Mortgages

Underwater On Your Home? Your Six Options

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Javier Gonzales is still legally a homeowner. But when people ask him if he owns a home, his first instinct is to say “no,” he says. He’s still paying the association fees and insurance on the townhome he bought in 2007, but he stopped paying the mortgage nearly two years ago, and he no longer lives there. “I don’t care about it, I don’t want it,” he says. Gonzales owes about $476,000 on a home worth roughly $263,000.

Gonzales is just one of millions of homeowners whose homes are worth less than they owe on them. Just under 23% of all residential properties with a mortgage were in negative equity, a.k.a. “underwater,” at the end of the first quarter of 2011, according to CoreLogic, an information and business services firm. Across the country, the amount these homes were underwater averaged $65,000, though in some states that figure was much higher; $129,000 in New York and $93,000 in California, for example. A recent Calculated Risk Blog post points out that “the value of household real estate has fallen $6.6 trillion from the peak—and is still falling in 2011.”

That’s a mind-boggling amount of home equity that has been wiped out in the past four years, and an astonishing number of homeowners who are stuck in homes that they can’t sell without bringing a big chunk of cash to the closing table.

Frankly, though, statistics don’t mean squat when you are the one writing out checks every month to pay a mortgage that’s much larger than what you could sell your home for. What are your options in this kind of scenario? I’ve come up with six possible ways to deal with an underwater home, and will detail them in this series. Here is the first.

Option #1: Stay and Pay

If homeownership was simply a financial decision, we’d probably see many more foreclosures and short sales than we do now. After all, why keep throwing money at a bad investment? There are myriad reasons why people continue paying their mortgages even though it may take years—or even decades—to get back to the point where the home is worth more than what’s owed. Whether it’s a sense of obligation to live up to the contract they signed when they purchased the home, a strong attachment to the place where they have lived and perhaps raised a family, worry about damage to their credit rating by not paying, or just plain resignation, many homeowners are going to just keep on writing out that check each month and hope for the best.

The benefit of this approach is that you don’t have to be concerned about others finding out about your financial difficulties or find a new place to live. But there are some important questions to ask yourself, with the main one being whether you are just postponing the inevitable. You may be keeping the wolf from the door, but he may be lurking not far away. And financially, you may pay significantly more to keep your home than if you rent, and perhaps later buy a less expensive home.

Cathy Moran is a bankruptcy attorney in California who deals with a lot of underwater mortgage situations. “I am spending a lot of energy talking people out of homes on which they are spending too much money and have no hope of having any equity in for at least a decade,” she says.

Moran suggests homeowners who are underwater compare the monthly mortgage payment, plus carrying costs like repairs, homeowner dues and taxes, to the cost of renting. “If that investment (the home) is in a black hole you might as well flush twenty-dollar bills down the toilet,” she says.

But despite that logic, Moran finds it’s not easy for her clients to let go of their homes. “We have instilled unrealistic emotional value in a home,” she says. “The home is now on the same level as the flag and motherhood. But it’s just housing.”

If you decide to stay and pay, you may be able to get financial help to catch up with payments if you run into a financial hardship. For example, the Emergency Homeowners Loan Program (EHLP) is providing interest-free loans that may be forgiven over time to homeowners who have fallen behind on their mortgages due to job loss, unforeseen medical bills, etc. Because these programs change frequently, it’s a good idea to work with a HUD-approved housing counseling agency in your area to find out which programs may be available.

Other options for homeowners with “underwater” mortgages:

  1. Underwater On Your Home: Stay and Pay
  2. Underwater On Your Home: Refinance
  3. Underwater On Your Home: Get a Loan Modification
  4. Underwater On Your Home: Short Sale
  5. Underwater On Your Home: Bankruptcy

Also Read: Infographic: The Ultimate Guide to Underwater Mortgages

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

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  • Kathy S.

    Our home is currently underwater, but we decided to stay for two reasons: 1) I grew up in a housing project. As a child, I always dreamed of having my own home that had a big, green backyard to play in instead of playing on concrete, and one that we could decorate the way we wanted. Four years ago, we were able to realize that dream. We may be underwater, but we are in slightly better shape than most because we opted for a 30 year fixed rate @ 5.625% when we bought our home in 2007. 2) We believe that our property value will spike up. There is a shopping mall with an anchor grocery store & luxury apartments being built nearby. The grocery store is scheduled to open next year, as are the apartment buildings. We believe this may increase the property values on the homes nearby. I can’t see us walking away from our home right now. There is too much value (mainly personal) at stake.

    • http://www.GeorgeAlmodovar.com George Almodovar

      Kathy S., you are doing the right thing. If your house was under-water, your best option would be to modify your loan and not refinance, which would add to you lost. Many people mention, “refinance, refinance,” but they are not awared that time is money, especially on a mortgage note where the amortization is more towards the end and not the begining of the loan. In other words, you pay way more on compounding interests compared to the principal (amount owed) at the begining of the term than on the end. Thus, when you refinance, you not only would pay thousand of dollars on closing costs, especially in NY, but you will also begin on the top of the amortization schedule paying mostly thousands of dollars in interests and hardly any principal on your debt, therefore, taking longing to build your net-worth and equity on the property.

      Remember what went down in value is not actually your home’s value, unless you paid 100% of the purchase price, but what went down is the note which is mostly the bank’s money or the tax payers if it is an FHA or federal guaranteed loan. Therefore, hold on and if historical data and statistics doesn’t fail which includes data of over one hundred years, “properties double in value every ten years.” Ten years from now it will be much harder to purchase a house and obtain a loan, as well as rent an apartment.

      Best Wishes,

      George Almodovar
      CEO of Striving for Better Days, Inc. &
      Author of “The NO BS in Making Millions in Real Estate.”

