We've all heard this term of a a mortgage being "underwater". What it simply means is that you owe more on the mortgage than the home is actually worth. Its a precarious situation that leaves few options for most. Nearly one out of every five mortgages is underwater. But that doesn’t make it any less painful.
If you find yourself with your mortgage underwater, here are several options that may help you counter this problem.
Option 1: Ride out the storm
Many people panic when they find out that they have their mortgage underwater – but the situation doesn’t always demand action. If you can make the payments and you’re happy with your house (aside from its current valuation), staying put may actually be your best option. This allows you to avoid the stress and expense of moving or modifying your loan, and over time the value of your home is likely to increase; eventually you may break even or even see some equity and get out of having your mortgage underwater.
Option 2. Request a short sale
If you have to move or if you’re having trouble making your payments, you can request a short sale from your lender. With a short sale, the lender agrees to accept less than you owe as payment on the property and forgive the remainder of the debt. Lenders are typically only going to do this if you have already defaulted on the loan. A short sale is a complicated process that requires the assistance of a lawyer and a real estate agent. A short sale will have a negative impact on your credit, so it’s not something to undertake lightly. But, if executed properly, it can solve the issue of having your mortgage underwater but getting you out of a bad debt situation.
Option 3: Rent out your home
Renting your home can be a challenge, but it presents a viable option in some circumstances – especially if you are unable to sell the home but can’t afford to keep making payments on your mortgage. You’ll need a new insurance policy on the property, and you may need someone to manage the property or a real estate agent. Ideally, the rental amount you receive should cover property management fees, your monthly payment, insurance, and taxes.
Option 4. Refinance
There are a variety of government programs that may be helpful. One is the Home Affordable Refinance Program (HARP). If you’re current on your house payments but have a mortgage underwater, you may be eligible to refinance through this program. Your current mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae, and it must’ve been sold to Freddie Mac or Fannie Mae on or before May 31, 2009.
Refinancing through the Federal Housing Administration is also a possibility. You need to be current on house payments and the mortgage must have been endorsed on or before May 31, 2009.
Written by Jurado & Farshchian, P.L.