Millions of Americans are underwater on their homes. This means the balance on their mortgage is higher than the amount that the home is worth. While this is not a good position to be in, it is not the end of the world. Paying more for your home than its actual value can be frustrating. There are ways to make the situation better, but you have to know what to do. Rather than jumping ship and cutting your losses, following are a few things to do until you stop paying more for your home than it is worth.
Make a Plan to Stay
The first step you should take is to plan to stay in your home. Even if that was not your initial long-term plan, it is necessary now. If you do not move, you have the chance to build your equity back up. If on the other hand, you move, you will undoubtedly take a loss since you owe more on the home than it is worth now. You have everything to gain if you stay in the home.
If you are unable to stay in the home because of plans outside of your control, such as a job relocation, you can do the next best thing and rent the home out. At least if you rent it out to someone, you can still make the mortgage payments and wait out the decrease in value your home took. In a few years, if you still want to sell the home, hopefully, you can do so for less of a loss.
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Forced to Sell
If you are in a position that you must sell the home no matter what, you might be able to convince the lender to offer you a short sale. In this type of sale, the bank agrees to take the amount you get for the home as the full amount. Typically, the lender allows you to sell your home for the amount that it is worth, rather than what you owe on the mortgage, even if it is much lower than the amount you owe. The catch with this method is that the lender has a say in the offer you accept on the home. The process can take much longer and can be quite tedious for you. In the end, however, if you are able to sell your home for less than you owe and your credit report will show the debt paid in full it can work to your benefit.
Get a New Mortgage
This might not be the easiest task, but it can be done. Some programs enable you to refinance your mortgage even if you are underwater. Programs like the FHA and VA Streamline programs enable you to refinance based on the fact that your housing payments are all on time for the last 12 months. They do not require a new appraisal or even require you to verify your income or employment. This can be a great way to reduce your mortgage payments by lowering the interest rate. In the end, this helps you to gain equity in the home faster because you pay more principal when you have a lower interest rate.
A Waiting Game when you Pay More for your Home than It is Worth
Honestly, it is a waiting game when you have a larger mortgage than the value of your home. There is not a whole lot you can do since you probably had nothing to do with the value decreasing. Instead, make the most of it by making your payments on time and waiting until you can refinance into a lower interest rate. If you do not have an FHA or VA loan in order to use the streamline program, you can explore the HARP® options available to you to help you make your payment more affordable.
In the end, waiting out the value of your home is probably the best option. Eventually, values will come back and if you are diligent about making your payments on time, your principal will come down. This means you will owe less than your home is worth one way or the other, giving you equity in your home once again.