    • Jackie

      I have excellent credit. How much would it effect my credit score if I modify my mortgage

      • Gerri Detweiler

        Jackie,

        It largely depends on how it is reported. You’ll find an article on loan modifications and your credit scores here. http://blog.credit.com/2010/02/how-will-your-home-loan-modification-be-reported/

      • Julie

        This is a tricky question. We started our loan mod with B of A in October of 2009, we signed paperwork for the mod in December of 2010 and made our first mod payment in April of 2011. We never missed a payment, but they put us on a new payment schedule and reported us late every other month because of this. They continually told me that when this was over that they would fix our credit. This of course was a lie. I called them on it and they kept saying we won’t fix your credit. Well, little did they know that I would call them 20 times a day and badger them to no end about what liars that they were. Our credit was fixed by B of A somewhere around September of 2011, I guess they got sick of me. They will put nothing in writing and they will lie every chance that they get. Stay on them don’t give up. We never would have received this loan mod, it was hell getting it, or gotten our credit fixed if I waited on them. Good luck!

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  • http://www.Credit.com Gerri Detweiler

    Kathy –

    Thanks for sharing your story! If you can afford to stay, and want to do so, then there’s nothing wrong with that decision. I do wonder if you can refinance to a lower rate, though. That could save you money and make it easier to pay down principal so you can get back to positive equity more quickly. Make sure you read Part II to see if that’s a possibility!

    Gerri

  • Jason

    Our home is currently underwater. I purchased the home in 2007 at 190,000. Since that time our home value has fallen to around 135,000 (assessed) and a comparable house next to ours was recently sold for 65,000 in an auction. I thought I was being smart by getting a fixed rate 30 year mortgage but the loss of home value has destroyed any equity in my home and made it unsellable. I feel trapped by my home. I can make payments on my house comfortably and am in no danger of foreclosing, but it is extremely frustrating to pay so much beyond what the home is worth when I did nothing wrong in the initial planning process except purchase at the wrong time. I want to continue paying my mortgage but it is becoming harder and harder to justify especially when my taxes just went up another 800 a year for the property. I’m not sure what to do except put my story out and vent.

    • http://www.Credit.com Gerri Detweiler

      Jason,

      Petty sickening isn’t it? The one thing I would suggest you do is see if you can challenge your tax assessment. Your home may not be worth what the property appraiser is saying it is worth. Other than that, it sounds like you’ll be riding it out with millions of others.

  • CMR

    My home is also underwater, 5.625%, put 20% down, never late on a payment. Home purchase price was $212K and now values at $103, mortgage balance is $148K. Is there any hope of refinancing this mortgage? Chase will not discuss. They have literally said just walk away no other options. Isn’t that crazy?

    • http://www.Credit.com Gerri Detweiler

      It IS crazy!

      Normally I’d say check with another lender but it sounds like you may be too far underwater for HARP (new loan amount must be no more than 125% of the value). Are you thinking bout walking away? What state do you live in?

    • scott

      CMR,

      just read your comments about your house. There is an option that will work for you and save your credit without having to deal with a banker. It’s legal and very easy to perform. It is going by the name of a mortgage assignment. It is worth your time to check it out.

  • Richie

    Like the other comments, my home is underwater. I live in SF Bay Area.

    I bought my house in Dec 2006. The house was valued at 660k. I put 20% down. My mom co-signed with me so I would qualify.

    In April 2008, I refinanced to get my mom off the loan and get below jumbo threshold. The new loan amount is 413K at 5.625% for 5/1 ARM. I have never missed a payment, but it’s a struggle being a single home owner. Currently, my loan is 390k left. My current value of my house is about 320-330K.

    What do you think is my best option? Stay and Pay? Can I qualify under HARP?

    Any advice would be greatly appreciated. Thanks.

    • Gerri Detweiler

      Richie,

      I would encourage you to talk with a lender with expertise in HARP loans. YouCanRefi.com will help you find out if you qualify. If not, you are definitely in a loan that sounds like it can be unsustainable long term, so I would encourage you to explore all your options. Talk with a bankruptcy attorney to find out what they recommend, and to find out what would happen if you walk. (Find out if your loan is recourse or non-recourse – that could make a difference in your negotiations.) Talk with a HUD-certified housing counselor to hear what they may be able to suggest. If you decide you want to stay and can, be dogged about trying to get your lender to modify your loan to a long-term fixed-rate loan.

      I know it’s not easy, but with rates so low right now – and foreclosures so high – it’s a good time to try to push them to work with you.

  • Chris

    I live in Lee County, FL and purchased a loan for a condo in 2005 for $140k with a 5 yr ARM. Balance on primary is $99K, secondary is $26k. Zillow has the market value at $40k. Aurora won’t return my calls. Why not offer a principal reduction program for homeowners who are not experiencing a “hardship?”
    Why not be more like Javier? What are the consequences? Isn’t this a black mark on any employment application?

    • http://www.Credit.com Gerri Detweiler

      Chris,

      I wouldn’t recommend relying just on Zillow for the value. Ask an experienced real estate professional to help you get a more accurate analysis of the value. If it can appraise high enough then perhaps you will be able to at least refi the first under HARP…?

      If not, you may have a good basis for trying to negotiate a reduction on at least the second which is, for all intents and purposes, unsecured at this point.

      As for walking away, that’s a decision only you can make. It will negatively impact your credit and that could come up on a job application. Are you job hunting or will you be shortly? Of course, you do live in a part of FL that’s been hit hard by the housing bubble. There may be some sympathy there among prospective employers!

      On Talk Credit Radio tomorrow I’ll have a FL real estate attorney and real estate agent, both of whom have experience helping homeowners like you. I’d encourage you to call in to discuss your situation if you can.

  • Kd

    I have purchased a house in May of 2010. The price of the house was $178.000. We own now $173.000. We just received a city hall note that the value of our house is worth $113000. I’m not sure if I’m entitled to call my mortgage or a lender to “modify my loan”. I am not thinking of refinancing at all. Would anyone know of somebody that will be willing to modify my loan with no penalties or so? Is it worth to still stay in this house at this value when I have to pay almost 150 % back?

    Thank you!!!

    • Gerri Detweiler

      KD – Please keep in mind the value of your home for tax assessment purposes may be different than the fair market value of your home – what someone will pay for it.

      As for modifying your loan, lenders don’t generally modify loans just because the home has lost value. You have to demonstrate a hardship to them in order to qualify for a loan modification.

      I would encourage you to read my entire series here. Hopefully it will help you better understand your options.

