Your house is underwater. Now what?

Your house is underwater. Now what?

What do you do if you need to sell a house that is underwater? The term underwater refers to a situation where the market value of a home drops below the amount you owe on the mortgage.   This can have detrimental effects on the financial standing of the home if the market does not improve. For instance, if the lender on the home’s mortgage does not receive a monthly payment, and you as the homeowner are either already in default on the loan, or if you are in danger of falling into default, then being underwater could leave you very limited choices when it comes time to sell a home. However, the good news is that there are ways for you to sell your home even if it’s underwater.

Do a short sale on your home. If your house is underwater and you need to sell your home now, a short sale is likely the best choice. While this option has its downsides, like the possibility of it  reflecting negatively on your credit score, or leaving you with debt even after your home sells, it is often a better option than dealing with a negative mark of a foreclosure. If you do a short sale on your home the difference between what you owe on the mortgage and the amount it sells for is called a deficiency. The deficiency is sometimes waived if all parties agree to do so.

Delay your home sale by earning rental income. Alternatively, if you don’t have to sell your home now, you could rent the house out to help alleviate some of the costs of having a mortgage. You would need to consider whether the rental income would be enough to cover the mortgage payments. If there is enough space in the property, there is also the option of staying in the home while renting out a spare room or two. If everything falls in line, then turning your home into a rental property is a viable way to get out from underneath your home’s mortgage.

Refinance with HARP.  There is also the option of refinancing with a program like HARP (Home Affordable Refinance Program). If your loan is owned or guaranteed by Fannie Mae or Freddie Mac, the program allows you to refinance your home loan as long as you are not behind on your mortgage payments. There are usually refinancing fees that come with HARP if you qualify for the program. However, it is put in place to help people who are unable to refinance their mortgages through traditional means because their homes are underwater.  Refinancing your mortgage to make your monthly payments more affordable is an alternative to selling your home now.

If you’re realizing that your options for selling your home are limited, reach out to a Better Homes and Gardens Real Estate agent to see if a short sale is the right choice for you.