Help! I Owe More on My House Than It’s Worth
Many people experienced the gut-wrenching experience of being upside-down on their home when the economy took a hit in 2008. While it is common in certain areas still, the good news is the statistics are becoming less startling as home values are rising compared to what they were during the recession. Still, this provides very little comfort if you are making payments every month to pay a mortgage that’s much larger than what you could sell your home for.
What can you do if you owe more on your mortgage loan than what your house is worth?
Here are the most common options for homeowners in this situation:
- Stay in the home
- Refinance or modify the loan
- Sell or rent the home
- Short sale
Stay in the Home
It makes sense why people continue paying their mortgages even though it may take years to get up to the point where the home is worth more than what you owe on it. Homeowners worry about damaging their credit by going into foreclosure or skipping payments. Many feel guilty because they understand debt as something that must be paid back. If staying in the home is an option, it is usually the best option to avoid damage to your credit rating or living situation.
It can be very easy to be emotionally invested in a home you grew up in or raised a family in, and it can often be hard to let go even if it may be in your best interest.
There are government agencies available to provide assistance to families to avoid foreclosure. The U.S. Department of Housing and Urban Development may have a program in your state to help if you have fallen behind on mortgage payments. These programs will have different qualification guidelines but the HUD housing counselling agencies are there to help steer you in the right direction, regardless of your situation. You can start your search here.
It is best to compare the monthly mortgage payment, plus repair costs, dues and taxes, to the cost of renting to determine whether staying in the home is the best option.
Refinance or Modify the Loan
Homeowners who owe more than the value of their home may be able to qualify for refinance options that are available through HARP (Home Affordable Refinance Program). HARP is a streamlined refinance option available for borrowers with high loan to value ratios. To qualify for this option, homeowners must meet certain criteria including being current on their mortgage payments in the last 6 months, and must have a source of income coming in. According to the Federal Housing Finance Agency, HARP refinances reached over 3.4 Million since May of 2016. They also estimated that there are still many borrowers who are eligible for the program that have yet to apply.
Modifications to loans can help homeowners by lower the interest rate and payment. Lenders may also have the option to extend the term of the loan or allow homeowners to spread out missed payments over the entirety of the loan. Loan modifications through banks are often hard to obtain. One of the most well-known loan modification options is the Home Affordable Modification Program. The program is specifically designed for homeowners who may be struggling with financial hardship. Those who qualify may save around $500 per month.
Sell or Rent the Home
Many people want to avoid foreclosure at all costs. A foreclosure can drop your credit score by 85 to 105 points. It can take up to seven years to fully recover from a foreclosure which will make it difficult to buy a new home or participate in anything that involves financing. Being upside-down on a mortgage can be stressful and make you feel like you have no other option. There are always options to consider before foreclosing on a home. Foreclosure should be a last resort.
Rent to own options are popular with homeowners who are upside-down on their home because they have income to pay the mortgage and it can buy them time. Rent to own options match homeowners who cannot sell their homes to those who cannot qualify for mortgages. This option does require the homeowner become a landlord and they must rely on someone else to make the payments.
It can be difficult to sell a house that has a high loan-to-value ratio. Legally speaking, the homeowner cannot accept an offer for a portion of the mortgage price because they must pay off the mortgage to sell the home. Short sales allow homeowners to sell the home for less than it’s worth and sign a new agreement with the bank. In this case, you would work with the bank and come to an agreement on what they will accept. The bank loses money if you default on your loan, which is why many banks will allow a short sale to avoid taking losses. A short sale can impact your credit, but in most cases, is not as detrimental as a foreclosure. Short sales are common when homeowners need to sell a house fast.
If you find yourself in a position where you need to sell a house fast and move on with your life, contact We Buy Ugly Houses®. We can offer you a fast and fair consultation of your home with no obligation.