Do you owe more than your house is worth? You are not alone. Many homeowners are finding themselves in with a house that they owe more than its current market value. So what should you do?
While we hope that you never end up in any situation like this, there are some ways to help you get back to dry land. Here are some options for homeowners with “underwater” mortgages:
Stay and Pay
Compare the monthly mortgage payment, plus carrying costs like repairs, homeowner dues and taxes, to the cost of renting. If you decide to stay and pay, you may be able to get financial help to catch up with payments if you run into a financial hardship. For example, the Emergency Homeowners Loan Program (EHLP) provides interest-free loans to homeowners who have fallen behind on their mortgages. Make sure to check with a HUD-approved housing counseling agency in your area to find out which programs may be available to you.
The Home Affordable Refinance Program (HARP) helps homeowners who qualify refinance into a low, fixed-rate loan. The program has been extended through December 31, 2015. For those who qualify, the terms are similar to those of any other conventional loan, but without the steep mortgage insurance that is typically required when there is less than 20% equity in the home.
A loan modification means lenders lower the interest rate and payment, either temporarily or permanently. Lenders will also typically extend the term of the loan or to allow borrowers to make up missed payments by tacking them onto the end of the loan or spreading them out over the remainder.
The most well-known modification program is the government-initiated Home Affordable Modification Program. The Treasury Department reports that homeowners who were successful in getting permanent modifications on their loans through this program saw a median reduction in their monthly payment of 40 percent—more than $520 each month—amounting to a program‐wide savings for homeowners of an estimated $4.5 billion.
A short sale is when you sell your home for less than you owe. For the homeowner/seller, the goal is to get the lender to approve a short sale and forgive any remaining debt. Lenders do not always accept a short sale. It seems to make sense rather than allowing a home to go into foreclosure, but the red tape involved in a short sale can sometimes be overwhelming. The Home Affordable Foreclosure Alternative program (HAFA) is a government-initiated short sale program.
Foreclosure can have financial, legal and tax implications. For many homeowners, this is their last alternative. Fortunately, there are requirements from lenders that give you time to consider your options. However, be forewarned that foreclosure notices are public information, so beware of con artists that try to offer you a “rescue” deal. Never give into one of these.
If you need to stop a pending foreclosure, bankruptcy may halt a foreclosure long enough to get a loan modification considered. Filing Chapter 13 can help you catch up on payments over five years without interest. You may be able to reduce or eliminate other debts, freeing up more money to pay toward the home mortgage so you can get back to positive equity more quickly. This can be a very serious decision so it is imperative that you talk with a bankruptcy attorney before the foreclosure or short sale is completed.