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Steps to Do When Your Home is Underwater

  • When you buy a home, you think that everything will be all right, but it doesn’t always work out that way. Of course, no one wants to be underwater on a mortgage loan, meaning you owe more on your loan than what your home is worth. If you are in the same situation, you probably want to refinance. Refinancing options for so called “underwater” mortgages are limited because most lenders require some equity in the property. However, borrowers should not give up, there are some steps you can take to turn things around.

    Call your lender

    When you’re underwater, contact your lender as soon as possible and ask if it is possible to reduce the principal balance of your mortgage loan. If you have been timely with your payments, lenders are more likely to offer some assistance. You also might have more chances if you’re actually suffering a financial hardship. You’ll need to meet the lender’s requirements, for instance to provide information to prove that you have a financial hardship.

    Adjust your budget

    It will be a good idea if you can rent the house for enough to cover the expenses of ownership, then you can move into a less expensive place and live there. Even if the rent doesn’t quite cover the costs, you can still come out ahead if you can find a place to live that’s cheaper. If you don’t like the previous variant, you can find the funds to make a larger mortgage payment each month. For this purpose eliminate any unneeded expenses. This principal will help you pay off your loan faster.

    Short sale option

    If you are in a situation where you need to sell because you will not be able to afford the home, even with a restructured payment, you should consider a short sale on the home. This is where you work with the bank to accept less money than the loan is worth in order to sell the home. Many banks will work with you if you are already behind on payments or if you are close to going into foreclosure. Some banks will forgive the difference between the selling price and the amount you owe. Others may want you to agree to pay the difference by taking out an unsecured loan.


    Use Government-backed programs

    If you find yourself in a situation where you can no longer afford the payments on your home, you may be eligible for a refinance through the federal Home Affordable Refinance Program, or HARP. This program allows qualified borrowers to refinance a loan that is from 105% to as high as 125% of a home’s value. However, not every underwater loan qualifies for HARP. First, you must not to be on the road to foreclosure. Any delinquent payments in the past 12 months will automatically disqualify you from eligibility. To see if you can qualify, you should contact your lender.

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