Bill's Answer:
Bills.com Resident Expert
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
Jennifer B.
Rubonia, FL | May 12, 2012
Rubonia, FL | May 12, 2012
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?
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Bills.com
May 14, 2012
May 14, 2012
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.
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Tito V.
Chicago, IL | April 17, 2012
Chicago, IL | April 17, 2012
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!!!
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Bills.com
April 17, 2012
April 17, 2012
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.
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Bryan O.
North Fort Myers, FL | April 17, 2012
North Fort Myers, FL | April 17, 2012
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
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Bills.com
April 17, 2012
April 17, 2012
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.
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Bryan O.
North Fort Myers, FL | April 17, 2012
North Fort Myers, FL | April 17, 2012
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).
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Sandi S.
Troy, MI | March 19, 2012
Troy, MI | March 19, 2012
We bought a house in 2005 for $200,000 and owe 190,000 on it now, but the appraisal value is only 140,000. We are not backed by fanny or freddy so no one will refinance us. We currently have a 7.9% loan. I am not on the house loan, just my husband. We have consulted with Quicken Loans and they can't help us. I filed bankruptcy about 7 years ago. Who do I go to for advice - a lawyer?
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Bills.com
March 19, 2012
March 19, 2012
What are your goals? If you wish to quit the house, then by all means consult with a lawyer in your state to learn how your state's foreclosure and anti-deficiency rules impact you. If you wish to refinance, then focus on improving whatever defect Quicken mentioned in your refinance application. If it was your spouse's credit score, improve it! If you do not have enough case reserves, then save more! If your LTV was too high, then cross your fingers the property values improve in your area.
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B S.
Costa Mesa, CA | February 13, 2012
Costa Mesa, CA | February 13, 2012
We are in a loan modification program since end of 2010. Part of agreement; we receive $80.00 credit each month as long as we are current and never late which will be applied to principal once the loan mod term is over, records are never consistent; I want justice and accountability, * we have never been late, current on mortgage, however; we are upside down. How do we proceed with the following:
- request an audit (free)
- file a complaint in which we get a response in 30 days
- request mortgage reduction to meet market
Any other suggestions?
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Bills.com
February 13, 2012
February 13, 2012
Consult with a lawyer who has experience negotiating with mortgage servicers. He or she will help you achieve your goals in resolving your home loan.
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Hannah G.
Royal Oak, MI | January 13, 2012
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!
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Bills.com
January 13, 2012
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.
Consult with a Michigan lawyer now who has experience in bankruptcy to learn your options.
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Priscilla S.
Camarillo, CA | November 16, 2011
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!
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Bills.com
November 16, 2011
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:
- Keep trying to negotiate. Who knows, maybe the servicer might say yes if you ask nicely enough. This probably will not happen.
- 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.
- 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.
- 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
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?
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Bills.com
November 15, 2011
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?
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Pamela K.
New Berlin, WI | November 10, 2011
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
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.
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.
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Kevin schulz K.
New York, NY | October 17, 2011
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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