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  • Mari

    Hello,

    We bought our townhouse in 2005 for 305k now worth 220k. I’m unemployed and am thinking of a modification. The current morgage amt is 2500 with taxes included and we also pay 250 common charges = 2750.
    With a modification that amount will be 1500 with 400 common charges as they have gone up = 1900. Some may say this is much better but with no job and getting $1300 in unemployment checks, it”s just still doesn’t cut it. Not sure what else we can do other than let it go and pay rent.

    • Mari

      I want to add that we also filed bankrupcy and the house was included and we were paying in good faith until I lost my job. I hate the fact that we use to have the best credit in the world but have spiraled down somehow. I do not want to modify for a house the is underwater but don’t know what else to do as no one will rent to us with bad credit.

      • http://www.Credit.com Gerri

        Mari –

        So sorry to hear what you have been through. One of the things I would encourage you to do is to find out what’s available in the rental market right now. Many, many people are in the same boat as you and are renting. I don’t know what the rental market it like where you live so that’s something you’re going to have to investigate.

        If you stopped paying on your home, would you be able to save for first/last/security deposit? Some people who are giving up on their home are able to save enough to make a new landlord comfortable renting to them. (You should talk with your bankruptcy attorney to find out what will happen if you decide to give up on your home.)

        I don’t have any easy solutions for you, but don’t assume that because of your credit you won’t be able to find anything. Hang in there.

  • IamIrene

    Are there any options for those who have gone through chapter 7 already and have elected to “stay and pay” instead of surrendering the house and walking away entirely or reaffirming (which would have been really stupid since we are in one of those detestable ARM loans through Aurora Bank)?

    We do not qualify for a refinance, and I’m unsure about applying for a modification…if the bank would even entertain such an idea from recent chapter 7. Seems our only option is to stay as long as we can, stop paying if the ARM adjusts too high and they either short sale and hope for a cash-for-keys situation or just wait for foreclosure and build up as much cash as possible. We’re underwater by about 30%

    • Gerri Detweiler

      Irene – Are you working with a bankruptcy attorney? If so, have you asked him or her about trying to help you modify the loan? Some bankruptcy attorneys are having good success getting a modification in conjunction with a bankruptcy.

      There is a good story about this by a bankruptcy attorney here:
      http://www.bankruptcylawnetwork.com/mortgage-modifications-in-bankruptcy-%e2%80%93-taking-matters-into-our-own-hands/

      Have you asked your attorney about this option?

      • IamIrene

        We were so demoralized and devastated just going through bankruptcy that we haven’t been able to face the situation with our mortgage yet, so, we are still “stay-and-pay”. We were discharged in August, a no asset case.

        Are you saying that we can still have our attorney approach our mortgage lender for a modification? or are we too late for that to apply since we’ve already received our discharge? I guess I’m wondering if this only works while one is in active bankruptcy. Also, the article cited chapter 13…not chapter 7. Will that make a difference, I wonder?

        • Gerri Detweiler

          Irene – So sorry to hear that. It may have been best to deal with this while you were in the bankruptcy, but it wouldn’t hurt to talk with your attorney now.

  • Lars

    Why is it always the government loans fannie/freddie that are being bailed out. Is there something in the works for non-government funded loans? I’m in a home currently appraised at 160,000 but I owe 250,000 on a conventional ARM currently at 7.6%. I can’t seem to find anyone willing to refinance and the current lender no longer does refinancing. Positive payment history associated with this loan. Any ideas?

    • Gerri Detweiler

      Lars –

      You’re right, that rate is crazy high right now! And when rates eventually go up it will be really expensive.

      Are you saying that your loan is not owned by Freddie or Fannie, and the original lender still owns it? Who is your lender?

      Gerri

      • Lars

        Hi Gerri- I’m facing a double whammy so to speak. The mortgage holder is the dreaded HFC and I’m not a Freddie or Fannie customer at this time. I’ve talked to other lending institutions about refinancing but the underwater situation along with a few others things scare them away.

  • mui

    Hi, I purchased my house for 465k now is worth 170k the place across the street forclosed for 150k. I dont know what to do I can afford to pay but should i? I still own like 190k. my cpa told me if i walk away i will lose all the downpayment and the $ i put in but… this seems like a black hole and i am dumping $ in it. Should I refinace? i am on a 30 year fixed at 4.5. should i do a 15 year refince. PLEASE HELP!!!

    • Gerri Detweiler

      Mui –

      I know this is incredibly stressful for you. I can’t tell you what to do – you’re going to have to come to your own conclusion. But as to the idea of losing what you put into it – you already did. The home is worth what it is now worth. The question now is whether is makes sense to stay and pay or consider one of the other options.

      I would recommend you get a second option…and maybe even a third..

      Ask your CPA for advice strictly on the issue of taxes – will you owe taxes on any forgiven balance if you do a short sale or walk away?

      Talk with a real estate professional and ask them to give you examples of what properties comparable to yours have sold for recently, and the market trends in your area. (Don’t rely on one foreclosure to make your decision.) Are you really $20,000 underwater, or are you more like $40,000 under? That’s a big difference.

      If possible, also talk with a real estate professional or attorney with lots of experience negotiating short sales to find out what’s likely/realistic for your property and your lender if you decide to go that route.

      Also go look at some rental properties to find out what it would cost to rent a property that you would want to live in. Compare that to what you are paying for your current home.

      Only you can finally make a decision here. So gather your information and make the best decision you can.

  • http://creditkay.com Shiva

    My home is also under water, I bought it in 2005 for $190k but since that time most people in my area lost their jobs and in a desperate move sold their houses pretty cheaply or still have them for sale at around 90-120K. Now my husband has also lost his job although, I still have mine I want to move to a place with cheaper rent but now I can’t sell my house for an amount that will cover what I still owe, I feel trapped.

    • Gerri Detweiler

      Shiva,

      Given the fact that your husband lost his job, you may qualify for a short sale. It’s worth at least looking into. Hope things turn around for you.

      Gerri

  • Brenda

    Hi I purchased a home in Fresno, Texas in 2006, cost 166,00 @ 6%, when can i qualify for Reverse Mortage?

    • Gerri Detweiler

      Hi Brenda,

      It doesn’t matter how long you have lived in the home. What matters is that you have equity in your home and that you are 62 years of age or older (and live in the home as your primary residence). You’ll find more info on qualifications for a reverse mortgage here. With enough equity, a reverse mortgage can be used to pay off a regular (forward) mortgage.

