What Should You Do if Your Home’s Value Is Less Than Your Mortgage?

Over one-third of American’s who purchased homes in the last five years are discovering that their home’s value is less than the mortgage. Real estate used to be considered a no-brainer investment. You’d purchase a house, and it would continue to increase in value over time — but right now, for many homeowners it just isn’t the case. People are finding themselves with homes that have decreased in value or a mortgage higher than what the home is worth. In other words, even if you could find a buyer for your home, you’re not going to get what you owe for it.

What can you do if you’ve got an underwater mortgage? If you’re able to keep up with your payments, you should probably do nothing at all except sit tight and make your payments! Looking to sell your home when you not only cannot turn a profit, but can’t even get what you owe, is not the best move.

On the other hand, if you’re struggling to keep up with your mortgage payments and other financial obligations, what are your options to avoid foreclosure? Selling the home for less than you owe results in more financial distress, but there are a few options you may not be aware of.

Contact your lender

Most people who fall into financial problems avoid mail and phone calls from their mortgage lenders. This is probably the worst thing you can do. If the lender believes you can make the payment and you’re just not paying it, they have no choice but to send you a foreclosure notice after a few months of skipping the payment. On the other hand, if you talk to them about the situation they may be able to offer you alternative options that allow you to keep your home.

In fact, lenders would prefer to help borrowers keep their homes rather than foreclose on them. An estimated $60,000 or more is spent by banks on every home that enters foreclosure, not to mention over a year and a half of time to resolve the situation. Talk to your lender — 90% of homeowners in financial distress who work out a new payment arrangement with their mortgage lenders are able to turn their situation around within 18 months and keep their home.

Avoiding foreclosure

The options your lender may offer you when your home’s value is less than the mortgage and you’re having trouble keeping up with your mortgage payments include:

• Partial reinstatement. The back balance owed is divided over a period of 12 months or so, then added into your regular payment until it’s caught up.

• Short-term forbearance. You may go without having to make a payment for about three months, which should give you a chance to get caught up financially. In some cases, the lender might reduce your payment for six months, with the difference in what was owed then added into monthly payments for a year following the short-term forbearance to get caught up.

• Long-term forbearance. In some situations, you might qualify to skip payments for four to 12 months, with a new payment arrangement created at the end of the specified period of time.

• Loan modification/refinance. Sometimes the lender will create a permanent change in one or more of your loan’s original terms. You may receive a lower interest rate or longer repayment terms in order to make your monthly payment more affordable for your new financial situation.

Remember: It pays to discuss your mortgage problems with your lender. After all, the home you save may be your own.

Tags: avoiding foreclosure, home mortgage, underwater mortgage

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