Purchasing your first home feels like a dream come true. You’ve worked hard to establish the financial security that allows you to go out and secure a mortgage.
After a tedious process, you’ve finally been approved for a loan and become a new homeowner. It feels like a weight’s been lifted off of your shoulders. However, a new problem is potentially on the horizon.
Your home’s value has dropped for some reason, but unfortunately, you still owe the same loan amount that you were approved for. That means that your mortgage is now “underwater.”
Don’t let it panic you; it’s a situation that millions of Americans go through. But there are different methods to help you get over the hump.
Today we’ll break down underwater mortgages, how to know if you have one, and the different ways to get through. Continue reading to learn more.
What Is An Underwater Mortgage?
An underwater mortgage refers to a mortgage loan that’s worth more than the current value of your property. For example, let’s say you got a mortgage of $300,000 four years ago.
Everything has been fine up until that point, but recently, property values in your area have started declining, which subsequently affects your home.
So now, instead of your home being worth the $300,000, it falls to $240,000. But you still owe the $300,000. Since you owe more than your home’s worth, your mortgage is considered “underwater” by $60,000.
How Do You Know When Your Mortgage is Underwater?
If you have a slight inclination that you may have an underwater mortgage, don’t panic. You can figure it out by following three simple steps:
- Determine the amount you owe on your mortgage. You can find it on a recent mortgage statement or online. You can also contact the mortgage company that supplied the loan if you’re having trouble accessing the information.
- Figure out your home’s current worth. Determining your home’s value can be complex because some methods may be more accurate than others. However, you can either talk to a real estate agent or hire an appraiser for a more concrete answer.
- Subtract your deficit from your home’s current value. Like we stated in our example above, some quick calculations will let you know how much you’re underwater.
Related: How to Get a Mortgage: What You Need To Know
How Can I Get Out Of My Underwater Mortgage?
We get it! You’re in a scary situation right now, and it’s easy to get overwhelmed. However, you will get through it. There are still various ways to get out of your underwater mortgage. Let’s check them out below.
1. Work To Build More Equity
If you don’t want to leave the home you’re in, you can stay in it and work to build more equity. Truthfully, this option requires a lot of hard work and discipline, but it is manageable.
You may need to take out another job or work on a side hustle to increase your income. Unfortunately, it also means that your extra money is going towards your home.
But after paying down some of the principal, you’ll start to see the finish line. Furthermore, you won’t lose your house. To figure out the amount you’ll need for your situation, use a mortgage payoff calculator. That way, you can plan accordingly.
Related: How to Pay Off Your Mortgage in 5 Years
2. Refinancing a Second Mortgage When Underwater
Refinancing is an option, but it can’t be done while you’re mortgage is underwater. Most lenders will only allow refinancing when you have at least 20% equity in your home.
However, if you’re underwater, you may be eligible for the HARP program. It was created due to the 2008 housing crisis and allows you to refinance your home.
To qualify, you’ll need to have made on-time mortgage payments for six months straight, with one late payment allowed in twelve months. But it’s only for those who’ve had a mortgage loan that originated before May 31st, 2009, and have less than 20% equity.
If you’re looking to modify your mortgage, check out various options that Mares Mortgage offers!
3. Sell Your Home
The first option that we recommended is one of the best ones because it allows you to stay in your home and potentially benefit from improving market conditions over the following years. Also, you won’t lose any money.
However, at Mares Mortgage, we also understand that you probably don’t want to stick with it because of how tedious that process is. In that case, you can also sell your house.
But when you sell your home while being underwater, you’ll lose money. You’ll need to use your savings to make up the difference between your home’s current value and what you owe.
4. Foreclosure
If you’re out of options and don’t think you can make up the mortgage payments, the lender will foreclose on your home. They take control of it and will try to sell it as quickly as possible.
If you’re still living in the house, you’ll get evicted. No one wants to go through the emotional stress of eviction. On top of that, you wouldn’t be able to get another mortgage for at least seven years! Foreclosure should be the very last option if you’ve already tried everything else.
Related: What Happens to Your Mortgage When You Sell Your House
Talk To Mares Mortgage About Your Underwater Mortgage
Having an underwater mortgage can be a stressful experience. Debt is piling up, and you don’t think that you’ll be able to overcome it. But don’t worry, you don’t have to tackle it alone.
Instead, you can ask Mares Mortgage for help to figure out the best way to tackle your underwater mortgage. With our experience and advice, you’ll be back on top of your mortgage payments before you know it.
If you need help figuring out what to do about your underwater mortgage, contact Mares Mortgage today!