  • ac

    We bought our manufacturer home in Oct.2006 with a 30year fix fha loan for 200,000. We now owe 189,000 and our house is looking to be only worth 125,000 now. We can’t refinance because its a fha loan, is what the bank said. We are current on payments and are able to keep going but we can’t save to move , if we could even break even in the feature. We are wondering if it is worth it. Being that we are upside down and with a manufature home already having issues holding value. Do you have any suggestions for what we could or should do?

    • ac

      I was also wondering if it is possible to short sale back to yourself?

      • Gerri Detweiler

        Not that I am aware of.

    • Gerri Detweiler

      AC – Whether you stay and pay or cut your losses is a decision you’ll ultimately have to make. Where would you live if you left your home? How would that cost compare to what you are paying now? How long do you plan to stay in your home? Those are questions only you can answer. But if you are thinking of trying to dump your house, I’d recommend you go ahead and meet with a real estate professional with experience in short sales to find out what’s realistic in your area. And make sure you explore whether you would owe taxes on any forgiven debt if you walked away.

  • Jerry

    we purchased our home in 2005 for 632,00 which includes the upgrades. We put 20% downpayment. Currently our balance in 450,000 and the current value of the house is around 350,000. We are paying 3,000 monthty not including property tax. Our property tax yearly is about 6,000. We are able to pay our dues every month on time, but we worried that we are not abe to save money for the future. We are thinking of buying a smaller house and shortsale our current house. Is this a good idea or should we just keep our house and continue to paying our mortgage? Please advise.

    • http://www.Credit.com Gerri

      I wish I could give you the answer, but there are so many factors involved, it’s impossible for me to say whether it’s a good idea or not. I’d suggest you talk with a fee-only financial advisor who can give you some objective advice. It’s a big decision. Visit the Garrett Planning Network or NAPFA’s websites to find a fee-only planner in your area.

      Also talk with a tax professional to find out if you would owe taxes on any balance forgiven in a short sale.

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  • yvonne

    i bought a house for $185,000 back in 2005. I put ALL MY MONEY FROM A previous home $80,000.00 on that home in the middle of nowhere because a. I could not find a home in san diego or anywhere near for this price. b. it was a brand new manufactured home on its own land. (no monthly land rental fee). c. pay down price while caring for my parents, ex. no gas and electric or utility bills,etc. d. Now i might be able to sell it for $15,000.00. I rented it out and now it needs new carpets, paint, the driveway is ruined with stained oil, and the wind blows so hard it takes the shingles off the roof, theres two temperatures, either really hot or really cold, these things I was stupid enough not to know about. The repairs are going to take the place of any rent I collected, which was about $200.00 less that the mortgage.

    I dont want to let it go because Ive paid the huge down payment, and I ve paid them mortgage for 5 years, I cannot even rent a place for $1,000.00 here, for the mortgage I have, but I cant sell it, they wont let me refinance because of my debt to income ratio. IM STUCK.

  • http://underwateronyourhome?sixoption Grifflon Randle

    My wife and I bought our first home 6 years ago and found out that it was an adjustable rate.My job hours were cut my house note went up and up so I remodified my note so it made the house worth more than it’s worth but my note still went up our neighboor hood is mid crime rate stores are closing and we are back in the same boat note went from 900 a month to 1140 and may go up in April I had to file chapter 13 because I had got 8 monthbehind.Should I do another modification or just start over we are young in age and are willing to do what ever it takes for our familyh.

    • Gerri Detweiler

      Grifflon,

      I don’t have a simple answer for you but if it’s time to cut your losses, you may want to look into whether you can get the bank to allow you to do a short sale. If so, you want to get them to agree in writing not to try to pursue a deficiency (if there will be one).

  • http://credit.com Serena

    I purchased my house in 2007 for $215,000. We owe $191,000 now and have PMI, but the value is assessed at $110,000. We applied for a modification, but were turned down because the attorney we were using didn’t submit both mine and my husbands incomes. When we started with them the attorney said a modification would be no problem, but after a couple months they said they would never get us modified with my income so they only submitted my husbands. We never felt comfortable about this and thought maybe we could have been modified with all the information. We have a fannie mae backed loan, but not sure if we would qualify for HARP. We’ve been current on all our payments. It’s on the market right now for a short sale, but we’re also concerned about how the PMI will turn out. This is our first home and homes are selling for about $125 around us with larger floor plans. We feel trapped. We can make our payments but when we see what we are paying a month in comparison to what we can rent for its frustrating. Plus we don’t have much room left for retirement savings. I don’t think I’ll be able to pay a $1500 a month mortgage when I’m 60!! I don’t know what to do.

  • Joey

    Wow. I really feel for everyone who has posted. And I don’t feel so alone. I bought my fixer-upper house in mid-2009 (30yr fixed FHA @5.4%, and rolled the closing costs in). No problem paying the monthly payment, and slowly started fixing it up (electrical, plumbing, etc etc). Then I got laid off in 2011- 1st time unemployed in 25 years! Found a job recently, in a nearby state so am now paying a mortgage and rent and my credit card debt is growing so I have the cash to make the housing payments. Can’t rent or the house because it’s not in rent/saleable condition yet. It would have to be pristine to sell. I’m owe $170K on a house worth about $159K. Holding on in hopes I can rent it soon and weather the storm for a few years, don’t think I’m so far underwater it’ll never be recouped. Or I’m just deluding myself!!

  • Evam

    I went thru divorce in 2007 and took equity out to pay x-husband and have been ttying
    each year since to modify or refinance and get nothing but the run around, The original
    equity loan was thru Wa-Mu then chase took over and they have denied,denied,denied.
    I had a workers comp set-asside that was to be used only for medical purposes but
    have depleted that to stay in my house. In 2007 it was appraised at $557k now worth
    $300k please tell me what to can be done

  • Anthony.

    We bought our home in south jersey in 2006 at the top of the bubble. Price was 369.900 we had a 80/20 split,292.000 on the big mortgage and 73.000 0n the small. Then the bottom fell out and now we can’t sell for less 268.000 and the house down the street is going for 215.000. We are out of equity but love our home, should we just stop paying the small motgage and keep paying the larger one? If so, can the small mortgage holder forclose and would it even be worth there while to do so. They would have to buy the big mortgage in order to collect what there owed. Secondly the house isn’t even worth what the first mortgage balance is . e did receive a modification on the first mortgage which our payments are currently 2700 down from 3400. Our small morgtage went from 688 to 344, but they added another ten years onto the life of the loan. Unless the market comes back and soon we will never have any equity. Please lend some advice.

