putting all your cards on the table at once.

In most areas, the home-sale market still favors buyers. A lot of sellers are selling for less than they paid. Some have to bring money to the closing. Sellers who have owned for years are selling for less than they would have years ago. It’s natural that they would want to try for the highest price possible.

Negotiations are about more than price. Generally, the fewer the contingencies or the cleaner the contract, the more attractive it will be to the seller. Closing and possession dates can become issues at the bargaining table. What’s included and excluded, time periods to satisfy contingencies, and virtually everything in the contract is negotiable.

Since everything is up for grabs, be clear about what’s not negotiable — for instance, you can’t go over a certain price. Show flexibility in areas that will hopefully be valuable to the sellers, such as buying “as is” regarding some needed repairs.

Don’t waste your time with sellers who are firm at a price that is considerably over market value. Wait until they become realistic while you continue looking. Some sellers eventually get tired of having their home listed and reduce the price to market value. Others don’t.

Sellers need to understand that buyers in today’s market will walk away from a negotiation if they feel they’re not getting anywhere or are being treated unfairly. Buyers could become suspicious or disappear if they’re told by the sellers or their agent that other buyers are lining up to make an offer when they aren’t.

THE CLOSING: A smart strategy is to defend your position while being honest and fair with the other party.

The first study I looked at was produced by the Center for Responsible Lending and is called “Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures”; the second was done by New York University’s Furman Center for Real Estate and Urban Policy, and was titled, “Mortgage Lending in Vulnerable Communities: A closer look at HMDA (Home Mortgage Disclosure Act) 2009.”

The second study may seem dated, but it actually came out in 2011 and was using the most recent data, which happened to be from 2009.

Before I discuss the section of the one study that caught my eye, I’m going to first review the key points of the two, which involved race/ethnicity, and it’s here where the two were closely aligned.

“Lost Ground” concluded the majority of people affected by foreclosures have been white families. However, borrowers of color are more than twice as likely to lose their homes as white households.

The reason: The higher rates reflect the fact that African Americans and Latinos were consistently more likely to receive high-risk loan products, even after accounting for income and credit status.

The reports reached two principal conclusions in this regard:

African Americans and Latinos were much more likely to receive higher-interest-rate (subprime) loans and loans with features that are associated with higher foreclosure rates. These disparities were evident even comparing borrowers with the same credit-score ranges. In fact, the disparities were especially pronounced for borrowers with higher credit scores.

Racial and ethnic disparities in foreclosure rates cannot be explained by income, as disparities persist even among higher-income groups. Overall, low- and moderate-income African Americans and middle- and higher-income Latinos have experienced the highest foreclosure rates.

“Lost Ground” really focused on racial disparities, but the Furman Center’s “Vulnerable Communities” looked more at the economic grouping of low- and moderate-income, or LMI, borrowers — although, “Vulnerable Communities” also touched on ethnicity.

One of the more interesting findings in “Vulnerable Communities”: From 2008 to 2009, the number of home purchase loans issued to black LMI borrowers grew by only 7 percent compared with 25 percent for white, 38 percent for Hispanic and 44 percent for Asian borrowers. Even with this increase, lending to black LMI homebuyers was still down by half compared to 2004 and 2005.

While always startling to read about inherent biasness in mortgage issuance, even in this late date in American history with an African-American president, it’s not really all that surprising.

The data that I found to be unusual was more economic-based and more racially neutral (some would argue “not really”), and was found in “Vulnerable Communities” with its focus on low- and moderate-income borrowers.

Here’s the data point that caught my eye: While overall home purchase lending declined from 2008 to 2009, the number of home purchase mortgages issued to LMI borrowers in the U.S. metropolitan areas jumped by 26 percent from 2008 to 2009, the most recent year the data was made available through HMDA.

OK, we are in the heart of the recession, homebuying has dropped off a cliff, and the least likely economic group experienced a big leap forward in homebuying, assuming they got a mortgage because they intended to buy a home. Was that correct?

I called Josiah Madar, the research fellow at the Furman Center who did the study.

“We try not to be optimistic until we start analyzing data,” Madar said, “but everyone was surprised when we first looked at it.”

Well, any conclusions?

“We don’t really have a perfect explanation that we can really test,” Madar said. “However, we are pretty sure that the first homebuyer tax credit was why you saw that big increase.”

