Owe More than My House is Worth and Need Mortgage Help

BILL'S ANSWER

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

Comments (81)

Hannah G.
Royal Oak, MI  |  January 13, 2012

In 2006 my house in Detroit was worth $90k and I took out a home equity loan for $40K for my kid's college expenses. Now the neighborhood is destroyed by foreclosures and vacancies and if I could sell the house at all it might fetch $10-15k - that is what the few recent sales are going for, but really, houses are not selling at all. The one across the street has a sign on it for $2,900, cash, no takers. I moved to an inherited house to get out of the neighborhood for safety, and have no loans on that house. But I am paying taxes, utilities and insurance on two houses which I can't afford, although all my payments are current. The loan payment is small right now, but paying all those expenses on a house I don't live it will cost me $7000 this year. I want to get out from under the house but due to credit card and educational debt I doubt I could finance the balance I would still owe. The market is not going to recover for decades, if at all, in that neighborhood. Since I already have another place free and clear, I'm not worrying as much about the hit on my credit score. Renting the house out is not really an option as there are plenty of empty, open, free houses all around me. Even after reading a lot of the questions here I really am unclear on my options. So what do you do when your house is really worth nothing? Do I try to talk to the lender or avoid scaring them (or is that conversation really just scarier to me than to them)? Do they do deals with home equity loans (versus mortgages?) Do I walk away, and if so what are the consequences? I make $65K per year - is this too much to qualify for programs if there are any out there (we are current on payments but struggling with high balances)? Should I just declare bankruptcy, or is that silly when I can make my bills now, even if I am only making minimum payments and barely that? Any help to get me out of a mess I created in my naivete is welcome!

(0)

Bills.com
January 13, 2012

I would not call you naive. In fact, you are wise to plan a graceful exit strategy now.

Consult with a Michigan lawyer now who has experience in bankruptcy to learn your options.

(0)

Priscilla S.
Camarillo, CA  |  November 16, 2011

We purchase our house at the very end of 2006 so obviously we owe more than the house is worth. I was able to refinance our first but my biggest problem is my 2nd. It's at over 8% interest. Is there anything we can do to get that lower. I've tried calling the lender and they say they can't do anything. Do you have any ideas of what we can do? Thanks!

(0)

Bills.com
November 16, 2011

A common question among Bills.com readers. I do not have any good ideas, which is to say I do not have any no-risk or no-pain ideas for dealing with the situation you described. Mortgage servicers, as a group, will not negotiate with a homeowner unless they think it is to their advantage. You have four bad options and no good options:

1. Keep trying to negotiate. Who knows, maybe the servicer might say yes if you ask nicely enough. This probably will not happen.
2. Default. By making your payments consistently, you give the lender zero incentive to negotiate. Paint the mortgage servicer and the loan investor into a corner and force them to come to you to negotiate a settlement. This is a risky tactic, and should be done only after you consult with a lawyer to understand the consequences of a possible foreclosure.
3. File bankruptcy. A chapter 13 will strip the lien on the second (junior) loan. Again there are risks and costs to bankruptcy you must discuss with a bankruptcy lawyer before pursuing this option.
4. Do nothing. Continuing to pay the loan maintains your credit score and completes your promise to repay the loan.

Consult with a lawyer before taking any drastic action, such as stopping payment on your second.

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Pj J.
Waterford Twp, MI  |  November 15, 2011

We currently owe about 30,000 more for our house than it is worth. Our mortgage is through a major chain but not a Fannie Mae or Freddie Mac loan. We have an interest rate of 7.1 and would just like to lower our interest rate and as we are. We are not late and have remained current on our loan for years. Do we have any options for refinancing what we owe at a lower interest rate?

(0)

Bills.com
November 15, 2011

Aside from working out something with your lender, you currently do not have a lot of options. Have you spoke to your lender about refinancing or modifying your loan?

(0)