  • jen

    we bought are condo for $88,000 they are know going for high 40s. We can afford the mortgage but we really want to leave and just rent a house since we have are second child on the way and there is just no room. So my question is if we qualify for a short sale what would be the difference between staying current on the mortgage to just stop paying. will it affect your credit more or will it make you have to wait longer to purchase a house?

    • Gerri Detweiler

      Jen,

      I think you’ll find this article by Tom Quinn helpful in understanding how a short sale or foreclosure affects your credit scores.

      Let me add, though, I think that often deciding what to do about an upside down home is a financial decision first, and a credit decision second.

  • http://michaelquint.mfgcapitalgroup.com Michael Quint

    There is another option above and beyond the six talked about above for luxury homeowners w/mortgages of $600k or above, it’s called a workout or “backflip” and you can get back into a positive equity position assuming you want to stay in your home and have not already resigned yourself to one of the other six options above. If you’d like more info let me know.

  • Hermenia

    My first mortage is paid. I took out a line of credit on this house for 81,700 in 2007. I am 72 years old and retired. I have since moved out of state. I would like to sell this house, but the homes in this area is only selling for 40,000- 45,000, I cannot not afford to pay the difference, wha is my choices?

  • Marie

    Hi, i was wandering if someone can give me some advise. We purchase a home back in 2007 for 400000. We put 5% down and we been paid about 5 years never late. Our balance now is 356000. At 6.375% with lender paid pmi. Now the house worth 280000. Now we trying to refinancing to see if we qualify through harp 2, so far we still waiting for response. At the same time, we both felt if its a good option just to walk out or short sale. Instead of refinancing. The only problem is we don’t want to ruin our credit because both our name is on the loan.

  • Adolfo

    I am 55 y/o and my partner is 62 and like so many others our mortgage is upside down. We have a fixed rate of 4.5% and 9 years left to pay. The current mortgage balance is $97K. We built our home in 1989 and it cost $73K. According to zillow.com, it is now worth $77K. Thanks to GW Bush and his Wall St friends for destroying 23 years of equity and our main retirement asset.
    I don’t want to give up my home. But at what point do I walk away?

  • Mike Seymour

    We bought our home in 2005- had it built- put 300K our life savings into it it appraised for 720K we owe 460K value is about 250K My wife is now having pancreas problems and not working yet she makes 60% of our income. Loan is through Credit Union, No fannie mae or fha, they modified the rate 2 years ago so we could afford payments but not the dollar owed. We could afford to pay about what it is worth just not the 460K owed. Does anyone know if a bankruptcy reaffirmation could possibly work for us or am I deluding myself thinking about it. We are broke and have lost everything thanks to the great George Bush and his destruction of home values. He should be stripped of his income and have to give it to the citizens who he destroyed with his stupidity, we had planned to sell and retire next year, instead we cannot even pay our bills, I don’t know whether to not pay and hoard money so we can move and then file Bk 7 or to file now and try to reaffirm with a true value. Payment is due now and we are 500 short of making it. I could pay the balance from our grocery and utility bill but what then? Any advice you can give us? it seems nothing makes any sense any more and all our savings are now gone. My wife will get 60% of her retirement since she will have to retire 4 years to early but that with my social security will not pay the bills. My advice to everyone out there is never teach school for a living. She can only collect 10% of the money she paid into social security because she teaches yet she cannot collect a full pension because she cannot work these last 4 years. She went with her heart and now we are stuck forever for this poor life choice. We keep trying and keep paying but just owe more every year instead of less.

  • Laura

    Ok here is a tricky question,

    My husband lend his name for his parents to purchase a home in 2004 the loan amount was 236,000 we just found out that there is a notice of default on the home. We spoke to a realtor and she told us that first we can’t refinance to get his name off the loan because the house is not worth nearly how much they owe on it and plus the default on it. They said the only thing we can do is a short sell asap. Is this true ? Is there anything else we can do to get his name off the loan without selling and having his parents move out. This would cause a family feud, however its affecting his credit being on that loan because his parents are in default and we can’t purchase a home of our own either because that loan comes up.

    • Gerri Detweiler

      Laura,

      When your husband cosigned on the loan he agreed to be 100% responsible for the loan if your parents defaulted. That means he could end up embroiled in a foreclosure proceeding if they continue to fall behind. You could also end up getting a 1099-C for any “cancellation of indebtedness income” that arises. No lender that I know if will let them refinance the loan and take your husband’s name off the loan if it is a) underwater and b) delinquent.

      You need to meet with a real estate attorney asap to discuss your options. It’s a serious matter and you need to find out what you can do to minimize the damage.

  • Chad

    We purchased our home in June of 2005 for $586,000. Chose a 10/1 interest only ARM with a rate of 5.625% on the 1st mortgage and prime+0 (currently 3.25%) on the 2nd. Current balances are $412,650 on the 1st and $104,130 on the 2nd, for a total of $516,780. I have never paid the min interest only payment and usually average paying about $800/month principal on the 1st and $250/mo prin on the 2nd. Loans are not Freddie or Fannie. Appraisal from 2 years ago resulted in $425,000 value and Zillow now shows $373,000. Currently, we can’t show hardship, although my wife and I are both in sales and the future of the economy isn’t great. Do you see a scenerio where my mortgage company (Chase on 1st, Suntrust on 2nd) will work with me to lock in at a reasonable interest rate (hopefully between 4% – 5.5%) without my stopping payments? I am a very strong negotiator and have thought about approaching either company with a willingness to pay just the interest until the end of the 10 yr term and then to stop making payments all together – or even stop making them now. Will this help? Should I focus on negotiating the 1st, 2nd, or both at the same time? It seems that there is no help for those underwater that can afford their home and have made their payments. Any better ideas? I’m willing to give just about anything a try. Just want to know my options. Thanks!

