House Underwater? Here are Mortgage Options
House Underwater? Here are Mortgage Options
Some homeowners discover themselves in a scary position of having a home that is "underwater"; what is one to do when they owe more on their home than it is currently worth? How does a homeowner even get to this place? Well, it can be the result of a few events; real estate prices that drop, a neighborhood that is running down, borrowing more than the buyer could afford, taking on an option adjustable rate mortgage, etc. When the balance of the mortgage is more than worth of the home, this is called being "upside down" or "underwater".
So what are the options a homeowner can have when they find themselves in this condition?
Short sell the home
Short selling a home is certainly an option worth exploring when in this position of being underwater on the home. If the difference between the sale price of the house and the amount that was mortgaged is not large, or even if the seller has quite a bit of money, then it's a viable option. If the seller of the home is not able to financially handle the balance but has to sell, then they have to contact the bank holding the mortgage and short sell.
This process can take a while to accomplish and a great deal of paperwork. The seller must convince the lender to agree to the short sale before they can list it; once the lender agrees to handle a short sale, the seller has to then find a real estate agent who is willing to deal with a short sale.
Foreclosure
Sometimes, even after a short sale, the homeowner can still owe money to the bank; in this case, the homeowner might have to foreclose on the home. Weigh this option very carefully because a foreclosure will harm your credit, big time. The possibility of owing money after the short sale is one thing to consider, you must also consider the taxes as well. From this perspective, the discrepancy between the price the home was sold for and the amount owed on the home can be seen as income. You must deal with the tax or having to prove you were insolvent since a short sale is actually debt forgiveness.
If you can, stay in the home and continue to make payments until your outstanding balance reaches the value of your home or perhaps the value of your home will increase enough.
Here's the deal
When you are applying for a mortgage to buy a home, try to take out the smallest mortgage you can that will still get you a decent home. Make sure to do your research and find one that has rules that work for you, like a fixed rate mortgage or an adjustable rate mortgage and prepare for it.
Some homeowners discover themselves in a scary position of having a home that is "underwater"; what is one to do when they owe more on their home than it is currently worth? How does a homeowner even get to this place? Well, it can be the result of a few events; real estate prices that drop, a neighborhood that is running down, borrowing more than the buyer could afford, taking on an option adjustable rate mortgage, etc. When the balance of the mortgage is more than worth of the home, this is called being "upside down" or "underwater".
So what are the options a homeowner can have when they find themselves in this condition?
Short sell the home
Short selling a home is certainly an option worth exploring when in this position of being underwater on the home. If the difference between the sale price of the house and the amount that was mortgaged is not large, or even if the seller has quite a bit of money, then it's a viable option. If the seller of the home is not able to financially handle the balance but has to sell, then they have to contact the bank holding the mortgage and short sell.
This process can take a while to accomplish and a great deal of paperwork. The seller must convince the lender to agree to the short sale before they can list it; once the lender agrees to handle a short sale, the seller has to then find a real estate agent who is willing to deal with a short sale.
Foreclosure
Sometimes, even after a short sale, the homeowner can still owe money to the bank; in this case, the homeowner might have to foreclose on the home. Weigh this option very carefully because a foreclosure will harm your credit, big time. The possibility of owing money after the short sale is one thing to consider, you must also consider the taxes as well. From this perspective, the discrepancy between the price the home was sold for and the amount owed on the home can be seen as income. You must deal with the tax or having to prove you were insolvent since a short sale is actually debt forgiveness.
If you can, stay in the home and continue to make payments until your outstanding balance reaches the value of your home or perhaps the value of your home will increase enough.
Here's the deal
When you are applying for a mortgage to buy a home, try to take out the smallest mortgage you can that will still get you a decent home. Make sure to do your research and find one that has rules that work for you, like a fixed rate mortgage or an adjustable rate mortgage and prepare for it.
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