If you owe more on your home than it is worth, you are said to be underwater on a mortgage. For example, maybe you took a mortgage for $300,000 in 2018 to buy a house that’s now worth $250,000 in 2021. If $280,000 remains on the mortgage, you’re considered to have an upside-down loan.
You could be underwater for two reasons: a decrease in property value or missed mortgaged payments. While missing mortgage payments can happen for various personal reasons, property prices could fall for several reasons outside your control. For example, your neighborhood may have become a crime hotspot or a local school closes. Sometimes, local businesses closing in rapid succession could bring down property prices.
If you are stuck in a similar situation, here are a few things you can do.
1. Continue Paying the Mortgage
Supply and demand dynamics evolve continually in response to real estate trends. If the reasons causing the downfall are temporary, you can continue repaying the mortgage and build equity over time. You could make lifestyle changes to cut down expenses and pay the mortgage faster.
But if it seems to be a lingering problem or something that will unlike reverse in the future, consider other options like checking with the lender for a principal reduction or applying for a loan modification.
2. Consider a Short Sale
In a short sale, you sell the house for less than what’s owed to the lender. In this type of sale, the lender forfeits the rest of the money owed. First, you will have to discuss this option with the bank to explain your situation and prove that you cannot afford monthly mortgage payments. But this process is subject to the lender’s approval.
Short sales are complicated. You will have to find an expert real estate agent who’ll help you find the right buyer. It also affects your credit score and your ability to take out a mortgage in the future.
3. Refinance the House After Building Equity
You can continue building equity on the property and apply for a mortgage refinance when eligible. Typically, lenders want you to have at least 20% equity before approving refinance loans.
Two federal programs allow homeowners to refinance their mortgage: The Fannie Mae High LTV Refinance Option and The Freddie Mac Enhances Relief Refinance. You can contact them to check if you are eligible.
4. Contact a Cash Home Buyer
As cash home buyers in Dallas, we buy distressed properties, including homes with underwater mortgages. Our solutions are essential for people who’re underwater because of missed payments.
Even missing a single payment could put you underwater because of compound interest charged on home loans.
At KeyRoo, we buy houses in Dallas for cash and in less than seven days. If you cannot afford to make mortgage payments, consider selling it to us. Since we’re direct buyers, you don’t have to hire a realtor or pay for repairs and other expenses. You don’t have to pay for closing formalities or other contingencies. We’ll take care of everything, including the junk that’s left behind after you move.
The author is a real estate investor. He helps homeowners who need to sell their houses fast in Dallas.