What to Do If You’re Underwater on a Mortgage

If you owe more on your home than it is worth, you are said to be underwater on a mortgage.
For example, maybe you took a mortgage for $300,000 in 2018 to buy a house that’s now
worth $250,000 in 2021. If $280,000 remains on the mortgage, you’re considered to have an
upside-down loan.

You could be underwater for two reasons: a decrease in property value or missed mortgaged
payments. While missing mortgage payments can happen for various personal reasons,
property prices could fall for several reasons outside your control. For example, your
neighborhood may have become a crime hotspot or a local school closes. Sometimes, local
businesses closing in rapid succession could bring down property prices.

If you are stuck in a similar situation, here are a few things you can do.

1. Continue Paying the Mortgage

Supply and demand dynamics evolve continually in response to real estate trends. If the
reasons causing the downfall are temporary, you can continue repaying the mortgage and
build equity over time. You could make lifestyle changes to cut down expenses and pay the
mortgage faster.

But if it seems to be a lingering problem or something that will unlike reverse in the future,
consider other options like checking with the lender for a principal reduction or applying for
a loan modification.

2. Consider a Short Sale

In a short sale, you sell the house for less than what’s owed to the lender. In this type of sale,
the lender forfeits the rest of the money owed. First, you will have to discuss this option with
the bank to explain your situation and prove that you cannot afford monthly mortgage
payments. But this process is subject to the lender’s approval.

Short sales are complicated. You will have to find an expert real estate agent who’ll help you
find the right buyer. It also affects your credit score and your ability to take out a mortgage in
the future.

3. Refinance the House After Building Equity

You can continue building equity on the property and apply for a mortgage refinance when
eligible. Typically, lenders want you to have at least 20% equity before approving refinance
loans.

Two federal programs allow homeowners to refinance their mortgage: The Fannie Mae High
LTV Refinance Option and The Freddie Mac Enhances Relief Refinance. You can contact
them to check if you are eligible.
4. Contact a Cash Home Buyer

As cash home buyers in Dallas, we buy distressed properties, including homes with
underwater mortgages. Our solutions are essential for people who’re underwater because of
missed payments.

Even missing a single payment could put you underwater because of compound interest
charged on home loans.

At KeyRoo, we buy houses in Dallas for cash and in less than seven days. If you cannot
afford to make mortgage payments, consider selling it to us. Since we’re direct buyers, you
don’t have to hire a realtor or pay for repairs and other expenses. You don’t have to pay for
closing formalities or other contingencies. We’ll take care of everything, including the junk
that’s left behind after you move.

Author Bio:

The author is a real estate investor. He helps homeowners who need to sell their houses fast
in Dallas.