Owe More than My House is Worth & Need Mortgage Help

Is there any type of loan program available to refinance an upside down home loan mortgage?

Is there any type of loan program available to refinance an upside down home loan mortgage? I owe more than my house is worth and need mortgage help!

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Bill's Answer
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Bills.com Team
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Millions of Americans owe more on their home than it is worth. You are certainly not alone in this situation.

Due to the downturn in the mortgage industry, many people are find themselves in the same situation. The most vulnerable people are those who bought their homes at the peak of the market, in 2005-2007. Whether they want to sell their home or wish to refinance and take advantage of today’s low rates, they are finding few available options.

Trouble Refinancing

Since your mortgage balance is more than the value of your home, you may have trouble obtaining a refinance loan. Most lenders are not willing to extend loans that exceed 100% of the value of the property. There are a few programs worth looking into that are specially aimed at the underwater homeowner that are worth applying for. (Editor’s Note: President Obama announced changes to the HARP (Home Affordable Refinance Program) that will help millions of underwater homeowners refinance at today’s low rates. The program will go into effect in late 2011.)

Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the Bills.com Mortgage Refinance Quote page to find a loan that meets your needs.

An experienced mortgage professional can tell you whether you qualify for a loan. Also, if you do not qualify, he can explain you why and give you specific suggestions about steps to take to improve your chances of qualifying for a loan.

Six Options if Standard Refi Is Unattainable

If you do not qualify for a loan, then you should consider six options:

  1. Visit the Home Affordable Refinance Program Web site to see if you qualify for this program. In general, mortgage providers have been slow to embrace this program. However, homeowners who have convinced their mortgage companies to renegotiate the terms of their mortgages are seeing lower payments.
  2. Investigate the FHA Short Refinance program, which is designed to help homeowners with negative equity in their homes to refinance to a lower interest rate and reduced balance.
  3. Try and sell your house at the best possible price. Visit your nearest Assist-2-Sell Realtor and get your house on the market immediately. Sell it for what is left on your mortgage. You'll make no money, but you will be out from under the huge debt. By using an Assist-2-Sell Realtor, you do a lot of the work yourself that is involved in selling your home. They simply assist you and guide you through the maze. Find a place to rent for at least a year (maybe two) until you can get on your feet again.
  4. Contact your lender and discuss a short sale or deed in lieu of foreclosure. In a short sale, a lender accepts a lower amount than the balance of the loan and forgives the deficiency balance. A short sale or deed in lieu of foreclosure must be approved by the lender.
  5. Rent a room. Consider renting a bedroom (and preferably a bath) of your house to a paying roommate. A lot of students and young professionals who work two jobs or who work and go to school at same time are looking for affordable housing. It could be a win-win situation for both parties. You get extra rental income, you have someone else pitch in for bills, and you can deduct all of your rental expenses from your taxes. Check Rent.com.
  6. Bankruptcy is the final option to consider if all others fail. See the Bills.com article Types of Bankruptcy to learn more about your options.

Try to avoid foreclosure. However, if you are a California resident facing foreclosure, you need to understand the state’s recourse and non-recourse rules so you know what to expect. Other states are non-recourse as well, but none use rules as intricate and complicated as California’s.

If you would like to read more about mortgage refinance loans, I encourage you to visit the Bills.com Home Refinance Resources page. If you enter your contact information in the Bills.com Savings Center at the right of the page, we can have several pre-screened mortgage brokers contact you to discuss the loan options available to you.

You should also visit the Bills.com Credit Solutions page to learn more about credit, credit reporting, and ways to improve your credit score, which should help you qualify for better loan terms.

I wish you the best of luck in finding a lender willing to work with you.

I hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

Bills.com

96 Comments

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  • BO
    Jul, 2012
    Bill
    I do not have a Freddie Mac or Fannie Mae loan, I believe it is Residential Funding corp. I have good credit, 705. I pay my payments on time. I owe about $230,000 , but my house is worth 210,000 - 220,000. I have checked with about 4 or 5 different people now and they want me to come up with $20,000. OK, if I had $20,000 laying around, I probably would not need to refinance. Any suggestions?
    0 Votes

    • BA
      Jul, 2012
      Bill
      Residential Funding Co. and GMAC Mortgage are parts of Residential Capital, or ResCap. Ally Financial, which changed its name from GMAC Financial Services in 2009, owns ResCap and and GMAC Mortgage. Ally filed chapter 11 bankruptcy for its ResCap business unit in May 2012. As of this writing, US taxpayers own about 75% of Ally Financial due to bailouts that occurred during the mortgage meltdown. ResCap owns approximately 2.4 million consumer mortgages.

      GMAC Mortgage services mortgages, but does not own the security. GMAC Mortgage may be your servicer, but Fannie Mae or Freddie Mac may own your loan's security. Double-check your assumption about ResCap owning your loan's security by checking the Fannie Mae and Freddie Mac Web sites to see if either own your loan. If either do, look into a HARP 2.0 refinance.

