With recent data showing that almost 11 million Americans have an underwater mortgage, many homeowners are weighing their options to fix the situation. Should they leave? Seek a mortgage modification? Walk away? Of course there are no easy solutions to an underwater mortgage, but there are various options for those who owe more on their mortgage than their home is worth. By weighing the options available, homeowners can make the decision that is best for them.
What to Do If Your Mortgage is Underwater
If you have an underwater mortgage, it’s crucial to weigh your options carefully. By looking at the various actions you can take, you’ll be able to follow the strategy that’s best for your situation. Some of the best ways to deal with an underwater mortgage include:
Refinance. If you have an underwater mortgage, you might not be able to get a traditional refinance. However, the Home Affordable Refinance Program is specifically designed to help those with an underwater mortgage with loans backed by Fannie Mae or Freddie Mac. A refinance will give you more favorable terms as the value of your home hopefully improves over time.
Foreclosure or bankruptcy. Deciding to walk away from your underwater mortgage is basically the same thing as a foreclosure. This drastic action is typically only reserved for those who don’t see themselves coming out of the situation financially due to their underwater mortgage. If you decide to walk away, be sure to meet with a foreclosure lawyer to minimize the impact on your credit score wherever possible. A foreclosure lawyer will help ensure that all legal responsibilities are fulfilled.
On the other hand, bankruptcy doesn’t erase mortgage debt. Instead, it gives you breathing room and eliminates other debt so that you can focus on covering your mortgage. Similar to a foreclosure lawyer, bankruptcy attorneys can help you navigate the bankruptcy code and other complex financial considerations.
Stay and pay. Be sure that the situation is right for you. Can you see your home’s value eventually recovering? And can you afford to stay and keep paying your mortgage not just for the next few months, but the next few years as well? If so, have your home reassessed and take advantage of lower property taxes.