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Is Your Home Underwater?

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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.

Refinance

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.

Loan Modification

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.

Short Sale

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

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.

Bankruptcy

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.

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Selling Your Home When Facing Foreclosure

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Looming foreclosures can leave you feeling helpless. However, it is still possible to sell your home and avoid the foreclosure, if you can move quickly enough. Of course, trying to sell a home while racing against the clock is never easy. But don’t worry: there are ways to get aggressive in selling your home quickly and for a reasonable price.

Of course, the first order of business is to price your home correctly. This means not trying to eek out every extra dollar of your home. When you’re looking to move a home on the market quickly, you’re going to need to under-price the competition considerably. At the point of facing foreclosure, you just need to take what you can get, especially if the home is perfectly fine and is comparable to other homes on the market.

However, you want to make sure that you get a real idea of what your home is worth, so that you’re not selling yourself short. Your real estate professional can help you with a Comparative Market Analysis (CMA), which will outline recently sold properties that are similar to yours, while also comparing your property to those that are still in pending sales, and others still currently on the market. Some experts will suggest pricing your home 10% below the price of the most recently sold home in your neighborhood.

The next thing to do is communicate with your lender. During a foreclosure, you will need to get the go-ahead from your lender in deciding how low you realistically you can sell the home. Ask your lender to give you some indication of how low of a sale price they will accept. If you are owing more than your home is worth, it may be best to complete a short sale application with your lender.

Even in the face of foreclosure, you can still sell your home quickly and avoid the black mark of foreclosure on your credit report. While it may be hard to accept many thousands of dollars less than what you paid for your home, your credit report will thank you, and you will be better off in the long run.