    • http://Yahoo Kay Frost

      Hi Chad,

      As I was reading your post I thought you were us. We are in the EXACT same boat. “no help for those underwater that can afford their home”, you just describe our situation perfectly. We have tried for two years to get a loan modification. HARP 2 was the ONLY program that gave us hope to better a bad situation. Contact HARP 2 BEFORE you do anything with your second. I just spoke to our rep. yesterday about trying to settle our second. She said FIRST take care (lock in) the first loan because any type of modifications to the second loan will effect your credit with the HARP 2 program, and you may NOT even qualify for the program at that point. My husband is an attorney and I do child care. We can afford our home, but with four kids and a dog the place is way to small (1,000) sq. ft.

      • http://Yahoo Kay Frost

        My post is the one from Kay Frost dated 9/11/12

  • Christine

    We have a century home. Built in 1916 it is a money pit to say the least. We paid 104.9 when we bought it. The house is now underwater as it is worth 80,000. We also have a second mortage on it. Is it even worth staying in this home? We didnt know it needed a ton of work when we bought it.

    I am just wondering what to do already.

  • http://aol ann

    my home is underwater , i think i could up thevalue with a reassement but i would like to lower my apr. and my payment how do i go about it

  • Diane

    I purchased my home in 2005 in CA at $445K, I currently owe $315K. Put 100% of my proceeds from my first home for the down payment on my current home and I already received a HAMP modification in 2009 (upon my husband’s 1st round of being laid off)..since he went through a total of 3 layoffs and has been out of work since October 2010 to the present date….his unemployment has fully exhausted and he is still out of work….oh did I forget to mention I have a 2nd equity loan with a current balance of about $15K….we have been on pins and needles to do what it takes to keep our home, being underwater is not the issue here, the issue is why go pay rent and pay someone else’s mortgage for about $1200-$1600 a month when our mortgage is $1900 a month….I have a real problem with that, at least I can have my “own” home…however, we cannot pay our mortgage anymore what should we do, I now think back to 2008 when he initially lost his job and wanted to walk away, but I refused to do so, should we walk away now? Please any help, suggestion, advice, anything will truly help. Thank you!

    • Gerri Detweiler

      Diane –

      I feel for you and your husband. You are trying to “do the right thing,” but it sounds like it’s getting harder and harder for you to hold on. There usually aren’t easy, clear-cut answers in situations like yours. That’s why it can be helpful to get some objective advice from professionals who are used to working with homeowners in situations like yours.

      I wrote an article on this topic: Underwater Homeowners Ask: Should I Stay or Should I Go? At the end, you’ll see a list of the types of professionals I suggest you talk with to help you make an informed decision. I hope it helps.

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  • http://Yahoo Kay Frost

    We purchased our home back in 2006, 450K. Even though it was small it suited our small family, and we had the idea of selling in three years. Fast forward 6.5 years later (4 kids) and our home is worth 1/2 the value – mentally and financially. We tried Hemp (2x), NACA and the new HARP. I don’t recall the real name for the last one. The bank would allow to lock in a low interest rate, but the payments would be 2,700 per month! We could rent somewhere for FAR less. The banks don’t want to work with us because we have too much “expendable” cash at the end of the month. Now we are seriously thinking of a short sale. We even tried to get a loan for another home and rent out this one, but no luck. Both banks said no to a loan because we owe too much on this one. We don’t want to walk, but we need a bigger place. 2 adults, 4 kids and one dog in 1,000 square feet of living space. HELP!

    • Gerri Detweiler

      Kay –

      I know this is an agonizing choice for you and your family. But think about the long term and make the best decision you can. I wrote an article on this topic: Underwater Homeowners Ask: Should I Stay or Should I Go? And if you do decide to try a short sale, I recommend you read my article: How to Give a Short Sale Your Best Shot. (Listen to the interview with the attorney at the end of the piece if you can as well). I hope this helps!

      • http://Yahoo Kay Frost

        Thank you for the advice. My husband and I have some serious decisions coming up…Now I have TWO more questions for you. I recently read an interesting article on Second Mortgage Settlements. Do you have any insight on this topic. It sort of makes me think of staying in our home IF we did not have our second mortgage. If this were the case our first would only be 2,200 per month. The second question is this…If a person is upside down in their home by 38 to 41% (like us) would you consider it a bad investment to add on versus saving the money toward something bigger in the future? We have about $60K in savings. Even though we really love where we live (my husband and I) we look at the kids and think they are only going to get bigger and take up more space!

        • Gerri Detweiler

          Kay,

          Did you read my story, Underwater? Negotiating a Settlement On a Second Mortgage? In it, I explained that it is generally it is much harder to settle on a second when you want to stay in your home. It’s not impossible though. The fact that you have money saved up to settle may help you if you decide to try. And you never know – maybe yours is a loan the lender wants off its books and it would be happy to settle.

          I wish I could tell you, “This is what you should do.” But it really sounds like you need a financial advisor to help you sort through your options and make the best decision you can under the circumstances. You probably saw in my article, Should I Stay Or Should I Go? that I mentioned several sources for this kind of advice. I’d suggest you make an appointment with someone to go over your finances in detail and help you think through the implications of your various options.

  • Sheena

    Ok, my mom has been struggling to make her house payment. I moved in with her to help her as much as possible but between the both of us and our bills its hard to stay a float. Our mortgage was sold at the beginning of this year and it has been hell needless to say. My mom has tried to modify back in march/april. They approved it, but they guy didn’t realize my mom had an escrow even after she told him. So they started to say we owed them for that. They started to harass my mom and bully her into giving them money. They also called for the money for the escrow in August. My mom said will it all go to the escrow. The person assured her that yes it would. Well, only 200 of it went to escrow the other 400 went to their pockets. Now we are under another modification with escrow. Yeah big help monthly payment is only down $50 dollars. We can’t keep doing this, and my mom is ready to just let the house go, and move away. She doesn’t qualify for the Harp or any other loan due to the value of the house being less than what she owes and she has a PMI.. No one will touch it or even refinance it unless we come up with $10,000. If we had that kind of money than why would we need to refinance! Any advice?