      If you do not qualify for HARP, then you have two options. One you already mentioned. Your second is to lobby your congressional representatives to pass the so-called HARP 3 law that would allow refinances for people in upside-down homes who have loans owned by someone other than Fannie or Freddie.
      0 Votes

  • DB
    Jun, 2012
    dbery
    I lived in my home for the past 6 yrs. My mortgage was $140,000 and I now owe $129,000. I wanted to move for the past 3 yrs as the neighborhood is declining. I recently decided to contact my real-estate agent in reference to selling my house. He ran the comps in the area and advised that the average selling price is $101,000. So even though my I made several updates to my home, he advised that there was no way the would sell for what I wanted to place it on the market for. He advised that I would not even be able to break even. I would definitely owe a balance at settlement. I definitely want to sell this home b4 buying another and short sale is not an option as this would prevent me from getting approved for a mortgage. Please let me know what you think about his suggestion. He advised that we place the house on the market for $129,900 which would leave me owing a balance at settlement of about $20-30,000. He advised that I get a personal loan from the bank to pay this possible balance, and once I get into my new mortgage, he would work something out with the bank where I would only pay back a small portion of the personal loan. I would basically purposely default on the personal loan. What do you think about this? This agent is also a lawyer. I live in Philadelphia pa
    0 Votes

    • BA
      Jun, 2012
      Bill
      Your house declined in value so much that it is worth less than the balance of your home loan. The decline was not your fault, is widespread, and there are many homeowners in other areas of the US who are in worse shape and would love to trade places with you. There is no elegant solution to your predicament. All of these options will harm your credit score:
      • Short sale
      • Deed in lieu of foreclosure
      • Strategic default (A fancy way of saying "allow a foreclosure")
      • Sell holding a personal loan for the balance, then defaulting

      The last idea, getting a personal loan to cover the deficiency, is the most creative. But this loan still gets you to the same place — explaining to the loan officer why your DTI is so high, or explaining why you defaulted on that loan.

      I commend your real estate agent's creativity. I just do not see how you can qualify for a loan immediately given the after-effects of a loan default. With any option you choose, I just do not see a way for you to emerge from a sale of this home with your credit score intact.

      0 Votes

  • JB
    May, 2012
    Jennifer
    My husband and I owe more than our house is worth. We are wanting to move out of state for multiple reasons. One is because the neighborhood is not safe. There have been shotings and stabbings down the street and I am often home alone with the kids. Also, we need to move for a better job and family support. Is there anything we can do that won't hurt our credit?
    0 Votes

    • BA
      May, 2012
      Bill
      I assume the market value of your property is less than the balance of the loan. If so, I see three options for you:
      • Discuss a a deed-in-lieu-of-foreclosure or a short sale with your home loan servicer. Both take you to the same place — selling your property — but via different routes.
      • If discussions with your servicer go nowhere, consider a strategic default. This is you only option to rid yourself of the property if your servicer will not consider a short sale or deed in lieu of foreclosure. Before you allow a strategic default, consult with a lawyer in your state who has experience litigating mortgage issues so that you have an understanding of your rights and liabilities for the deficiency balance.
      • Rent the property, and cross your fingers the rental market in your area is tight enough for you to break-even or better on your monthly cash flow.

      Finally, study your state's anti-deficiency rules to understand what, if any, liability you may have for a deficiency balance on your home loan.

      0 Votes

  • TV
    Apr, 2012
    Tito
    Question we have one single family home and, two income properties...all three are underwater but current on mortgage payments. We don't qualify for modifications o refi's but we have a huge surplus after making all mortgage payments and bills. Question...we would like to take advantage of the low market values and purchase another home or income property cause our family is growing....Does that make sense????? Help!!!
    0 Votes

    • BA
      Apr, 2012
      Bill
      The answer depends on the details of your financial situation. If the income properties have been cash-flow positive for 2 or more years, and you have a high credit score and low DTI, you may qualify for a home loan.
      0 Votes

  • BO
    Apr, 2012
    Bryan
    My wife and I (actually soon to be ex-wife) bought a waterfront home here in Ft. Myers, Fl back in 2008. We paid $165,300 and have an FHA fixed mortgage with Citi Mortgage at 5.875%. We currently owe $154,000 on the house and the market values are still not up to what we owe. The house still needs alot of work, however I have done alot of work to it myself (put in a new kitchen, updated plumbing, etc). The problem is my wife is wanting a divorce and we have to figure out something with the house. She wants to move away from Ft. Myers and I plan on staying. I would consider keeping the house if the bank would work with us (I cant afford the mortgage on my own), however to refinance or put the house in my name my income is only $42,000 a year. I dont know what would be the best option for now and am needing help. So far the mortgage company doesnt seem to want to help or have suggestions especially since we have not missed any payments and are not in a "financial hardship". Please help. Thank you, Bryan Ott
    0 Votes

    • BA
      Apr, 2012
      Bill
      Difficult to offer a specific suggestion without knowing the market value of your property, your credit score, and DTI ratio. Review these two Bills.com articles to help you become acquainted with these options:

      See also the Bills.com resource Florida Mortgage Foreclosure & Short Sale to learn more about your options.

      0 Votes

    • BO
      Apr, 2012
      Bryan
      To answer your questions....we dont have much debt to income ratio other than our mortgage. Both of our scores are in the mid to high 700's (last year my score was a 730). As far as market value the property appraiser shows it worth $78k however websites like zillow.com and trulia.com show the market value being $139K, there are houses in the neighborhood selling over $150K but they have pools and also are complete turn key (completely remodeled need nothing).
      0 Votes