Madar has done some updating with recent data to try to confirm this assertion, but the 2010 data from the HMDA was not recent enough, as the tax credit was still in place during the first part 2010.

“It wouldn’t surprise us if we saw the number of loans to LMI homeowners dropped as the tax credit disappears,” Madar said. “We certainly expect a decrease in absolute numbers as eventually fewer people were able to use the tax credit.”

Another shocker: The annual number of loans issued to LMI homebuyers in the “sand states” (the recession-pummeled states of Florida, Arizona, Nevada and California) jumped by 71 percent in 2009, so that the total in 2009 was almost a full rebound to the number of loans issued to LMI purchasers in 2004.

Equally dramatic is the increased share of all home purchase loans in these states that went to LMI borrowers. Between 2004 and 2006, the LMI borrower share of all home purchases in the Sand States fell to 8 percent; in 2009, it climbed to 34 percent.

Madar was also a little fuzzy on the cause of this anomaly, but he gamely suggested a combination of tax credits and home prices.

“It could be that home prices fell in those states so much more than the other states (that) it brought home prices more in line to what people found affordable,” he said. “Home prices had previously been so expensive (that) it resulted in pent-up demand by LMI homebuyers.”

The tax credits also had something to do with it, Madar added. In fact, if readers come away with anything from his study, Madar would hope it’s the conclusion that tax credits really do help LMI borrowers.

And I feel the same way about overconfidence. Much of the time, it actually serves our interests to take a reasonable estimate of our abilities (which we tend to be overly conservative about, as a rule), and jack it up 10 or 15 percent: When we go into a sales pitch, or start a business, say — maybe even when it’s time to approach the man or woman of our dreams and start that first, terrifying conversation.

But when it comes to financial decision-making — especially in the real estate realm — overconfidence only ever causes bad results. Here are some of the ways overconfidence rears its ugly head in the world of real estate.

1. No showings, no offers. When sellers are overconfident in their home’s appeal, their read on market dynamics, or their own personal negotiating power, the result is a phenomenon that strikes terror in the hearts of real estate agents from coast to coast: overpricing.

Overpriced homes don’t get shown to buyers nearly as much as they would if they were properly priced, because buyers see them online up next to much bigger, better homes in the same price range, or next to similar homes that are much better priced, and decide to not even bother coming to see them unless and until the seller’s overconfidence is cured.

And no showings means no offers. No offers means no sale. No sale means the house lags on the market, maybe eventually attracting some lowball offers from buyers who’ve read the lengthy number of days the place has been on the market as a sign of desperation. Overconfident sellers shoot themselves in their own feet.

2. A series of unsuccessful, lowball offers. When buyers are overconfident, on the other hand, it usually manifests in a misunderstanding of the market (i.e., they think there’s less competition or that sellers have more flexibility than really exists).

A typical overconfident buyer might read a national news headline that says home values are down, then go make an offer on the biggest and best house in the most desirable part of their own booming town at 30 percent below asking — despite the fact that there are seven offers on the place.

While that might seem like an exaggeration, there are plenty of buyers out there who don’t understand that the down market does not mean that sellers are giving homes away — nor does it mean that banks are desperate to offload foreclosed properties.

These folks end up making unsuccessful offer after unsuccessful offer, then usually end up having to either adjust their offers upwards or their standards downward.

3. Defies the data. Today’s buyers and sellers have the advantage of access to powerful data that previous generations of buyers and sellers simply did not have.

This data — including the ability to see what recent similar homes have sold for and what homes are in competition for buyers right now, photos and all — puts today’s real estate consumers, and the agents that advise them, in the position to set list prices and make offers based on the facts and strategy, not emotion and guesswork.

Overconfidence deactivates the power of the data that today’s consumers should be using to make smart real estate decisions. In other words, you might as well toss your spreadsheets and laptops out the window and go back to guesswork if you won’t allow the data and your agent’s data-based advice to correct your overconfidence.

4. Creates delay. Overconfidence causes buyers to make crazily low offers, lengthening their house-hunt times unnecessarily. It also causes them to make bizarre demands during escrow, asking bank sellers to make repairs or reduce the price midstream (even though foreclosure sales are particularly firm on “as-is” terms).

It makes sellers list their homes high, delaying the sale of their home until they relent and bring their pricing into line with reality. Generally speaking, overconfidence delays both buyers and sellers from meeting their real estate objectives.

