Homeownership comes with various responsibilities. Apart from making sure it is in good condition, you also need to make timely payments on your mortgage.
According to Statista, American homeowners in 2020 owed as much as $17.6 trillion in mortgage debt which has become the cornerstone of the American Dream.
Buying a home gives you the advantage of locking in on a mortgage rate that stays the same throughout the life of the loan. However, you may need to get the most out of your investment as property values fall.
What is an underwater mortgage?
An underwater mortgage pushes you to a corner where you don’t have enough equity to save your home from going into foreclosure.
Your mortgage is considered “underwater” if you are paying a rate that is higher than the fair market value of your home. Thankfully, there are some ways of dealing with an underwater mortgage.
1. Get an LTV Refinance
One way you can keep your underwater mortgage afloat is through refinancing. This allows you to renegotiate your loan terms and secure a lower interest rate.
There are several underwater mortgage refinancing options to consider, but if you haven’t built enough equity yet, you can look towards several alternatives.
If you have financed your home through Fannie Mae, consider getting a high loan-to-value (LTV) refinance. Under this program, you can reduce your interest rate or shorten your amortization term.
To qualify, you need to make sure you haven’t had 30-day delinquency in the past six months. Nonetheless, this type of refinancing option is ideal if you want to pay less interest but you don’t have enough equity to qualify for a cash-out refinance.
2. Consider the Short Sale Process
Homeowners who fall behind their mortgage payments could face the risk of foreclosure. In this case, they may need to hire a foreclosure defense lawyer who can protect their investments.
Otherwise, the banks that owned these loans will have to proceed with foreclosing. If you go through this, your credit score will take a toll and you may not be able to qualify for a new loan in the future.
To avoid foreclosure, you can always request your lender to proceed with a short sale process. With this, you allow the lender to sell your home at a lower value and forgive the amount you still owe. However, this is subject to the lender’s approval, so make sure to have a real estate professional arrange for a short sale. You also need to come up with a hardship letter detailing why you are falling behind on your payments.
3. Stay and Keep Paying
It would make more sense for some homeowners to ride out of today’s market by staying in their homes and making payments even if their homes are losing value.
However, MarketWatch.com reports that a majority of homeowners in 2018 simply like their homes so much that they wouldn’t dream of moving out. Some may even find it more expensive to leave their homes and find a new one elsewhere.
Having an underwater mortgage isn’t the end of the road. You can still thrive in the American Dream if you know the best options you can use.
How can I get out of my underwater mortgage?
Here are the best options to consider if you want to get out of your underwater mortgage:
- Consider the short sale process.
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