Most people don’t know that they can take steps to avoid an underwater mortgage. An underwater mortgage is when you owe more on your home than it’s worth. In this blog post, we’ll discuss some tips to avoid this situation. Keep in mind that there is no foolproof method, but following these tips can help you stay ahead of the game.
According to Zillow, about 15.4 percent of homeowners with a mortgage were underwater in the first quarter of 2019. This means that they owed more on their home than it was worth. However, this number has been trending downward since its peak in 2010. So, while there are still a significant number of underwater mortgages, the situation is improving.
Table of Contents
• Underwater On A Loan Means
• How To Avoid Negative Equity
➥Pay Attention To Your Mortgage Rate
➥Make Extra Principal Payments
➥Keep An Eye On Your Home’s Value
➥Stay Current On Your Property Taxes
➥Have An Emergency Fund
➥Know Your Rights
• Underwater On Your Mortgage
• Underwater Mortgage Foreclosure
• How To Get Out Of A Mortgage To Buy Another House
What Does It Mean To Be Underwater On A Loan?
“Underwater mortgage” or “negative equity” simply means that the amount you owe on your mortgage is more than your home’s appraised value or selling price. Or the outstanding balance of a home loan is more than the value of the property.
If you’re underwater, it’s challenging to sell your home without taking a loss. You may also have trouble refinancing your mortgage or getting a home equity loan because lenders will use your home’s appraised value as collateral.
This can be a problem if your mortgage is due for renewal and interest rates have increased. If you can’t refinance, you’ll have to pay a higher interest rate, which could make it difficult to keep up with your monthly payments.
How To Avoid Negative Equity
If you’re worried about being underwater on your mortgage, following these tips can help you avoid the situation. Keep in mind that there’s no guaranteed way to avoid an underwater mortgage, but taking these steps can help you stay ahead of the game.
Things you can do to avoid an underwater mortgage:
1. Pay Attention To Your Mortgage Rate.
If you have an adjustable-rate mortgage, your interest rate could go up and make your monthly payments unaffordable. If you have a fixed-rate mortgage, paying attention to the rate can help you refinance before rates increase.
2. Make Extra Principal Payments When You Can.
This will help you build equity in your home and reduce the chance of being underwater on your mortgage.
3. Keep An Eye On Your Home’s Value.
If you see that your home’s value is decreasing, you may want to consider selling before it goes any lower.
4. Stay Current On Your Property Taxes.
If you’re behind on your property taxes, it could lead to a tax lien on your home. This could then lead to foreclosure proceedings.
5. Have An Emergency Fund.
If you lose your job or have another financial setback, having an emergency fund can help you make ends meet and avoid foreclosure.
6. Know Your Rights.
In some instances, you may be able to negotiate with your lender to avoid foreclosure. It’s important to know your rights and be prepared to act if necessary.
Underwater On Your Mortgage?
There are a number of things you can do when you’re underwater on your mortgage.
1. Work With your lender.
If you’re struggling to make your mortgage payments, your first step should be to contact your lender. You may be able to work out a payment plan that can help you get back on track.
2. Refinance your mortgage.
If you have equity in your home, you may be able to refinance your mortgage and get a lower interest rate. This can reduce your monthly payments and help you get back on track.
3. Sell your home.
If you’re unable to make your mortgage payments, selling your home may be the best option. You can use the money from the sale to pay off your mortgage and avoid foreclosure.
4. File for bankruptcy.
If you’re facing foreclosure, filing for bankruptcy may be able to help you keep your home. This is the last resort option, however, and you should speak with an attorney before taking this step.
5. Get help from a government program.
There are a number of government programs that can help you if you’re struggling to make your mortgage payments. These programs can provide financial assistance or help you lower your interest rate.
6. Stay in your home until the foreclosure process is complete.
If you’re facing foreclosure, you may be tempted to simply walk away from your home. However, staying in your home until the foreclosure process is complete can help you protect your credit score and give you more time to find a new place to live.
Underwater Mortgage Foreclosure
If you’re unable to avoid an underwater mortgage, you may face foreclosure. This is a legal process where your lender can take back your home if you default on your mortgage payments.
If you’re facing foreclosure, there are some things you can do to try and save your home. You may be able to negotiate with your lender or work out a payment plan. You can also look into government programs that may be able to help you keep your home.
Facing foreclosure can be a stressful and difficult time. However, knowing your options and taking action can help you keep your home or make the best of a difficult situation.
How To Get Out Of A Mortgage To Buy Another House?
Selling your home before your mortgage is up can be a great way to get out of your mortgage. You can sell your house and pay off the mortgage. This may be a good way to get rid of the property before you default on the mortgage.
You can also apply for a 1031 exchange, to avoid owing taxes on the gains of the sale of your property. You may sell your house and use the money to buy another property within a specified time frame. The 1031 exchange allows you to defer taxes on the sale of your property.
If you decided to sell your house, and get cash fast, Colorado Cash Buyers will help you. We buy houses as-is which means no repairs and renovations are needed. We are professional house buyers who can make a cash offer on your property regardless of its condition, location, or financial situation. Contact us today to learn more about how we can help you!