Many people are finding that they are underwater on their homes and are trying to figure out what their options may be. There are a number of underwater mortgage options that a homeowner may take when the value of their mortgage exceeds the value of their home. If you owe more than your home is worth, here are some actions that you can take to rectify the situation.
Refinancing Your Mortgage
The best course of action to take when you find yourself in this position is to try to refinance your mortgage. A refinancing can reduce the amount of your payments by reducing the interest rate or lengthening the terms of the mortgage, making the mortgage more affordable. This is especially important if the home was purchased using an adjustable rate mortgage or an exotic mortgage that includes balloon payments.
Unfortunately, it can be difficult to refinance mortgage loans with negative equity. The Obama administration’s mortgage plan, generally known as the Home Affordable Refinance Program, was instated to help upside down homeowners refinance their loans, even if they do not qualify for traditional refinancing due to their negative equity. If the homeowner has a good credit score and makes enough money that they could reasonably continue making payments after the loan has been refinanced, then they may be able to qualify for a HARP refinance.
HARP 2.0, a slightly changed version of the Home Affordable Refinance Program, provides mortgage relief to a larger group of borrowers by allowing borrowers that are required to carry home insurance to participate in the program. In order to qualify for the program, the mortgage being refinanced must be owned or guaranteed by Freddie Mac or Fannie Mae, the borrower must have been current on the payments for the past 12 months, and the current loan-to-value ratio must be more than 80%. Borrowers can choose any lender participating in the program to refinance their loan.
If you are unable to refinance your mortgage, your next option would be to try to get a loan modification from the original lender. In some cases, the lender will be able to slightly modify your mortgage loan to make the current payments more affordable while still charging the same amount overall in principal and interest on the loan. While you will not be saving any money with a loan modification, you should be able to make your payments more easily and be able to stay in your home without the threat of foreclosure hanging over your head. If neither of these options is viable, then you may be better off trying to sell your home in a short sale and cutting your losses.
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