What are your options in case your mortgage is underwater?

Being underwater in your home is scary. You may feel overwhelmed, but believe us, this is not the end of your financial history! You still have options to make a difference! We will review some of the most common scenarios and find out which options are best for you.

 1: Stay at home and work to create more equity.

Staying at home and paying slowly takes a lot of patience and discipline. We will not soften it! You may need to take up another job or help yourself increase your income. This can mean cutting your budget to the basics and spending all of your extra income on your home. But here’s the big part. Once you have paid more of your capital, you will see the light at the end of the tunnel. And you will not lose your home. They could have given up and stopped paying, but they loved their house and decided to dig. After paying off all their consumers’ debts to free up their income, they invested more and more money in their mortgage.

Thanks to their hard work, they had enough capital in their house to refinance themselves a few years later. They opted for a 15-year fixed-rate mortgage with a payment they could really afford and which did not fluctuate as interest rates went up and down. With affordable mortgage payments and equity in your home, you’re well on your way to building wealth and leaving an inheritance for your family! 

 2: Refinance your mortgage.

OK, let’s be clear about this: you can’t really refinance your home if you owe more than it’s worth. Most lenders do not allow traditional refinancing until you have at least 20% equity in your home. However, if you are underwater at home, you can qualify for the HARP program. This program was created in response to the 2008 real estate crisis and gives you the opportunity to refinance yourself if you are upside down in your home. To be eligible, you must have made your mortgage payments on time in the past six months (and no more than one late payment in the past 12 months). This also only applies to owners with loans taken out before March 21, 2009, and holding less than 20% of the capital. If you are interested in this option, you should seek advice from a trusted lender. 

 3: Sell your home and use your savings to pay the amount you still owe.

The first two options, where you pay more for your mortgage or plan to refinance, are supposed to stay in your home. And just to repeat, it’s your best option if you’re underwater. If you stick to it, you can take advantage of market conditions that improve and increase the value of your home. It can be a crazy race, but you don’t really lose money. But there are other scenarios, and one is to sell your house. If you sell now when your home is low in value, you will lose money. The only way to sell your house underwater through a normal sales process is to have the money to make up the difference between what you owe and the value of your house.

4: Sell your home through a short sale process.

A short sale is only an option if you can’t afford your monthly mortgage payments, your home is worth less than your current mortgage balance, and you don’t have the money to make a difference. In a short sale process, the lender must agree to sell your home for less than you owe him. This is not a great situation for them (as they are losing money), so they will only consider this option as a last resort before foreclosure.

If you want to sell your home through a short sale process, you need to show your lender that you cannot afford your monthly payments and that you have no way of making up for it. 

5: Foreclosure at your home.

In a foreclosure situation, the lender takes control of your home because you cannot make your payments. If you still live in your house, you will be evicted. Then the lender will sell the house as soon as possible to try to get as much money as possible. You don’t want to go there! Do your best to avoid foreclosure. You don’t want to feel the emotional stress of violently losing your home. In addition, you usually have to wait seven years before getting another mortgage. If you can’t buy your house, foreclosure should really be the last option after trying everything.