5. Destroys rapport. When an overconfident buyer makes an irrational demand during a transaction, some sellers find it to be completely insulting. Even if the seller does bend on her position a little bit, ultimately, the buyer might have destroyed any and all rapport he might have had.

Why should the buyer care? Well, if he later needs to request an extension of time to obtain his lender’s final approval or to close escrow, or he needs to ask the seller to complete a small repair, the seller might simply refuse.

Rapport is crucial to making real estate transactions runs smoothly, and overconfidence kills rapport.

Anthony: Rarely do I get the chance to give a short, yet accurate, answer to a real estate question, so thanks for the chance! And that short answer is yes.

If you made your purchase contract contingent on the sale of your home, and you are unable to sell your home, you have the right to back out of the sale and recoup your deposit. Of course, there are a number of scenarios that can unfold in any real estate purchase, so let me brief you on how the sale of your home (or its failure to sell) can play out vis-à-vis your and the seller’s rights and obligations under your contract.

See, negotiating to buy a home with a contingency for the sale of your existing home is the real estate equivalent of placing the home on hold for the price you negotiated. Of course, you do have to write an earnest money deposit check, so it’s not a move to take lightly. But because you do have the right to back out with no penalty at any time before your home sells and you remove that contingency, it’s only fair that the seller not be bound any more than you are. Sellers are bound to sell you the home at the price and term in the contract only if you move forward when your home sells or in response to their demand.

Under most contracts that impose a contingency for the sale of the buyer’s home, the seller has the right to demand that you either commit to moving forward with the sale (irrespective of whether your home has sold) or cancel the deal, and that you make one decision or the other within a certain period of time, often 48 hours, after the seller makes the “demand to perform,” as it is called in many standard real estate contracts.

Generally, sellers make a demand that you move forward or back out in the event they receive an offer from another buyer.

If the seller makes this demand, and your home hasn’t sold, you can back out of the deal and get your deposit back. Or, you can agree to remove the contingency for the sale of your home and move forward with the transaction; if you do this, though, you should be prepared to handle the financial obligations of both homes until such time as you do sell your current home. Once you remove the contingency for your home’s sale, you lose the ability to recoup your deposit if you later have to back out of the deal because it hasn’t sold.

Note, though, that even after you remove the contingency for the sale of your home, you most likely retain the ability to recoup your deposit if you later exercise another contingency as a reason to cancel the deal. These inspection, loan and appraisal contingencies typically expire or must be removed within a fairly finite period of time — 17 days or so — unless you and the seller agree to a longer time period.

In a recent example, an older couple sold their home and purchased two Arizona golf-course condominiums with the proceeds — one for their primary residence and another as a rental — and still put some money in their pocket. What made the deal interesting was that they had purchased the original home six years ago via a tax-deferred exchange.

While investors had turned rental properties into principal residences for years, the timing for claiming the $500,000 principal residence exemption ($250,000 for a single person) on a home acquired via an exchange wasn’t clarified until late 2004.

Before then, taxpayers were left to guess how long they had to hold an investment property before deeming it a primary residence — or when it was safe to sell it and pocket any gain.

The American Jobs Creation Act of 2004 spelled out the steps necessary to create a “safe harbor” with the Internal Revenue Service for investors who ended up living in one of their rentals. The key stipulation was the exchange property must be held for five years in order to qualify for the primary residence exemption. The five-year period curtailed people from buying investments, immediately moving into them and then quickly selling them simply to avoid a capital gains tax.

In order to qualify for the $500,000 exclusion ($250,000 for single persons) homeowners must own and use the property as a principal residence for two out of five years prior to the date of sale. Second, the owner must not have used this same exclusion in the two-year period prior to the sale. So, the only limit on the number of times a taxpayer can claim this exclusion is once in any two-year period.

Under the exchange rules, commonly known as 1031 exchanges or Starker exchanges, a taxpayer who exchanges property that was held for productive use or investment for “like-kind” property may acquire the replacement property on a tax-free basis. Because the replacement property generally has a low carryover tax basis, the taxpayer will have taxable gain upon the sale of the replacement property.

However, when the homeowner converts the replacement property into a principal residence, the taxpayer may shelter some or all of this gain from income taxation. The committee that drafted the five-year rule wrote that proposal “balances the concerns associated with these provisions to reduce this tax shelter concern without unduly limiting the exclusion on sales or exchanges of principal residences.”

