Underwater or Upside Down Mortgages, What Options Do You Have?
If you owe more on your house than it is currently worth, then you have an upside-down mortgage. While it sounds scary, and it truly can be, you aren’t alone. Upside down mortgages actually happen to more people than you may think. According to data acquired at the end of the first quarter of 2019, more than 5.2 million homes are considered to be upside down on their mortgages (1). With home prices increasing at a slower pace in 2018 than in previous years, the potential for people to climb out from upside-down mortgages or advance into an equity-rich territory tends to be reduced.
What is an Underwater/Upside Down Mortgage?
When you first purchased your house you probably outlined with your bank how much your payments would be each month and over what duration of time in order to pay it off. Over time, the value of your house can increase or decrease depending on the housing market. If the value of your house begins to decrease to a point where you owe more on your mortgage than what your home is worth, you are considered to be upside down on your mortgage or sometimes referred to as underwater on your mortgage.
For example, say you owe $350,000 on your mortgage. It’s a great house, you’ve done some remodeling, the neighborhood is great, but the market is trending down and your house is only worth $250,000 at the current time.
Now you owe $100,000 more on your home mortgage than your house is worth. You are now “upside-down” on your mortgage or underwater.
How to know if you are Upside Down on Your Mortgage?
It's simple. 1. Find out how much you owe on your home by looking at a current mortgage statement. 2. Determine the value of you home. This can be done several ways; For an estimate you can speak to an experienced local real estate agent or look up your home’s estimated value on Zillow. If a more concrete answer is what you are looking for your best bet would be to hire a real estate appraiser.
Once you have the numbers, how much you still owe on your home and the value, figuring out whether you are underwater or upside down on your mortgage is simple; subtract the amount you owe from what your home is currently worth.
To help figure out whether you are upside down on your mortgage or when you could possibly be above water again, feel free to use this calculator (2).
What Are Your Options if Your Mortgage is Upside Down?
1. Stay in the home.
If you aren’t looking to get out from under your mortgage because of a lack of finances, your best option would be to stay where you are and try to pay down more of the principal. This may be a hard option if your finances are tight already, but making adjustments in your budget whether it be through cutting unnecessary expenses such as cable and cell phone plans or eating out can truly pay off in the long run when you are able to stay in your home. The more money you can pull together now to pay down on the principal, the faster you can build equity in your home and you won’t lose money from an underwater sale.
2. FULL PRICE OFFER
Another option if you are upside down on your mortgage could be to work with a company like southsidepropertysolutions.com (5) to receive a full price offer. With this option, you don’t have to spend any money-making repairs, extended periods of time finding a buyer, or even the tedious process of looking for a real estate agent to sell your house or property. Instead, United Funding Corp. works to find a buyer, you don’t incur damages to your credit report from foreclosing on your home and it costs you nothing. When homeownership becomes too much of a burden and you must sell, they are the leading creative real estate advisory firm in the Hampton Roads area who helps sellers with low equity, no equity or negative equity get a full price offer.
Regardless of the property’s condition or your personal situation, they provide quick and fair cash offers which, if you can’t stay in your house and try to gain equity, wait out the real estate market or refinance, this may just be your best solution.
3. Sell your house
If you are in a situation where you absolutely have to sell your house and cannot afford to stay, you may consider selling your home and paying off the amount you still owe out of pocket. This will cause you to lose money though and is only possible if you have enough cash on hand to pay the difference of what is owed. If you don’t have the money to make up the difference, this option isn’t for you.
For instance, you owe $300,000 on your home but it is only worth $250,000. If you have $50,000 to pay the lender plus the fees of selling the house, you can sell your house. Yes, you will lose $50,000 but you will also get out from under your mortgage and out of your house.
4. Refinance your current mortgage.
Honestly, mortgages on upside-down properties are difficult to refinance because they don’t have equity. You may have underpaid on your monthly payment which didn’t cover the amount of interest owed, snowballing until you found yourself upside down. You may have lost your job and could not afford your payments, or maybe you’ve paid every payment but the housing market dropped and your house just isn’t worth the amount you purchased it for. Whatever your reason, there are federal programs designed specifically to address the needs of borrowers who are underwater and want to refinance their loans or reduce their financial distress.
Beginning in 2009 the Federal Housing Finance Agency (FHFA) launched the Home Affordable Finance Program (HARP) as a way for homeowners who are current on their existing mortgage loan but have little or no equity, to take advantage of low mortgage rates. According to FHFA, HARP-eligible homeowners could save approximately $2,400 per year on their mortgage payments. Some could save more (3). However, as of December 31, 2018, this program has been discontinued and replaced with “high-LTV Refinances” (Fannie Mae) and the “Freddie Mac Enhanced Relief Refinance” or “FMERR”.
According to theMortgageReports.com(3) here is some information you may want to know if looking into either of these options.
You can refinance with these programs more than once. However, you can’t refinance a HARP mortgage to either of these HARP replacement programs
The cutoff date is different from the original HARP, which only allowed loans originated before June 1, 2009. The replacement loans can refinance only mortgages originated on or after October 1, 2017
Unfortunately, homeowners with a loan that started between June 2009 and September 2017 won’t be eligible and must refinance with a standard program
You must use the Fannie Mae option if your current loan is with Fannie Mae, and the Freddie Mac loan if your existing mortgage is with Freddie Mac
The new loans must close on or after January 1, 2019
If you are not eligible for any of these programs, you may decide to move on to selling your home based on a few of the following options.
5. Sell your home through a short sale process.
A short sale is when the lender accepts a purchase price less than what is owed on the property. This is close to one of the last options you should take when you are upside down on your mortgage.
This option will still hurt your credit, but typically not as badly as a foreclosure. With a short sale on your record, it is clear you were actively participating in trying to solve the problem rather than walking away. The National Association of Realtors states that with a short sale, you may be able to buy a home again in as little as 2 years but with a foreclosure on your record it could take as long as 7 years.
Short sales are great when they work, but finding a buyer and getting your lender to agree to sell the house for less money than you owe can be extremely difficult. You also may be required to pay federal income tax on the difference between what you owed on the home and what it was sold for so it is advised to check with a lawyer or CPA if considering a short sale.
6. Foreclose on your home.
The very last option you should think about when your mortgage is upside down is foreclosing on your home. You will lose control over what happens to your home, but it can also ruin your credit score for up to seven years. No new mortgages for seven years.
You may not want to buy another house for a while! But remember a bad credit rating can also make it difficult to rent an apartment, or even get a job.
With a foreclosure, the bank takes control of your house and will liquidate it quickly in order to recuperate as much money as they can. You will be evicted if you still occupy the home and your credit will be damaged.
When you sense a foreclosure looming on your property, reach out to your bank and ask about options to retain your property. Some banks will allow extensions when there is a note or letter of guarantee outlining your commitment.
We strongly advise against this unless you have exhausted all other options.
If you have questions or would like a free consultation session (with no obligation), Riddick Property Solutions is a great resource to turn to.
So what does all of this mean?
You may not want to lose your home. But you do have options.
In an era when 5.2 million homes are labeled upside down on their mortgage, you have options.
To speak with an unbiased party that will help layout all of your options, Riddick Property Solutions LLC. is here to help. Their specialty is helping homeowners who are trapped in an upside-down mortgage that must sell. As the leading creative real estate advisory firm in the Hampton Roads area, they are equipped with answers and want nothing more than to help sellers with low equity, no equity or negative equity get a full price offer.
To discuss your options with a professional, feel free to contact us at joe@RiddickPropertySolutions.com for a free consultation.
Know your options and get started today. (757) 257-2517