How To Get Out Of An Underwater Mortgage

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“Help! I’m underwater on my mortgage. What can I do? Do I need to sell my house fast in Glendora?”

We recently received a letter from a distressed homeowner in Glendora, and it got us thinking. We’ve decided to discuss the subject of that letter—not the personal details, of course—in this blog. The letter was seeking guidance on how to deal with an underwater mortgage.

If you’re like most people, it’s likely your home is the most expensive asset you own. But if you don’t own it outright, you may find yourself in a scenario where you’re underwater on your mortgage. Below, we explain what being underwater on a mortgage means and what you can do if this happens to you.

What Is An Underwater Mortgage?

Also known as negative home equity or an upside-down mortgage, an underwater mortgage is when you owe more money to the lender than the home is worth. Let us explain with a quick example: Assume you owe $300,000 on your mortgage, but your home’s value is only $250,000. In this case, your mortgage is considered underwater since the amount you owe to the lender is more than your home’s value.

That said, underwater mortgages are rarer these days, as underwriting standards have become extremely strict after the housing crisis of 2008. Also, homes in Glendora and other parts of the U.S. are selling at extremely high prices, further reducing the possibility of large-scale underwater mortgages.

What Can I Do If I Have An Underwater Mortgage?

While underwater mortgages are rare, such doesn’t mean they’re impossible. If you find the amount you owe the lender is more than your home’s value, here are the options you may have:

Try To Refinance

Refinancing an underwater mortgage is challenging since you need sufficient home equity to do this. See if you’re eligible for the Freddie Mac Enhanced Relief Refinance (FMERR) program. This program is available to homeowners who’ve taken out a mortgage on or after October 1, 2017 and have not missed payments until now. With assistance from this program, a homeowner with an underwater mortgage can lower their monthly payments and interest rate so they build home equity quicker.

Do Not Miss Mortgage Payments

The simplest way to get out from under an underwater mortgage is to keep paying mortgage payments on time. This way you build equity slowly but surely. If possible, make higher-than-minimum payments to reduce the loan balance quickly while building equity.

Increase Your Home’s Value With Upgrades And Renovations

Adding modern upgrades is an excellent way to increase your home’s value. For example, you can redo the kitchen, upgrade the bathrooms, finish the basement, put in a new roof, or repave the driveway. If your home is more valuable, this means the difference between its value and what you owe on the mortgage will be smaller.

Sell The Home

Before you sell a home because you’re underwater on your mortgage, you have to make sure that you meet two conditions:

  1. First, you must pay the remaining balance with the proceeds you receive from a cash sale.
  2. You need the lender’s permission to sell short.

Unless you’re facing a financial crisis, in which you require funds immediately, selling a home when you’re underwater on the mortgage doesn’t make much sense. But if your lender gives you the go-ahead to make a short sale, you should sell to a cash home buyer in Glendora right away.

We buy houses in Glendora for cash, and we buy houses in any condition. Avoid realtor commissions and closing costs when you sell to us. Connect with our team to learn how we can help you avoid a difficult financial situation with a quick cash sale.

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