While the five-year requirement is a helpful guideline, it does not significantly extend the timeline for people who might consider moving into their own rental. That’s because an investment property needs to be rented (used as an investment) after an exchange to show the exchange was clearly an investment-for-investment transaction.

Accountants say the exchanged property should be held for at least two years as an investment property before an owner considers converting it to a primary residence. In addition, once the homeowners move in to the new primary residence, they must stay at least two years before qualifying for the $500,000 exclusion.

When you add the suggested two years as investment property with the two years required under the residency guideline, that’s four years minimum needed to reach the five-year safe-harbor status.

Exchange facilitators and tax attorneys caution that all exchanges must meet the “facts and circumstances” test regardless of how much time has passed before converting an investment property to a personal residence. In a nutshell: It’s all about intent. If it’s clear at the time of the exchange that a taxpayer intended to use the exchange property as a primary residence, the exchange can be challenged.

While a tax-deferred exchange appears just like a “sale” for you, your real estate agent and parties associated with the deal, Section 1031 of the Internal Revenue Service code specifically requires that an exchange take place. That means that one property must be exchanged for another property, rather than sold for cash. The exchange is what distinguishes a Section 1031 tax-deferred transaction from a sale and purchase. The exchange is created by using an intermediary (or exchange facilitator) and the required exchange documentation.

If you’ve traded for a lakefront getaway condo and now think you would like to live there, make sure you own it for five years before attempting to pocket a principal residence exemption.

The federal agencies that oversee and buy mortgages from lenders, like Fannie Mae and Freddie Mac, require lenders making conventional loans to focus on the lower of the two FICO scores. (Scores generally range from 300 to 850, with the national median at 711, according to FICO.)

But both scores may be factored into other loans. On a jumbo loan, for instance, the lender is likely to “put more weight on the credit score of the person with the higher income,” said Greg Gwizdz, an executive vice president of Wells Fargo Home Mortgage in Somerville, N.J.

For some people, however, it may be necessary to hold off on a home purchase for a few months to allow the co-borrower with credit issues to clean up his or her report and raise the score.
This can be done by being “hypervigilant on paying your bills on time” for a few months, said Tracy Becker, the president of North Shore Advisory, a credit restoration company in Tarrytown, N.Y., or by perusing the credit report and correcting any inaccuracies.

Ms. Becker says that one way to raise a FICO score by 30 to 40 points in a few months is to be added as an authorized user to a well-established person’s credit card, even if you don’t use the card. Your score can rise, too, if you pay down credit-card balances so they are at least 10 percent of the maximum credit limit.

Even if you cannot afford to pay down the cards that far, it can help even to reduce the balance to, say, 60 percent of the limit, said Joanne Gaskin, the director of product management global scoring at FICO. The closer your balance is to the credit limit, the more the score will increase when the balance is paid down.
If the cards are “maxed out,” Ms. Gaskin said, “that’s going to be very negative.”

Preparation is key, Ms. Becker said, suggesting that both parties review their credit reports and scores together early on in the home-search process.

Alexander Arader, the owner of Arader & Associates, a mortgage broker in Stamford, Conn., said that a borrower with a credit score of 620 to 640 could pay as much as one percentage point more in interest than a borrower with good credit, say around 760 or higher.  “Do whatever it takes to get your credit score up,” he said.

If there is little time for a significant upgrade in a credit score — perhaps because you found your dream home and can’t wait to make an offer — borrowers should explain to the lender any issues that might have affected the credit report, said Mr. Gwizdz of Wells Fargo.

“Take time to tell your story,” he said, and make sure you carefully document any major life issues that might have contributed to a score’s decline, like an illness, divorce or job loss.

The borrowers also need to make it clear why a second person is on the mortgage, especially if that person is not living in the house, he said. A parent helping a child buy his first apartment in Manhattan will have less trouble explaining the connection than a friend who isn’t there full-time, he said.

Sometimes it may make more sense to have just one person on the mortgage — provided, of course, that the person can afford the monthly payments alone. Some banks may allow two people to appear on the property’s deed with only one on the mortgage note.

While the FICO credit score is important, it is only one part of what lenders evaluate in the application process, Mr. Gwizdz noted.

Among other factors that underwriters examine: the size and source of the down payment (many are now requiring 20 percent); both applicants’ incomes and whether they have been rising; their debt-to-income ratios; and the property they are buying.

