Many people are finding that their home is worth less than the amount they owe on it, and even less than the amount they originally financed it for.
Why is this? There’s a simple answer. When the real estate boom was in full swing, homes were being sold for much more than they were realistically worth. Call it bad judgment if you want, but when every expert available is telling someone that a mortgage is easy and that a home is a priceless investment, it doesn’t mean that the homeowners are really the ones who should shoulder all the blame.
If your mortgage is now underwater, there are some things you can do that may help. Here’s the shortlist.
You have to qualify for refinancing and the bank has to agree to it. These are the principal barriers to people who want to get their home down to a realistic value and, especially if you’re keeping up with your payments, the bank may not agree to this.
Ask About Principal Reductions
Another case where banks are very hesitant to help anyone they sold home financing to is the case of a principal reduction. This means forgiving a certain amount of your loan based on the fact that the value has precipitously declined. Needless to say, this is a very tough sell.
Government Assistance Programs
The government launched the HAMP program to help homeowners address their issues with underwater mortgages in 2009. To date, only 600,000 of the project’s goal of over 4 million homeowners have been helped. You’ll need to qualify for this program and, even where people have made use of it, it hasn’t provided that much help, with many homeowners being unable to pay their mortgages anyway, even with assistance.
The Short Sale
This is when you sell your home for less than what you currently owe on the mortgage. It’s something you may want a realtor to help you with, because you’ll have to convince the bank that:
1. You won’t be able to pay your mortgage for a long time, if ever.
2. You can sell the house quickly and get them the cash they are owed.
This type of a sale is designed to help the bank avoid foreclosure on our home. Even though millions of homes have been foreclosed upon, the bank actually loses out in this arrangement. The bank has to take over the maintenance of the property, the cost of selling it, the insurance and the taxes on the property until they can unload it.
However, if worse comes to worst, banks generally prefer this situation to someone just walking away from their mortgage.
Other Methods of Help
Currently, there really isn’t much in the way out there for other types of assistance not listed above. Government programs have been lackluster, and bank programs have been more oriented toward keeping payments rolling in, than they have been in helping homeowners stay in their houses.
If you live in certain areas where the real estate market has been devastated, however, you may qualify for some types of assistance or get preferential consideration from banks. If you’re in Las Vegas, NV, for instance, you may be able to get assistance due to the particularly hard hit that Vegas too due to the real estate crisis.