If you are one of the almost 11 million people with an underwater mortgage, you might be wondering what to do next. An underwater mortgage simply refers to owing more on a mortgage than your property is worth. It’s also referred to as being upside-down on your mortgage or as negative equity. You have several options, all with their own set of pros and cons.
Stay Put and Pay
Many people have an attachment to their property, so the first impulse, when faced with an underwater mortgage, is to stay put and pay the bills. Often, this doesn’t make sense in the long run. Can you afford to pay this over the next several years and still potentially be underwater? This is important to consider.
On top of that, if you’re going to face any repairs in the future, you are going to invest even more. If it’s almost time for a new roof or cooling system, you won’t be able to ignore that. The only way it might work is if your property value has declined and you can lower the property taxes.
Refinance the Home
When dealing with an underwater mortgage, a traditional refinance isn’t always an option. If your loan is owned by Freddie Mac or Fannie Mae and you haven’t been more than 30 days late on your payments in the last 12 months, you might qualify for refinancing under the Home Affordable Refinance Program (HARP).
Otherwise, you might attempt to work with the lender on a refinance. Just keep in mind that you could still lose your home if you can’t afford the payments.
Loan Modification
With a loan modification, your lender agrees to lower the payment and interest rate. This is done either as a permanent measure or just for a temporary time. The difficulty with this as a resolution to an underwater mortgage is the time it takes.
There aren’t many loan modifications that reduce the overall principle of the home, so you still end up with negative equity. All you’ve effectively done is lower the monthly payment. Sometimes, the loan modification also impacts your credit score.
Short Sale
If the lender agrees to a short sale, you can sell for less than you owe on the mortgage. Depending on your financial circumstances and where you live, this is a viable option. Other lenders aren’t willing to go this route.
Before you move forward with a short sale to get out of an underwater mortgage, consult with your tax professional. You might also consider getting educated by a real estate lawyer who is experienced with short sales.
Walking Away/Foreclosure
One of the worst things you can do for your credit score is to allow the home to go into foreclosure. There’s more to consider aside from what it does to your credit score. If the bank doesn’t foreclose on the property, you are still legally responsible. That means you have to pay the city for trash pickup and continue to insure the home. If you are going to take this route, you should stay in the property as long as possible to keep up with maintenance. You should also educate yourself on how to stop foreclosure at the last minute.
Bankruptcy
By filing bankruptcy, you aren’t erasing your mortgage debt. All you are doing is giving yourself a reprieve by eliminating some of your other debts. Filing Chapter 13 bankruptcy might allow you to catch up on the payments over five years without paying interest. You’ll still be responsible for paying the mortgage debt.
If you think this is your best option, you need to consult with a bankruptcy attorney first. Don’t wait until you are down to the wire, do it early on so you understand all the ramifications of your decision.
Get Out of an Underwater Mortgage with Integrity Homebuyers
If you are facing an underwater mortgage, first of all, take a deep breath. The situation might seem dire, but we are here to help. Integrity Homebuyers has worked with many clients in the same boat you are in right now.
You can leave the details and hard work to us. We don’t mind doing the hard work for you. Give us a call at (800) 818-4145 today so we can find the solution for you quickly. You don’t have to walk through the tough times alone.
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