Lease-purchase plans can be structured in such a way that both parties benefit. They can also be structured so that all the benefits flow to one of the parties and none to the other. Buyers especially need to be careful because they usually know less about the market than sellers, and the seller usually provides the contract.

Contract features of a lease-purchase…

In a typical arrangement, the borrower pays an option fee, 1 percent to 5 percent of the price, which is credited to the purchase price. The borrower pays a market rent, and an additional rent premium that is also credited to the purchase price. The option fee, option period, rent, rent premium, and purchase price are all negotiable items. If the purchase option is not exercised, the buyer loses both the option fee and the rent premium.

Buyers generally prefer a long option period because it provides more time to accumulate savings and repair credit. A long period can boomerang on them, however, if they are never able to exercise the option, because they lose the rent premium they have been paying all the while, in addition to the option fee. Sellers generally prefer a short option period — but if it is too short, the house won’t be sold.

The option fee and rent premium are viewed differently by buyers and sellers. To the buyer, they are part of the equity in the house they fully expect to own. To sellers, however, these payments are the best guarantee that their houses will sell; if they don’t sell, the payments are retained as income. That the benefit to the seller generally exceeds the cost to the buyer makes the lease-to-own deal a possible win-win.

A lease-purchase contract may or may not give the renter/buyer the right to sell the option. This will have value to the buyer who isn’t completely confident of being able to exercise the option. It is a cost to the seller who prefers to retain the house and the monies collected.

Lease contracts may also contain provisions that nullify the buyer’s option, a point discussed below.

Using a lease-purchase to buy…

The lease-purchase offers homeownership opportunities to consumers who can’t qualify for a loan from any source, but who are prepared to bet on themselves. The bet is that before the option period expires, they will qualify for the mortgage they need to exercise the purchase option. During the option period, they have the opportunity to rebuild their credit and accumulate savings while living in the house.

Even though it is costly, the right not to exercise the option is of value to buyers. If there is something seriously wrong with the house, neighborhood or neighbors, the buyer can cut her losses by not exercising the option.

Dangers to buyers…

A major threat to buyers is contractual provisions that can nullify their option, such as the failure to pay the rent on the first day of the month. Such provisions are most likely to appear in contracts used by developers or firms that own multiple homes. One such firm in Florida had more evictions based on unreasonable conditions than they had purchases. Read the contract very carefully to make sure you are confident you can meet all the conditions.

Using a lease-purchase to sell…

Most home sellers want a cash sale, but for those prepared to hang on to the property awhile longer, the benefits can be compelling. Buyers unable to become homeowners in any other way will generally be willing to commit to a future price substantially higher than the same property could be sold for today.

While the deal may fall through, in that case the seller gets to pocket the option fee and rent premium. The seller also continues to enjoy the tax deduction on his mortgage interest payments during the option period.

Not part of the down payment…

The option fee and rent premium are not part of the down payment unless the seller agrees to relinquish the right to retain these payments in the event the buyer doesn’t exercise the option. Few sellers would be willing to do that. But the option fee and rent payments do make the required down payment slightly smaller.

For example, the parties agree to a price of $100,000 and the option fee and rent premium add to $5,000 when the option is exercised. From the standpoint of the lender, the price is $95,000 and a 5 percent down payment requirement would call for a down payment of $4,750 instead of $5,000.

The first question you need to ask yourself is: Are you emotionally prepared to sell? Selling is a challenge for most sellers, although some markets are better than others. Unless you bought more than eight to 10 years ago and preserved your equity, you may not be able to sell for enough to pay off the mortgages secured against the property and the other costs of selling.

For sellers who have no additional assets, a short sale or foreclosure may be the only option. If so, first look into government programs that might help you out financially. Also, talk to your attorney and tax adviser.

Sellers who have the resources to make up the difference between the sale price and the amount they owe need to ask themselves if they are willing to pay the additional cash in order to sell and move on.

There are two reasons why you might prefer bringing cash to closing. One is that your credit will not be negatively impacted, as would be the case with a short sale or foreclosure. The second is that many buyers shy away from short sales because of the lengthy and uncertain process involved.

The next thing to consider is the condition of your home. Is it ready for the market? The most salable homes are those that are in move-in condition.

