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.
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.
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.
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.
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.
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.