If Your Home Is Underwater, What Are Your Options?
Every homeowner hopes to avoid an “underwater home”. Your home being underwater is referring to when the home's value has fallen below what you currently owe on the mortgage.
For example, a house that was purchased for $350,000 with a 10% down payment ($35,000) and a year later is estimated to be worth $275,000, would be considered underwater because you owe more than that on the mortgage.
In these circumstances, homeowners may feel scared, but there are options you can choose from and it doesn’t necessarily mean you will lose your home or even have to sell your home to make the problem go away. Here are a few options to consider if your home is underwater.
*This article is only for informational purposes. Before completing any real estate transaction, consult with a real estate agent, mortgage and/or home loan professional.*
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Build Equity by Keeping the Home
Staying in your home may be the most advantageous option for you. The homeowner can opt to stay in the home and pay their mortgage if they have the means to do so. A dip in the housing market leads to homes losing value temporarily, but they will likely rise again in the future. Homeowners who are patient can likely regain all or most of their home's value.
Rent the Property or Find Roommates
If you don’t want to take a loss on the property, consider renting it. This will help you build equity using other people’s money while you wait for the property value to appreciate so your home is no longer underwater. Of course, this means you will have to find another place to live or have other people living with you. But it can beat having to sell the home at a loss.
Selling the House through a Short Sale
Short sales are usually the last option for most homeowners. In cases where the homeowner can't pay their mortgage and won't have the money to repay the loan even after selling their house, a short sale is often the next best option.
Homeowners and lenders must agree to a short sale to allow the homeowner to sell the house for less than what is still owed. Due to the loss of money incurred by short sales, lenders generally do not want to go this route, so evidence showing the owner can't pay the mortgage must be provided.
Some homeowners may not be able to refinance their mortgage to reflect the new value of their home. Refinancing a loan is usually difficult when less than 20% of the original loan value has already been repaid. Homeowners who meet this requirement should call their lender to discuss refinancing.
Having your home lose significant value and go underwater is not the most fun experience for homeowners, but with smart planning and decision making, you can make the best of the situation.
If your home is underwater or you think it could become underwater and you want to sell before this happens, fill out the form below to speak with a real estate agent or mortgage professional about your options.