Before racing to the hardware store, ask your Realtor about how much competition there would be for your home if you put it on the market before the holidays. Some areas are shy on inventory of good homes on the market. If so, now could be a good time to sell.

HOUSE HUNTING TIP: The supply/demand ratio plays a significant role in the health of a local real estate market. No matter what is said about the housing market nationally, it’s the local picture that tells the tale in terms of the possibility of selling your home at any given time.

Most sellers don’t put their homes on the market during the last or first couple of months of the year. The inventory of homes for sale tends to dwindle during the winter months. Interest rates are low. So, if there are buyers in your local market, you may be at an advantage selling when most sellers are waiting.

Some sellers feel that if they’ve waited this long to sell, they should put the process on hold until spring and get the house ready in the meantime. Certainly, it’s not a good idea to put your house on the market until it looks great. But if you and your house are ready to sell, move ahead.

The market in general tends to slow down over the holidays. But rather than pull your house off the market and miss a likely prospect, change the showing procedure to require advance notice. And enjoy your holidays. A sale before year end could be a great holiday gift.

There is a lot of pent-up demand, on both the buyer and seller sides. Sellers have been waiting for a better time to sell. Buyers have been waiting for more quality inventory and a sense that prices have bottomed or are close to it.

THE CLOSING: Recent projections call for another five or so years of bouncing along close to the bottom of this market cycle. Many experts believe that the big price declines are behind us.

But in today’s shaky economy, many financial advisers are suggesting that homeowners wait.

“I think paying off the mortgage would probably be a poor decision financially right now,” said Gibran Nicholas, the chairman and chief executive of the Certified Mortgage Planning Specialist Institute, which trains and certifies financial planners who provide mortgage and real estate equity advice.

The decision, he says, depends upon cash flow and returns.

Debra Shultz, a managing director of the Manhattan Mortgage Company, says that homeowners approaching retirement must ensure that they have enough cash flow to cover daily expenses. Once the mortgage is paid off, she noted, “you can’t take it back unless you refinance and cash out again.”

And refinancing as a retiree could be difficult. “Their qualified income might drop, which might inhibit them from refinancing and qualifying,” she said.

In some cases, homeowners might receive a better return by investing the money they would have used to retire the mortgage. “Why pay off a mortgage and save maybe 3 percent after tax when you could be putting that money into a muni bond earning 4.5 percent after tax right now?” Mr. Nicholas said.

Returns could potentially be even greater if the retiree bought a vacation or retirement home on the cheap. “I think there’s going to be fire sales and they’ll have opportunities to grab assets at fire-sale values,” said DaRayl Davis, a money manager and the author of “Economic Secrets of the New Retirement Environment” (Xlibris, 2009).

Financial advisers also contend that it makes little sense to pay off the mortgage on an asset whose value is still depreciating. Indeed, home prices in the country’s top 20 markets have fallen more than 30 percent, on average, from their peak in June 2006, with those in Las Vegas, for instance, tumbling 60 percent, according to Alex Barron, the founder and president of the Housing Research Center.

Prices in New York City are off 22 percent from their peak, he said, adding that he expected home prices to fall another 5 percent before bottoming out in the next one to two years.

Mr. Davis is even more bearish, predicting that prices could slide another 30 percent. “That bubble has burst,” he said, “and it’s not done deflating yet.”

Mr. Nicholas recommends that any homeowner with a mortgage rate above 7 percent try to refinance to a lower rate if the refinancing costs are not too high.

Then there are the tax implications of losing the mortgage deduction. These are only relevant, Ms. Shultz noted, to owners whose principal is less than two-thirds paid off. Once the two-thirds threshold has been reached, the interest deduction, if any, is small and doesn’t justify keeping the mortgage.

Of course, the good feeling of owning a home debt-free should not be minimized. “Trading off a known 4 percent interest rate for an unknown market return may leave some retirees jittery,” said Drew Denning, the vice president for retiree services of the Principal Financial Group.

For those who do opt to pay off a mortgage early — perhaps they want to eliminate debts to pay for their children’s college — the experts suggest that they have at least 12 months of living expenses in cash available outside their retirement accounts after the home is paid off. That is double the amount normally recommended in good times.

Mr. Denning recommends as much as two years’ worth of living costs. “The ability to find another job that pays a comparable amount of money is very challenging in today’s environment,” he said. “And going to your bank to take out a loan when you’re unemployed would not be one of the more friendly visits you’ll have.”