Being upside down to a mortgage can be an embarrassing situation for any homeowner. Owing more on a home than it’s presently worth may limit a borrower’s choices to remedy the situation, so some owners may feel trapped in a bad situation. Homeowners need to evaluate whether they are able to afford to stay in the home, and whether they would like to.

Reasons

Some homeowners place little or no money down when they purchased a home–and those homeowners may get underwater quickly when home costs fall. When they refinanced their home, other homeowners may have taken on debt. Refinances allow a homeowner to get money to invest –adding to the debt on the house. The debt may exceed the value of the home when home prices drop. Certain adjustable-rate mortgages allow borrowers to make monthly payments which don’t cover the monthly interest owed on a loan. Borrowers spending these negative amortizing loans may end up underwater on the mortgages, even when housing prices remain steady.

Effects

By being upside down to a mortgage, instability can be created. Those able to afford the payments may question the wisdom of the investment. Individuals barely managing to make payments and people who want to refinance may encounter barriers: Lenders often balk at refinancing loans valued at greater than 80 percent of the current value of the home.

Solutions: Staying Put

Financially strapped homeowners who want to stay in their homes can attempt to negotiate with the lender. Loan modification, including principal reductions, are possible; some lenders are more receptive to working with borrowers compared to others. When homeowners have a fixed-rate mortgage which they can afford to pay, and when they like where they reside, they can merely dismiss being submerged. Property values have up and down cycles. Remaining in a home that suits a homeowner’s need may be the best option for people who are satisfied with their wellbeing.

Solutions: Getting

Short sales allow a homeowner to sell a property for less than what is currently owed on it. Occasionally lenders need to register on a purchase arrangement. Normally, lenders will only agree to a brief sale if sellers establish financial hardship, fall behind on mortgage payments, and cannot refinance or change mortgages.

Factors

Walking away from a home merely because it’s underwater can land a homeowner in hot water. Lenders may pursue homeowners so as to collect money still owed on a loan. California is a nonrecourse state, meaning primary lenders can’t sue a homeowner who walks away from an underwater property. However, secondary lenders, like people owed money for home equity lines of credit, still possess the right to sue. The government-sponsored agency Fannie Mae also tightened restrictions against people who willfully abandon homes. A homeowner who walks out of a home without demonstrating financial necessity must wait for 7 years before being able to use for Fannie Mae-backed loans –the exact same wait time for foreclosure.

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