Being underwater on your mortgage means you owe more money for your home than it’s worth. It’s sometimes called negative equity or being upside-down. It is not something any homeowner desires, but it is a reality many people face. It’s still possible to sell your house underwater.
If the current market value of your home is lower than what you owe on it, emotions of pressure and despair are to be expected. You’re not alone in this situation—millions across the US have been where you are.
Are you curious about underwater mortgages and their meaning for your personal finances? Here’s helpful information to understand this critical issue, including how to recognize if you have an underwater mortgage and what steps you can take to sell your house underwater.
How to Sell a House Underwater
When a mortgage loan is more than a property’s estimated value, it is an underwater mortgage.
For instance, suppose you bought your home last year for $300,000. The real estate market shifted, and now your home is worth $275,000. Your mortgage is $25,000 more than your home’s value and is underwater.
If you’re struggling with debt, it’s time to take proactive action– or else your lender will choose for you: foreclosure. Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by taking ownership of and selling the mortgaged property, which negatively affects your credit score.
The proactive options you can take include the following:
- Building equity
- Loan modifications
- High loan-to-value refinance (HIRO)
- Cash offer
Consider Building Up Equity
Homeowners can build home equity with the mortgage payments they are making each month. This is the portion of your property you have paid in full and do not owe on your mortgage loan, compared to what remains unpaid. Therefore, homeowners will benefit from this extra financial cushion created over time by their conscientious payment history when it comes time to sell or refinance.
As you make payments on your mortgage, the amount of equity in your property will rise over time, transforming it from a valuable asset into an even more invaluable one. Your net worth similarly expands as this occurs, allowing for financial success and security.
Homeowners have multiple methods to build equity in their homes. This typically involves increasing the value of the home or minimizing mortgage debt, or a mixture of both. To assist you on this journey, here are several approaches you can take advantage of:
- Big down payment to reduce the loan balance
- Increase property value
- Make additional mortgage payments on the principal balance
- Pay closing costs out of pocket
- Refinance options for a shorter term
- Wait for your home’s value to increase
Mortgage loan modifications are changes to the terms of a mortgage loan that can help make it more affordable for the borrower. These changes can include the following:
- extending the term
- lowering the interest rate
- changing the payment structure
A loan modification is a change to the terms of an existing loan, while a refinance involves taking out a new loan to replace the current one. A loan modification can help struggling borrowers avoid foreclosure without qualifying for a new mortgage, while refinancing can provide access to cash and lower interest rates.
Instead of forcing a property into foreclosure or leaving the borrower to default, creditors and lenders frequently offer forbearance as an alternative. Forbearance is simply the temporary postponement of loan payments, usually concerning mortgages.
If you struggle to make your mortgage payments due to financial hardship, such as job loss or medical bills, a forbearance agreement allows you to pause or reduce your monthly costs for a limited time. This can give you the breathing room to get back on track with your finances and avoid late fees and potential foreclosure.
A forbearance agreement is a short-term solution, however. It’s important to remember that while your payments may be reduced or suspended during the forbearance period, they will eventually have to be paid back in full.
Using a HIRO (High Loan-To-Value Refinance)
Fannie Mae’s high loan-to-value refinance programs are for people with a conventional mortgage but who need more home equity to refinance. These programs help those whose homes have suffered devaluation since they purchased them.
Generally, mortgage lenders expect you to have at least 20% equity in your home if you’re looking to refinance. With HIRO, you can refinance with less than 3% equity. It’s possible to be eligible for HIRO even if you’re underwater on your mortgage.
Refinancing your existing mortgage into a new conventional mortgage can get you the following:
- a better interest rate
- lower monthly mortgage payments
- the potential to adjust your home loan term length
Consider a Cash Offer On Your Home
You may need to find cash home buyers in Tennessee. Selling your underwater home to a cash buyer can be a great option. When underwater, you owe more on the mortgage than the home’s current market value.
Being underwater on your mortgage can make it challenging to sell, as potential buyers may need help to get approved for a loan large enough to cover the difference between what you owe and what the house is worth.
There are many ways to sell a house-each has advantages. Selling for cash eliminates this issue since the buyer will have already acquired the funds needed to purchase your home outright. Additionally, when selling for cash, there is no need for appraisals or inspections, which can save time and money in closing costs. That means more money in your pocket!
You are, ultimately, accepting a cash offer for your home if you are underwater, provided a quick and easy solution to an otherwise tricky situation. It allows you to move forward without worrying about foreclosure or high costs associated with traditional real estate transactions. Whether you find a company that promises, “we buy houses Memphis,” or it’s time for you to sell a house a fast in Germantown, a cash offer might be the solution.
Consider a Short-sale with Your Lender
You might need a short sale if you’re in dire financial trouble. You’ll sell your home for less than you owe on the mortgage.
The lender of the original mortgage must agree to accept less than what is owed on loan, and this agreement is called a short sale. This transaction can benefit both parties involved, allowing you to avoid foreclosure and the lender to recoup some losses.
When considering a short sale, it’s essential to understand that many factors must be considered before agreeing. These include:
- understanding the property’s current market value
- negotiating with lenders
- finding a buyer willing to purchase the property at a discounted price
- potential tax implications associated with such a transaction
Are you underwater on your mortgage and trying to figure out how to sell your house? Don’t worry; there are several options available for you.
Building equity in your home is a great way to increase its value and make selling easier. Loan modifications and forbearance can also help you get back on track with your mortgage payments.
If you’re looking for a more immediate solution, consider a high loan-to-value refinance (HIRO) or a cash offer from an investor.
Selling for cash allows you to avoid foreclosure and get out from under the debt quickly. Cash buyers purchase homes in any condition, so you won’t have to worry about making costly repairs or renovations before putting them on the housing market.
One of the best advantages of selling your house for cash is avoiding the hassle of real estate agents and commissions. This means that you will receive all of the proceeds from the sale of your home and can use them however you wish.
As a last resort, you can always try a short sale if all else fails. With the right strategy, you can get out of an underwater mortgage and sell your house quickly.