Underwater Mortgages
Remember this article in the Kansas City Business Journal? “The Kansas City area is burdened with one of the nation’s highest percentages of seriously underwater mortgages , according to a new report.”
ATTOM Data Solutions, the new parent company of RealtyTrac Inc., reported that, during the second quarter of 2016, 21.2 percent of Kansas City-area homeowners with mortgages are seriously underwater, meaning the homeowners owed at least 25 percent more on their homes than the homes’ estimated market value.
At that time, Kansas City ranked ninth-worst on the list. St. Louis was in better but still poor shape with 17.8 percent of homeowners seriously underwater.
According to Yahoo Finance, “The U.S. housing market has been strong, and home prices have been rising steadily since 2012. However, signs of weakness have started appearing lately — including a slowdown in the pace at which home prices have been rising.” That is leading to underwater mortgages.
That doesn’t mean the housing market is headed for a crash. But some places could be more at risk of a downturn than others.
What Are Your Options if Your Mortgage Is Underwater?
Dave Ramsey said, “Being underwater on your home is scary. You may feel overwhelmed You still have options that can help you turn things around!”
Option 1: Stay in your home and work to build more equity.
Getting back right side up on your home takes hard work, but it’s one of the best ways to ride the ups and downs of the real estate market. Use this mortgage payoff calculator to run the numbers for your specific situation. The more money you can pull together to pay down principal, the faster you build equity in your home. It’s that simple!
Option 2: Refinance your mortgage.
You can’t actually refinance your home when you owe more than it’s worth. Most lenders won’t allow traditional refinancing until you have at least 20% equity in your home.
However, if you’re underwater on your home, you may qualify for the HARP program. To qualify, you must have made on-time mortgage payments over the past six months (and no more than one late payment in the past 12 months). It also only applies to homeowners with loans that were originated before May 31, 2009, that have less than 20% equity.
Option 3: Sell your house and use your savings to pay the amount you still owe.
The first two options—paying more on your mortgage or considering a refinance—assume that you’re staying in your home. And that’s your best option if you’re underwater. But there are other scenarios—and one is to sell your home. Now, when you sell while your home value is down, you do lose money. The only way you can sell your home through a normal home-selling process when you’re underwater is if you have cash on hand to make up the difference between how much you owe and how much your home is worth.
Option 4: Sell your home through a short sale process.
A short sale is only an option when you can’t afford your monthly mortgage payments, your home is worth less than your current mortgage balance, and you don’t have cash on hand to make up the difference.
This option really stinks. A short sale isn’t great, but the next option, a foreclosure, is even worse – for you and the lender.
Option 5: Foreclose on your home.
In a foreclosure situation, the lender takes control of your home because you are unable to make your payments. If you’re still living in your home, you’ll be evicted. Then the lender will sell the house as quickly as possible to try to recoup as much money as they can. That’s not something you want to go through! Do everything you can to avoid a foreclosure.
Option 6: Declare bankruptcy.
Like a foreclosure, declaring bankruptcy takes a huge emotional toll. This is another last resort option that you only want to pursue if you’ve tried everything else. There are two different types of bankruptcy:
- Chapter 13 means the court will put you on a plan to repay some or all of your debt. You’ll have time to work on getting your mortgage current. The court will monitor your budget, and your repayment plan will typically last for three to five years.
- Chapter 7 means all (or most) of your assets will be sold by the court to repay your debt. That means it’s possible for you to lose your home, cars, or other assets. Any remaining debt is forgiven.
Talk to a Professional
Knowing you’re underwater on your home can be really stressful. You’re worried that your home value won’t climb back up, and on top of that, you may feel like you’re drowning in unaffordable mortgage payments. If that’s you, take a deep breath and trust the process. You’re going to be okay.
Ask for FREE information about How to Sell Your House Fast.
Terra Firma Property Solutions, LLC is a professional, full-service real estate solutions firm.
We buy and sell properties throughout the greater Kansas City area. We specialize in buying distressed homes, then renovating and reselling them to home buyers and landlords. Terra Firma Property Solutions: excited to be part of the economic rejuvenation of Kansas City and its surrounding areas.
Call us today at (816) 866.0566
