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Upside Down with an Underwater Mortgage?

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Real estate is traditionally a sound investment. Steadily growing in value over time, people have long relied on the equity value in their home to trade in to larger homes or completely upgrades and renovations. Unfortunately, this changed with the housing crisis of the last decade.

Homeowners across the country watched in horror as their property values tumbled lower and lower. With property values lower than the amount owed on the mortgage, homeowners have been desperate for mortgage relief.

Understanding Underwater Mortgage Options

If you owe more on your home than it is worth, then it is underwater. You will not be able to sell your home without putting money towards the remaining balance. However, you are not without your options. Here are a few steps you can try to correct the problem and put your finances back in order.

Walk Away

If you are underwater on your mortgage, you can walk away from the house and the debt. However, this is not as easy as it first looks. The mortgage company will eventually repossess the house and auction it to the highest bidder. Fees in the meantime will rack up and be added to the amount you owe on the property.

When they auction the house, the difference between your balance including all the fees and the auction amount will be billed to you. They can sue you for the difference, and they can even garnish your fees. If you pursue this option, you should consider filing bankruptcy and including the house in the bankruptcy proceedings.

Short Sale

If you know you cannot afford the house, you can try to find a buyer. With a short sale, the bank agrees to accept a lower bid amount before going through the foreclosure process. You will not have to pay the difference between the selling price and what you owe, and the bank will save money by not having to foreclose. The process can take months, so allow plenty of time for this option to work.

Refinance Mortgage

Refinancing your mortgage allows you to extend the balance out over a longer period and enjoy a lower payment. When the housing industry first stumbled, too many homeowners discovered that this wasn’t an option. Fortunately, there are options available for you to refinance your home.

Home Affordable Refinance Program

The HARP refinance program is designed to help homeowners who are behind on their payments refinance the mortgage. Even if you owe as much as 125 percent more than the value of the home, you can still get a new loan with more attractive rates using the HARP refinance program. Your loan must be owned by Fannie Mae or Freddie Mac for you to qualify for the home affordable refinance program.

HARP 2.0

The next generation of the HARP program, you don’t have to be behind on payments to qualify. One of the most attractive underwater mortgage options, the home must be financed by Fannie Mae or Freddie Mac. You will not be required to pay mortgage insurance if you did not have it previously, so you can enjoy a lower rate that you can afford when you qualify for HARP 2.0.

HAMP for Severe Hardships

Being upside down in the house is stressful, but missed payments are a bigger problem than negative equity. When you have a severe financial hardship that puts you at risk for foreclosure, you may qualify for this mortgage relief program.

The mortgage must be with Fannie Mae or Freddie Mac, and you must be in imminent danger of losing your home. With changes to the contract terms, your house payments can be lowered for up to 60 months. In the sixth year, the new refinance mortgage will start to rise at a level of just one percent per year.

FHA Streamline Refinance

Refinancing your loan with this option is very attractive. You can reduce the interest rate on your home without having to invest in an appraisal, and the loans require less paperwork. You must currently have an FHA loan that is in good standing to qualify for FHA streamline, and you cannot have significant debt elsewhere. However, if your credit score is high, this is an attractive option.

Obama Mortgage

Also known as the Making Home Affordable program, this program has specific requirements. Borrowers must be current on their payments and they can only refinance their primary residence. The home must be financed with Fannie Mae and Freddie Mac, and your loan-to-value ratio should be over 80 percent to qualify for the Obama mortgage.

VA Streamline Loan

A VA streamline is a loan modification program for people with VA loans. You can get lower rates and attractive terms that are more affordable for you. Loans must currently be backed by the VA to qualify, but negative equity is okay. However, you should still have a good credit score.

When you are struggling with negative equity and an upside down mortgage, you may feel like there are no options. However, there are several loan modification options available to help you. Even if you don’t have a mortgage from the VA, FHA, Fannie Mae or Freddie Mac, you should still call your lender to see what your options are. They can let you know how to start a short sale process, or they might be able to refinance your home even though you are upside down.

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