  • destiny

    I just bought a forclosed house in august 2011 i don’t have a morgage but owe five hundred in taxes by the end of december if i can’t make the full payment what can happen

  • Jlee

    Question for Gerri D. Hi Gerri we currently own two homes one of which is underwater (primary residence). We owe very little on the second home and potentially have equity in it and can perhaps refinance with cash out. My question is rather this is feasible given the times. The second home was on the market for over a year without viable offers. We are now in the process of putting a new roof on the second home to hopefully make it more appealing to potential buyers. So you see we have a dilemna, should we refi the second, lower the payments and use the cash out to offset the shortfall if we were able to get a buyer for our primary home. Hope you understand what I’m asking, please let me know your thoughts as soon as possible. Thanks so much!

    • Gerri Detweiler

      Jlee – I am glad to hear you have some options here. Given how important this decision is to you both financially and credit-wise, I’d recommend you do a couple of things. The first would be to find out specifically what type of refinance would be available to you on the rental property, if you haven’t already done so. A lender can prequalify you so you know how much you can get out of the property, what your interest rate would be and how that would affect your cash flow on that property. If you can’t refinance it or get money out, then you will have narrowed your options.

      Then, with that information in hand, I’d suggest you also meet with a fee-only financial professional who can help you walk through your options. It is challenging to find someone who can give you objective advice but I’ve described several resources in this article: Underwater Homeowners Ask: Should I Stay or Should I Go?

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  • Luther Young

    Hi, I bought my house a few years back for 200,00. It’s only worth about 150,000 and I owe 192. It was a VA loan as I am active duty military. I got a divorce and I’m getting stationed somewhere else now. I obviously can’t afford this house and rent somewhere else. I can’t rent out the house because there is a rental cap in my community. Can someone please give me some advice.

    • Gerri Detweiler

      Luther,

      Sounds like a really bad situation. Have you looked into a VA Compromise sale? It’s the VA version of a short sale.

  • Brian Simmons

    I’m really Frustrated I bought my little 2br house back in 2006 for 86,000 and thanking tha it would be bett then renting and it would build my credit sinc then my family has grown from 2 kids to 4 kids and we have no room I’m Currently trying to figur out how to get out of the house and into a much larger house I have never had a problem paying my Mortgage I now owe 66,000 on it. Everyone I talk to they are telling me the Average sell price in Neighborhood is 34,000 and those house are nicer then mine what can I do I don’t want to hurt my credit but I Absolutely need a biger house please any info would be Appreciated

    • Gerri Detweiler

      I can understand why you’re frustrated! There are a lot of people dealing with the same problem and it can be a difficult call in terms of what to do. Can you rent the house while you move into a bigger home? If not, you may have to think about a short sale but that will definitely mean a hit to your credit. It might make sense for you to talk with a professional who can help you evaluate your options. I wrote about that here: Underwater Homeowners Ask: Should I Stay or Should I Go?

  • Shawn T

    I have a question. I have excellent credit not a lot of debt. Except for my house. I had rented it to keep the payments up to date. Until I started using Houston Housing Authority where people has vouchers from the Government to pay most every bill they have. As long as they where single mothers with plenty of kids.

    That being said my house was left in ruins after the last renters. It is too far of a commute for me to move back in the house and I now have 2 children. I do not have the money to fix it up and sell it. I tryed the short sale through Bank Of America. Took six months and I am keeping up with my payment and renting another house for my family. The deal fell through bank and buyer did not settle on numbers and now I am at Step one. I am upside down in the house that needs repairs high interest rates on the 80/20 loan. Tryed to refi and can not because the 20 part of the loan is an ARM and has not went below 24,800 for 10 years. It started at 25,000. I want to keep my good credit but am at the end of throwing my money away on something I can not get out of.

    I am current on everything and no late fee’s. Is bankrupcy an option to lock in a high credit score? All I have read about it people that are already late payments and of course their credit is already badly hurt and scores low. I have talked to Bank Of America and the other option is to do the In Leu Of Deed. Means the bank takes the house back into the banks name. Not sure how that hits your credit and should I just stop paying the house note because it is going to Hit my Credit anyway I go about it?: Anyone else have comments or thinking been through the same thing?

    The way I saw it was if I spent some money going though a short sale it would counter the option of having a low credit score, then needing something by using credit. Paying a high interest rate which in turn is money spent over a period of your loan. Say 18 Percent!

    Now that the Short Sale is Bust. I am at ground Zero and not wanting to keep paying out that 1400.00 a month house note and leasing another. What options if any are there to keep your Credit Score High? If I do the in Deed Of Leu back to Bank Of America, How many points does it usually take off your credit score? I am not ALL IN on buying another house really. I like leasing and can always move out of the area if needed or the surroundings begin to decline.

    • Gerri Detweiler

      Shawn – I would encourage you to talk with a bankruptcy attorney as soon as possible. It will affect your credit score, of course, but you really need to look at the financial issues here. I am afraid the pursuing a deed in lieu is going to be another dead end. (If they wouldn’t accept a short sale why would they accept a DIL?)

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  • gil kuchta

    Have a mortage for 140,000 and home is worth about 112,00.Need new roof and flashing which I can not afford.Really cant afford another loan.What are my options.

    • Gerri Detweiler

      Gil – A traditional lender is not going to offer a loan to someone underwater. I’d suggest you do a couple of things: 1. Talk with a local bankruptcy attorney. Maybe bankruptcy will help you discharge other debts so you can free up the money you need for repairs. If not, then 2. You need to find out whether you can sell the home using a short sale. 3. Find out if there are any programs through local community organizations that can help. You can talk with a local HUD housing counselor to see what they suggest. http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

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  • Cheryl Gardner

    I have a question, I am almost 7 months behind on my mortgage and am afraid the foreclosure procedure is going to start very soon. I live in the SF Bay Area where the real estate market is totally absurd. I have had a loan mod already which reduced my monthly payments but not the principal. I also had help from Keep Your California Home.org but have fallen behind again. My interest rate is 3.625% and I believe it is a fixed rate loan. I believe I may have a small amount of equity because I have been told their are bidding wars on properties for sale in this area, supply is less than the demand at present. I understand the procedure for a short sale. My question is, if I have some equity, can I legally sell my home using a realtor (even though I am obviously in default on the loan), and pay off my mortgage that way and possibly walk away with something? Any guidance would be appreciated.

