Almost everyone is aware that the housing market is in a crisis. More and more people are getting foreclosed on, and others are finding out that they are upside down or underwater on their mortgage. What this simply means is that the mortgage balance is more than the house is worth. Some people are under by thousands, but some are under by hundreds of thousands. Now, if you are underwater on your mortgage, you do not necessarily have reason to panic. You must consider all options.
First, you must ask yourself, “Can I afford my payments?” If the answer is yes, you might not be in a horrible situation. Second, ask yourself, “Do I have to move at this time?” If you do not have to relocate because of a job, etc., you should probably carry on as you were. You should not try to move to a bigger house or better location if you are underwater. In fact, if you can afford to pay a extra toward your mortgage, you might consider doing so. This will lower your principle and narrow the margin by which you are underwater. In addition, if the housing market recovers, you have that much more equity in your home that you can reinvest in another home or somewhere active .
But if you cannot afford your payments, have to move, or both, what can you do? First of all, do not make any hasty decisions. Gather information before you sign any paperwork and get yourself into an even bigger financial scrape. Here are some options that you might consider:
– Government Assisted Refinance. If your current mortgage is an FHA, you might check into an FHA Streamline Refinance. There is also a HARP loan, which stands for Home Affordable Refinance Program.
– Deed in lieu of foreclosure. This involves the homeowner’s giving up the house to the mortgage lender rather than waiting for the lender to start formal foreclosure. The homeowner may or may not have to pay deficiency
– Short Sale. To do a short sale, you must get your lender to agree to accept the money from a sale even though it is less than the balance. The mortgage company might or might not forgive the deficiency.
– Loan Modification. A loan modification’s purpose is to lower the homeowner’s monthly payments by making changes to the interest rate or term. This helps the borrower stay in the house and allows the mortgage company to still collect some money that is owed.