Are you one of the many Americans who are underwater on your mortgage? Don’t worry, you’re not alone. As of December 2018, about 4.9 million American homeowners are underwater on their mortgages, according to Zillow. This is down from a peak of 12.7 million in 2010. Millions of homeowners are in the same situation.
Fortunately, there are a few options available to you that can help you get out from under your mortgage and back on track. Read on to learn more about these options and how to choose the best one for you. These options can help you stay in your home and avoid foreclosure.
If the value of your home goes down, you may end up owing more on your mortgage than your home is worth. This is called being underwater on your mortgage.
Table of Contents
• What Is Underwater Mortgage
• What To Do If Mortgage Is Underwater
• Several Underwater Mortgage Options
➥Loan Modification
➥Refinance
➥Principal Reduction
➥Short Sale
➥Reinstatement
➥Foreclosure
➥Deed in Lieu Of Foreclosure
➥Bankruptcy
• Making Home Affordable Loan Requirements
• Underwater House For Sale
What Is Underwater Mortgage?
An underwater mortgage is sometimes termed as being “upside-down” or ” negative equity”.This happens when you owe more on your mortgage than your home is worth. An underwater mortgage can be difficult to deal with because it may seem like you’ll never be able to get out from under it.
The phrase “underwater mortgage” refers to a scenario in which the outstanding balance on a home loan exceeds the fair market value of the underlying property. It can occur when housing prices fall, or when borrowers take out second mortgages or home equity lines of credit (HELOCs).
If you’re underwater on your mortgage, it can be difficult to refinance or sell your home. It will be difficult to get a new loan if you need one. For example, if you want to take out a home equity loan or line of credit, the lender may require you to have at least 20% equity in your home. Additionally, if you’re struggling to make your mortgage payments, you may be at risk of foreclosure.
What To Do If Mortgage Is Underwater?
If you’re underwater on your mortgage, it can be difficult to refinance or sell your home. It will also be difficult to get a new loan if you need one. In addition, when you’re struggling to make your mortgage payments, you may be at risk of foreclosure.
Read the options below and see what is best for you. Each option has its own pros and cons that you need to consider before making a decision.
These Are Several Underwater Mortgage Options:
1. Loan Modification
Freddie Mac Enhanced Relief Refinance SM
If you’re a Freddie Mac borrower, you may be eligible for the Freddie Mac Enhanced Relief Refinance SM. This program is designed to help borrowers who are underwater on their mortgage but are current on their payments. To be eligible, you must have a Freddie Mac loan that originated on or before May 31, 2009.
You need to have a steady income to qualify for a loan modification. You also need to show that you’re struggling to make your mortgage payments. If you’re approved, your monthly payments will be reduced, which will help you get out from under your underwater mortgage.
2. Refinance
You can refinance your mortgage to get a lower interest rate and monthly payment. However, you’ll need to have at least 20% equity in your home to qualify for most refinance programs. Additionally, this option may not be available if you’re already underwater on your mortgage.
The HARP(Home Affordability Refinance Program), is a government program that will help you refinance your underwater mortgage even if you don’t have 20% equity. You must be current on your mortgage payments and have a good payment history to qualify.
3. Principal Reduction
A principal reduction is when your lender agrees to reduce the amount you owe on your mortgage. This could be a good option if you’re struggling to make your monthly payments and you owe more on your mortgage than your home is worth.
You must be delinquent on your mortgage payments to qualify for a principal reduction. Additionally, this option may not be available if you’re current on your payments.
4. Short Sale
A short sale is when you sell your home for less than you owe on your mortgage. This could be a good option if you’re underwater on your mortgage and you can’t afford to make the payments.
It’s important to note that a short sale will damage your credit score. And, you may still owe money to your lender after the sale.
5. Reinstatement
Reinstatement is when you bring your mortgage current by paying the past-due amount plus any fees and interest that have accrued. This could be a good option if you’re behind on your payments but you can catch up.
This will be a difficult option if you’re underwater on your mortgage. You’ll need to come up with a large sum of money to bring your mortgage current.
6. Foreclosure
Foreclosure is when your lender repossesses your home because you have defaulted on your loan. This should be considered a last resort because it will damage your credit score and make it difficult to get another loan in the future. It’s important to speak with a housing counselor before making this decision.
7. Deed in Lieu Of Foreclosure
A deed in lieu of foreclosure is when you sign over the deed to your home to the lender in exchange for the lender forgiving the debt. This is an alternative to foreclosure and can be a good option if you’re struggling to make your payments. But, like foreclosure, it will damage your credit score.
8. Bankruptcy
Filing for bankruptcy could help you keep your home or get out of your mortgage. This is a big decision and should only be considered as a last resort. You should speak with an attorney before making this decision. You can file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 will wipe out your debt, but you may have to sell your home to pay off your lenders.
Chapter 13 will allow you to keep your home, but you’ll need to come up with a repayment plan to pay off your debts.
Making Home Affordable Loan Requirements
It’s important to note that not everyone will qualify for all of these underwater mortgage options. The best way to find out what underwater mortgage options are available to you is to speak with your lender. You can also contact the Making Home Affordable program for more information.
To be eligible, you must meet certain criteria, including:
- You must be a homeowner with a mortgage on your primary residence
- The mortgage must have been originated on or before January 1, 2009
- Your monthly mortgage payments must be more than 31% of your pre-tax monthly income
- You must have a financial hardship that has caused you to miss mortgage payments
- You must not have been convicted of a felony in the last 10 years.
Underwater House For Sale
If you’re underwater on your mortgage, you may be wondering if you can sell your home. The good news is that you can sell your house even if it’s underwater. However, you may not get as much money for your home as you would if it was above water.
Colorado Cash Buyers is a cash buyer in Colorado that specializes in buying underwater homes. We understand the challenges of selling a house underwater and we’re here to help. Contact us today to learn more or fill up the form to get a cash offer.