    • Gerri Detweiler

      Cheryl – If you have enough equity in your home to sell it and pay the real estate commission, then it sounds like it may make sense to do so. If you don’t have enough equity to pay off the loan (including fees that have accrued) and pay the real estate professionals commission, then you may want to see whether you can sell it as a “short sale.”

      Since you are in default, I would strongly encourage you get a real estate attorney with experience in foreclosures involved now. The last thing you want to do is to see the house foreclosed while you are trying to complete the sale. A bankruptcy attorney in your area may also be able to help.

  • Liz Gonzalez

    Hi, we bought our small cape cod home in NJ at the high market time (2007) for $290,000. We have an FHA mortgage not freddie of fannie owned. We did a streamline refinance in 2009 and it save us about $300 a month within the next yr our taxes went up & our mortgage payments went back up, we were back to square one with a 30yr fixed starting all over again. We have tried to apply for the available programs but either we don’t qualify because we are not late on our payments etc. I currently owe $271,887 and my house is worth $166,000!! I don’t want to walk away, and I don’t want to try and streamline or modify my loan because it doesn’t really make sense to me. My husband say’s we were stuck here so let’s make the best of it! and he wants to put $ into it but I disagree..Why can’t there be help for people like me who are not currently late on their mortgage but would like to lower their payments to what the house is worth. They should go around and appraise homes that are under water and write up new contracts with the current home value and current rates. :-( what should I do?

    • Gerri Detweiler

      I wish I could tell you what to do but it is hard to say how long it will take before the market turns around again and your home is worth what you owe on it. I wrote another piece about this kind of dilemma that you may find helpful: Underwater Homeowner’s Ask: Should I Stay Or Should I Go?

  • http://mrsplr71@gmail.com Pamela Ramieh

    We purchased (read financed) our 4/2 home on 0.75 acre for $317, 500.00, putting $85, 000 down in 2006.
    You know what if happened next; the value went down considerably!
    But wait! There is more! We built a second 2/2 home on the property for ($125, 000 cash) for my father to live in. The payment was $1, 509.00 without taxes and insurance, We were succesful in refinancing the balance of $232.000 for a payment of $1, 418.00 PITI presently. However, that does not help the fact that the property is still valued less than is owed on it. What program, if any, is available to help individuals in Central Florida both of whom are on Disability?

    • Gerri Detweiler

      Pamela – I don’t know exactly where you are in Florida but I know there are several legal services organizations that have received grants to help struggling homeowners in Florida. Try to find your local legal services office and see what they suggest. Let me know what happens!

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  • Brian

    Mrs. Detweiler. Purchased a home about 7 years ago for $290k. We financed 277,000 and split that into a first and second mortgage. The second mortgage has a $37,000 balloon payment that is going to mature in May of 2016. When we originally took out the loan, the hope was the house would continue to appreciate, so we could eventually refinance the second loan into the first. Obviously, that has not happened. We recently had the house appraised and it came back at $246,000. What do you recommend for this second loan? If we could sell it for $250k and walk away with no debt, we would do it tomorrow. I just don’t know if that is even possible at this point.

    • http://www.Credit.com/ Gerri Detweiler

      I am sorry I didn’t see your question earlier for some reason. I wrote this series precisely for that reason – so consumers would understand their options. But at this point, you really need to get advice specific to your situation. You may be able to sell your home in a short sale but it may trigger a tax bill for the cancelled debt (or may not, that’s why it is important to get legal advice). I would suggest you talk with a consumer bankruptcy attorney with experience in housing issues, as well as a tax professional if you are considering walking away, short sale or foreclosure.

  • http://www.Credit.com/ Gerri Detweiler

    I completely understand how frustrating this is. So many people have gone through similar things. I am not aware of any programs that would help here, but that doesn’t mean they don’t exist. I would suggest you talk with a HUD certified housing counselor as they will know about current programs.

    My educated guess, though, is that you are going to have to make a tough decision about this property and either consider a short sale or bankruptcy. I would really encourage you to find out about those options now rather than continuing to throw good money after bad. If you do have to go this route, the sooner you do the sooner you can begin to rebuild your credit. Please make an appointment to talk with a consumer bankruptcy attorney with experience in short sales and foreclosures to at least explore all your options so you can make a good decision. You can find one at Naca.net.

    Hang in there.

  • http://www.Credit.com/ Gerri Detweiler

    Lynette – Please don’t cash in your annuity without getting some professional advice. Your annuity may be safe from creditors – and cashing it in can be a very expensive decision both in the short term and in the long run.

    I can’t help you make such an important decision and I do believe it is worth it for you to get some professional advice. I suggest some resources at the end of this article: Underwater Homeowners Ask: Should I Stay or Should I Go?

  • MrWicked98 .

    I’m in the same boat with two rental properties. One in underwater to the tune of 30K. Nobody is willing to touch it because its not owned by Freddie or Fannie. All my payments have always been on time, I don’t understand why there are no programs out there to help folks like us. Why do I have to resort to foreclosure in order to get out and destroy my credit. Just doesn’t seem fair.

    • http://www.Credit.com/ Gerri Detweiler

      Have you talked with a bankruptcy attorney? With rental properties, you may be able to get the loan restructured.

  • http://www.credit.com/ Credit.com Credit Experts

    Your mortgage interest rate at 4% fixed for 30 years is an ideal rate in lockstep with the market, says Credit.com real estate expert Scott Sheldon. So refinancing would not provide much savings as 30-year rates are hovering around 4% right now anyway. He recommends contacting your servicer directly and exploring loan modification possibilities.

  • http://www.Credit.com/ Gerri Detweiler

    I a soon to because you are writing to us that you are having trouble with your payments – my apologies for making that assumption. If you can wait it out until values recover then hopefully it will be fine.

  • http://www.Credit.com/ Gerri Detweiler

    Anthony – First question to ask yourself is what your options would be if you did get out of the house. Would you be able to rent for less than what you are paying now? It would probably be several years – at least – before you could buy again, so you would probably be a renter for a few years at least. That’s not necessarily a bad thing, but something to consider.

    If you are thinking of trying to get a short sale you’ll need to find out if you qualify. Simply wanting to get out doesn’t mean they will agree. You’ll need to get professional advice. We suggest some resources in this article: Underwater Homeowners Ask: Should I Stay or Should I Go?

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