There are a lot of American families feeling a lot of pain right now. From an unemployment rate that is still at historic highs to a real estate recovery that just wont take hold, if you are like most of the rest of us, there is something about the economy that keeps you awake at night.
If you have a significantly under water mortgage and/or you cant afford your mortgage payment, the economic hardship probably feels particularly raw. That is certainly true for many Americans, with home values down 33% nationwide from their 2006 peak and a quarter of homeowners with an underwater mortgage (they owe more on their mortgage than their homes are worth).
But here is something you have probably never heard before: as bad as the situation seems (and feels), you have options today that can make your future much brighter than you have been imagining. Mortgage relief is not limited to a loan modification. In fact, from where you stand today, you have four action options (remember, Homeowner 101 is all about smart action):
Option #1: Do nothing. If you are financially capable of paying your mortgage, even if you have a significantly under water mortgage, one option is to keep making those payments though its tough seeing your hard-earned money going into a seemingly bottomless mortgage pit every 1st of the month.
Option #2: Try for a loan modification. You can opt to refinance your mortgage to get a lower interest rate, try for a balance reduction (they are rare) or apply for one of the federal loan modification programs (if you meet the qualifications). Learn more about your loan modification options here .
Option #3: Do a short sale. You could sell you your home for a market price that is less than (short of) the amount you owe on the mortgage. The lender, of course, must agree to the deal.
Option #4: Let your bank foreclose. For many homeowners who cannot afford their monthly payments, this seems like the only option (though its clearly not). Yet even for homeowners who can afford their payments but have an underwater mortgage, letting the bank foreclose that is called a strategic default “” is still an option.
5 years from now
Imagine five years into the future. How did your decision turn out?
Option #1: You did nothing. If you were only under water by 5% or so, you might now be even, owing just what your home is worth (though still with less equity than when you bought the home). But if you had a significantly underwater mortgage, you are still under water by a lot; you still dont own any equity; you still couldnt sell your home without cutting the bank a big check.
Option #2: You got a loan modification. Whether you negotiated a lower interest rate or were able to get a rare loan balance reduction, you have likely saved a few thousand bucks over the last 5 years. But while you have been able to save some money every month “” making your mortgage affordable, you still owe more than what your house is worth (probably a lot more).
Option #3: You did a short sale. You were able to get your lender to approve a short sale. For three years you rented a home “” comparable in every way to the one you sold “” for far less than you were paying on your mortgage. You saved the difference for a down payment. You worked hard to rebuild your credit. Three years later you bought a new home in the same neighborhood; you have positive equity (because of your down payment) and your monthly mortgage payment is affordable.
Option #4: You let the bank foreclose. For five years after the foreclosure you rent a home in the same neighborhood you had owned a home in; your monthly rent check is far less than the check you used to write to the bank every month. You work hard to rebuild your credit. You save the money you had been putting toward your underwater mortgage. In five years, you have enough saved and have rebuilt your credit enough that you get a new mortgage on a new home.
The point of this blog article is not to say which decision is right for you, but simply to show you that even when you feel backed into a corner, you do have options. Even when you are facing what many homeowners think of as the worst possible situation (a foreclosure) you may in fact be better off than you think “” when you consider where you can be five years from now!
At Homeowner 101, we dont have a crystal ball, but we can help you see what your financial and homeownership future might look like. Get a better look into your options by signing up for a personalized one-on-one Underwater Homeowner Assessment and Action Plan . You are better off than you think, when you have the right help.