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?

Read full question
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:

  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

Rate this article
Not helpful
Awesome

Comments (104)


Pankil S.
Chicago, IL  |  June 26, 2013
I am in the process of buying a condo in Des Plaines, IL. Due to the current market I have decided to pay the asking price and did not wish to negotiate. I believe I am paying premium price and HOA is $465 month. I have recently found out that HOA only have $15,000 in reserves which is a major concern. I know no one can predict the future but what I am most concerned with is that after moving in if there is a major repair then I have to either shell out substantial amount or if my fellow neighbors opts to raise the HOA then it can go up to $500 to $600 depends upon the expense.

My question is, in this situation can I re-negotiate the price with the seller? I have an attorney so is that something he would be responsible for or should I have to ask my real estate agent? I am not so sure if there are any contractual issues that may stop me to re-negotiate. I am not sure. Can you help/suggest?
Bills.com
June 26, 2013
You wrote, "I am in the process of buying..." so it is unclear to me if you made an offer to purchase the property, or if you are still in the negotiation phase of the transaction. If you made an offer, and the seller accepted, then you cannot change the terms of the sale. However, there may be a cancellation clause in your contract.

Share your concerns with your lawyer, and ask if you executed the contract. If so, ask what costs you will incur if you cancel the contract.

One final thought: Almost everyone goes through a time of buyer's remorse. This is normal. I am not suggesting your concerns about the HOA are misplaced, but it should not surprise you to have second thoughts about any home you buy.
Avatar
Pankil S.
Chicago, IL  |  June 26, 2013
Thank you so much!!! You certainly read my mind. I have already made an offer and even paid Earnest Money to the seller’s agent. When I shared my concern with the attorney I did not get any reply. So, I believed it’s probably not under his mandate. He however replied to my questions that in the current process I am in, he believes I can back off and even get my earnest money back. Only loss I would be responsible for would be Appraisal, Inspections and of course attorney fees. So you believe, since offer is already made and even though I was not aware of the low reserve. There is no scope of negotiation? After reading all the posts leads me to believe that not only I am overpaying but when time comes to sell, I would loose big time. Market is improving day by day but the condo's in the same neighborhood was sold for 143K in later 2012. There was another condo which was recently sold but actual sale price is still unknown. Only positive I have is condos were sold for $199K back in 2000’s so if I stay in the place for 5-10 years then there might be a possibility I could sell for what I paid. Thank you so much for your help. It certainly is extremely helpful indeed.
Bills.com
June 27, 2013
Return to your lawyer and ask him or her what your liability would be if you cancel the contract.

Typically in real estate purchases, the time for negotiation is before and while you are offering to buy the property. Negotiating after the deal is signed is not effective, generally. However, if there is a contingency in the contract, such as a building or pest inspection, then the buyer has the option to withdraw from the contract without penalty if the inspection contains a surprise.

Here, your "surprise" was the amount of reserves in the HOA's bank account. Was this one of the contingent inspections? If not, then I do not see a valid reason to withdraw from the contract without you losing your earnest money. However, I hasten to add I am not your lawyer, and I have not read your sales contract. As I mentioned, the best person to answer your legal questions is your lawyer.
Jacqueline L.
Palm Bay, FL  |  June 14, 2013
I did a modification in Jan 2010, with Litton loan..a year and a few months into it, I received an escrow statement that stated that Litton place force-placed insurance on our home. Our original payment was $1500/month, after the modification it went too $874/month...then with the force-placed insurance it went back yo too $1,300/month. Later that year Ocwen bought out Litton Loan, and we explained to Ocwen what Litton had done, they dropped the payment down by $60.00/month, but we continue to pay the high mortgage, and are three months behind, but have been keeping the payment under three months as to not get to the foreclosure state. Both my husband and I did not have a job,for quite some time, and finally we are both working, but still struggling. We do have an attorney for the forced placed insurance, and in process of being in litigation. I am trying to find an attorney that would help us with the principle mortgage forgiveness program, but have had a lot of strange people calling and asking for outrageous money, etc. Can you help?
Bills.com
June 18, 2013
I recommend that you continue to work with your attorney regarding the force-placed insurance issue. Regarding principal forgiveness, you are right to be very wary of anyone asking for money to help you. I suggest you start by calling HOPE NOW, a federal housing counselor, at 888-995-4673. Also, read our page about NACA. They can sometimes assist with principal reduction.
John H.
Boca Raton, FL  |  June 10, 2013
Hi. I have a 350,000 mortgage in my grandmother’s name. She has past away. The house is in my name. We are current on the payments and never had a late payment. The problem is she refinanced the house about 4 years ago for $350,000 and now it’s worth $225,000 HELP!!! Want to modify the loan in my name for a much lower amount then $350,000
Bills.com
June 11, 2013
I do not know enough about your situation to comment meaningfully. Consult with your mortgage servicer to learn if the loan qualifies for HARP. You mentioned the existing loan is not in your name. Therefore, I will guess the loan is not assumable. (I'm making a big inference by saying that, and you need to learn for certain whether you can assume the loan.) You may need to start from scratch and qualify for a loan on your own.
Bill O.
Longmont, CO  |  July 24, 2012
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?
Bills.com
July 24, 2012
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.
Dbery B.
Philadelphia, PA  |  June 10, 2012
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
Bills.com
June 12, 2012
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.

Jennifer B.
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?
Bills.com
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.

Tito V.
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!!!
Bills.com
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.
Bryan O.
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
Bills.com
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.

Avatar
Bryan O.
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).
Sandi S.
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?
Bills.com
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.
B S.
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?

Bills.com
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.
Waiting for comments to load Loading more comments
Thanks for your feedback!

What Can I Save?

 

Tool Box   Easy to use resources to help you find solutions to your money questions