Pamela K.
New Berlin, WI  |  November 10, 2011

I filed bankruptcy in July 2010. Intended to reaffirm the mortgage, but it never happened (long story). I've been living in my house since then, making on-time payments up until last month. My intentions were to keep the house, I've spoken with my lender, Wells Fargo, and I keep getting the runaround about a possible loan modification (get it reaffirmed, then we'll talk... leave me your number I'll get back to you... have your bankruptcy lawyer contact me...) So I'm convinced they won't work with me until I'm severely delinquent, or maybe even not at all. If I try after a few months of being delinquent to work something out with the bank, will it then finally work with me (considering the loan was included in the bankruptcy)? Logically, I should just sit in the house and save what I would be spending on mortgage payments, and wait until I get kicked out. How long, from start to finish, might I have? I should also mention that without an actual appraisal, but based on the prices that homes in the neighborhood have sold for, and the condition of my home (cracked foundation), I am quite confident that I owe more on the house than what it may sell for. I am also wondering what the credit repercussions will be after the house is foreclosed upon. Since it was already included in the bankruptcy, will it affect my score if it goes into foreclosure so long after my discharge? I assume the foreclosure will show on my credit report being as it will be a judgement. I know a bankruptcy and foreclosure are equally bad, but since my bankruptcy I've been able to view my transunion FICO score, and in one month it raised 30 points because I paid off a student loan. Will the score then lower with the foreclosure? Or will it be unaffected because it's already been "taken care of" in the bankruptcy? If my on-time payments weren't going toward my good credit, thereby meaning that delinquent payments are not going toward any bad credit, how might a foreclosure eventually affect things?

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Bills.com
November 10, 2011

My first thought is not responsive to your question, but I must caution you to think twice before reaffirming your mortgage. In almost all cases, a home loan reaffirmation is not in the best interest of the debtor, and lawyers who thoughtlessly sign their clients' reaffirmations are not serving them well.

Your questions center around the impact bankruptcy and foreclosure have on a debtor's credit score. See the Bills.com resource Short Sale, Foreclosure & Your Credit Score for Fair Isaac & Co.'s answer to your question. Two important caveats: First, not every credit score is a FICO score — you may see your FICO go up, your PLUS Score may go down, and your VantageScore stay the same. Second, three credit reporting agencies report gather and report information about consumers. It is rare for all three CRAs to gather and report identical information about a consumer. A consumer's FICO score may vary at Equifax, Experian, and TransUnion.

(1)

Kevin schulz K.
New York, NY  |  October 17, 2011

Sometimes it happens that we have taken loan for a new home but it happens that when the time comes to repay the loan and you are not in a condition to repay the mortgage than there are some banks which helps us by seeing the present condition of us and manage to keep home with us by extending the time. But the best idea is to have a contact with finance providers they will help you all over in finalizing the mortgage.

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Tim D.
Hoffman Estates, IL  |  October 14, 2011

It is the bank industry's fault that property values are so low since they pushed foreclosures rather than working with people who want to stay in their home, as a result, my property value went down and is underwater due to all the foreclosures. My solution was to strategically default and file BK so the bank can't get a deficiency judgment (which are allowed in Illinois). And don't give me that absolute nonsense buying a car and buying a house comparison that so many realtors make - nonsense, when you buy a house, you expect it to go up in value or at least retain its value, when you buy a car, you expect it to go down in value. Oh, and the foreclosure process takes forever in Illinois, so living rent free for a while. The banks need to modify the principal balances on ALL mortgages to reflect the current market value. It is not fair just to do it for people who allegedly do not make enough because as their property values go down, so does the value of the property of those of us who were current. This whole mess is the bank and real estate industry's fault - don't buy their absolute nonsense trying to pawn it off as everybody's fault - b.s. - it is their fault. They were the experts, not the home buyers, and they screwed us - time to screw them back until they wake up.

(4)

Dave U.
Maple Valley, WA  |  October 13, 2011

I purchased my home in 2005 for $342K putting down $92K which is with Citi Mortgage and it is interest only at 5 and 3/8. Later I took a $50K HELOC from BOA. I just tried to refi and got my appraisal at 283K, so now I'm upside down. I want to refi to a lower rate. What is my best option to refi to a lower rate with or without the HELOC? What can I do?

(0)

Bills.com
October 14, 2011

You have few options if you have greater than a 125% LTV. See the Bills.com resource FHA Short Refinance to learn one option.

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Brian H.
Tres Pinos, CA  |  October 13, 2011

We got our house 10 years ago for 715k we put 260k down and have since then paid a total including down of 580k into this place and it's is now worth about 400k. Is there anyway to sue for title when you have already well paid for the property's current value? This was a countywide loan in california, and has been modified twice to a new principal balance of 550k and fixed interest/terms. But seems there has to be something out there for thoose that have truly paid the money into the propety already well beyong it's real value due in part to the Countrywide adjustable problem to begin with.

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Bills.com
October 13, 2011

You raise an interesting argument. Unfortunately, I do not foresee a court agreeing with you, or more to the point, I do not know of any courts that issued decisions based on a theory like yours.

In a nutshell, your theory transfers the risk of buying a home to the lender — if the price drops it bears the burden. Under this theory, would the converse be true, too? By that I mean, if the property increases in value would the lender pocket the equity?

Note I am not addressing any claim you may have against Countrywide/Bank of America for breach of contract, fraud, or violation of California's lending laws. Consult with a California lawyer who has experience in quiet title actions to learn if you have any cause of action against Bank of America.

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