When you bought your home, you probably never thought that you would find yourself in a situation where the value of your home dropped below what you owe on your mortgage. But with the housing market still in a slump, more and more homeowners are finding themselves “underwater” on their mortgages-owing more than their home is worth.
It’s important to understand that you’re not alone. In fact, according to Zillow’s Negative Equity Report, more than 15 million homeowners were underwater on their mortgages as of September 2013. So don’t despair-help is out there.
You may contact your lender. Many lenders are willing to work with homeowners who are struggling to make their payments. They may be willing to modify the terms of your loan, which could include lowering your interest rate, extending the length of your loan, or even reducing the principal amount you owe. But there are also other options for you to get out of an underwater mortgage.
Table of Contents
• Underwater Mortgage Meaning
• What To Do If Your House Is Underwater
➥Sell Your Home And Use The Proceeds To Pay Off Your Mortgage
➥Refinance Your Mortgage
➥Get A Loan Modification
➥Rent Out Your Home
➥File For Bankruptcy
• What Is A Short Sale On A House
➥ Underwater Mortgage Relief Programs
• How Does Mortgage Interest Deduction Work
• Selling a House Underwater
Underwater Mortgage Meaning
An “underwater mortgage” is a situation where a homeowner owes more on their mortgage than the current market value of their home. A home can become underwater for a number of reasons, including a decrease in the value of the property or an increase in the amount of the mortgage.
For example, let’s say you bought a home for $200,000 and put a 20 percent down payment. That means your mortgage is for $160,000. But then the housing market crashes and the value of your home plummets to $150,000. Suddenly, you are “underwater” on your mortgage because you owe more than your home is currently worth.
This can also be called an “upside-down mortgage” or “negative equity mortgage.”
What To Do If Your House Is Underwater?
If you find yourself in a situation where your home is worth less than what you owe on your mortgage, there are a few things you can do.
1. Sell Your Home And Use The Proceeds To Pay Off Your Mortgage.
This may not be possible if the value of your home has decreased significantly or if you’re behind on your payments and are at risk of foreclosure. But if you’re able to sell your property, this may be the best way to get out from under an underwater mortgage.
2. Refinance Your Mortgage.
This can be difficult to do if you’re already struggling to make payments, but it may be possible if you have good credit and equity in your home.
3. Get A Loan Modification.
This is an option for homeowners who are struggling to make their mortgage payments but want to stay in their homes. A loan modification can help by lowering your interest rate, lengthening the term of your loan, or changing other terms of your mortgage.
4. Rent Out Your Home.
If you’re unable to sell or refinance your home, you may be able to rent it out and use the rental income to make your mortgage payments. This can be a good option if you’re not ready to give up your home but need some financial assistance.
5. File For Bankruptcy.
This should be a last resort, but if you’re facing foreclosure and have no other options, filing for bankruptcy may help you keep your home.
What Is A Short Sale On A House?
A short sale is a process where a homeowner sells their home for less than the amount they owe on their mortgage. This can be an option for those who are struggling to make their mortgage payments and are at risk of foreclosure.
You may also consider a deed in lieu of foreclosure. This option may help you avoid foreclosure and damage to your credit. In a deed in lieu of foreclosure, you transfer the ownership of your home to the lender in exchange for them forgiving the debt.
Both of these options can be negative for your credit, so it’s important to speak with a housing counselor or other professional before making a decision.
When Considering A Short Sale Or Deed In Lieu Of Foreclosure, Be Sure To:
1. Review your mortgage documents. You’ll want to make sure that you understand your rights and obligations under your mortgage agreement.
2. Speak with your lender. You’ll need to negotiate with your lender to get their approval for a short sale or deed in lieu of foreclosure.
3. Get help from a housing counselor or other professional. These experts can help you understand your options and make the best decision for your situation.
Underwater Mortgage Relief Programs
If you’re struggling with an underwater mortgage, there are many resources available to help you. Here are a few places to start:
1. Housing counseling agencies. These agencies can provide you with free or low-cost counseling to help you understand your options and make the best decisions for your situation.
2. Your lender or servicer. If you’re having trouble making your mortgage payments, reach out to your lender or servicer for assistance. They may be able to offer you a loan modification or other foreclosure prevention options.
3. Freddie Mac Enhanced Relief Refinance® Mortgage. This website offers information and resources on the FEMRR program, as well as other foreclosure prevention options.
By taking action now, you can improve your chances of avoiding foreclosure and keeping your home. You may also want to consider Mortgage Interest Rate Reduction.
How Does Mortgage Interest Deduction Work?
The mortgage interest deduction is a tax deduction that allows homeowners to deduct the interest they pay on their mortgage from their taxes.
This can help to lower your tax bill and make it more affordable to keep your home.
The mortgage interest deduction is only available if you itemize your deductions, so be sure to speak with a tax professional to see if this is right for you.
Selling a House Underwater
If you’re selling a house that is underwater, there are a few things you should keep in mind. First, it’s important to understand that you may not be able to sell your home for the full amount you owe on your mortgage.
Additionally, you may need to negotiate with your lender to forgive some of the debt if they agree to let you sell your home for less than what is owed. Finally, be sure to speak with a tax professional to see if you will owe any taxes on the forgiven debt.
If you’re looking to sell your home quickly, you may want to consider working with a cash buyer. Colorado Cash Buyers is a company that buys houses in any condition for cash. This can help you avoid the hassle of dealing with repairs, showings, and paying high commissions.
While selling your home to a cash buyer may not get you the highest price, it can be a quick and easy way to sell your home and move on from your underwater mortgage. Contact us today to learn more!