Advice on actions to take if you are upside down on your mortgag

What if you owe $550k on your house but due to home prices dropping, the house is now worth $400k? What can I do?

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Bill's Answer: Answered by Bills.com Staff

You are not alone in this situation, may people are finding themselves in an "upside down" situation. First of all, if you can afford your payments, then stay on course. Hopefully, the market should turn around and you should be in a better position to maybe start thinking of a refinance. If you are thinking about a refinance, I do not think that it will be a viable proposition given the fact that the new loan would have to finance 137% of your value. While loans of up to 125% LTV are possible, they are very rare and will turn out prohibitive, cost wise.

If you have having difficulty keeping up with the payments, you may want to consider a short-sale, in which your mortgage company would accept less than the full balance of the mortgage to settle the debt. You would then sell the home and pay the mortgage company whatever you received, and the mortgage company would forgive the remaining balance. If you are interested in a short sale, the first step is to contact your mortgage lender to find out if this is an option. You can only proceed with a short sale with the consent of the mortgage holder, so it is imperative that you communicate with the lender.

For more information about short sales and deeds in lieu of foreclosure, see the Bills.com resource Deed In Lieu Of Foreclosure vs. Short Sale. Generally speaking, a short sale is a much less painful process than allowing the property to fall into foreclosure, especially from a credit-score perspective.

If your lender will not allow you to conduct a short sale, you may also want to consider asking the lender about a "deed in lieu of foreclosure" agreement, which involves surrendering the home to the lender to prevent foreclosure. I strongly encourage you to speak with a qualified attorney before making any decisions regarding your home, as your state's laws could significantly affect how you decide to resolve this problem.

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

Best,

Bill

Bills.com

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Comments (45)


Jackie B.
Hillsboro, OR  |  February 13, 2012
My husband and I purchased a new home four years ago for 389,000 in a brand new development. Up until about a year ago, building had come to a screeching halt but this past year...houses have been going up a little at a time. My husband just found out that our exact same floor plan, with many upgrades that we don't have - has just sold for $300,000. After calculating the difference in upgrades we are $100,000 upside down in our mortgage. My husband will be retiring in 7 years and when he does we would like to move someplace warm and less expensive. I know lots of other people are having the same issue..although we love our home it feels like a big albatross around our neck. Is there anything we can do that won't impact our credit?
Bills.com
February 13, 2012
The only way you can sell your home without a negative impact on your credit score is to sell it and pay any deficiency balance. All other tactics — foreclosure, short sale, deed-in-lieu-of-foreclosure — result in a negative impact on the borrower's credit score.
Steve L.
Phoenix, AZ  |  November 11, 2011
I am a totally disabled vet. My home is now worth $49,900. I owe $187,000. What can I do? my only income is disabilty from the va.
Bills.com
November 14, 2011
The answer to your question depends on your goals and circumstances. Do you want to refinance? Can you afford your present payment? Do you wish to sell the property and reside elsewhere?

See the Bills.com resource Refinance VA Loan if refinancing is your goal.
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Steve L.
Phoenix, AZ  |  November 14, 2011
I would like to lower my payment as much as possible since I am on a fixed income
Bills.com
November 14, 2011
To the best of my knowledge, the VA does not offer a modification plan for its loans. For more information, see the VA's Veteran Borrowers in Delinquency Quick Reference Sheet, a PDF document.
Rafael L.
El Centro, CA  |  October 30, 2011
My home is also down in value. I bought my house for 269,000. I currently owe 235,000 and my house is value around 219,000. I am trying to see if I qualify for refinance. I currently have a 5.875% on my loan which was funded by Fannie Mae and I have never been late, but I was told I don't qualify because I pay PMI? What can I do? Is that true?
Bills.com
October 31, 2011
Although you are underwater at a LTV ratio of 107%, there is still a possibility to refinance under the HARP program. Paying PMI does not disqualify one from the program. Beyond the qualifications you mentioned (LTV, Fannie Mae Loan, and being current on your loan), you must also be sure:
  • You are the owner-occupant of a one- to four-unit home.
  • You have a reasonable ability to pay the new mortgage payments.
  • The refinance improves the long term affordability or stability of your loan.

Although you may feel that you should qualify for a refinance loan, no lender is obligated to refinance under the program and many lenders simply chose to not participate. New HARP details will be released at mid-November and it is expected that many more lenders will participate in the new program than did in the old.

Check back with Bills.com for updated information regarding the updated HARP rules.

Jeremy L.
Apple Valley, MN  |  October 07, 2011
Right now my house is worth about a 170,000. I owe about 227,000 dollars on so im not able to refinance because its about 135 percent of loan to value. What i dont understand is a. keeping the interest rates down is only helping the rich or those that have owned there homes along time. b. why cant my own bank or anywhere take my loan, its stupid u cant refinance , should i just quit paying to get the mortgage companies attention or what. c. why is there absolutely no where i can get a loan from anywhere or anyone to enjoy the nice rates others are. Im paying 6.75 please help me thanks
Bills.com
October 07, 2011
Unless and until Congress and the Administration can agree to deal with the ocean of underwater mortgages in the US today, I do not see much help for homeowners or the housing market.
Krysti T.
Round Lake, IL  |  July 30, 2011
I have a different question. I am upside down, but I have the money to pay extra every month. Should I do that and if so, how much extra?
Bills.com
August 01, 2011
I can't properly answer your question without knowing more about your income, property value, other debts, retirement accounts, etc.
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Nobody C.
Ontario, CA  |  September 16, 2011
I think making extra principal payments is always a good thing. The quicker you can get your upside down mortgage under the 125% LTV mark, the sooner you can refi.
She M.
Oakridge, OR  |  June 23, 2011
My husband and I purchased our home on 2 beautiful acres 12 years ago when he was recruting for the military. He is no longer recruting and is stationed in another state. He commutes and comes home on weekends.(13 hour round trip)He has done this for 8 years.It is very difficult for us not being together. I have to take care of the property when he is gone and even though I keep it up and looking nice, I am getting too old to do it all. Then when he is home on the weekends, we are both working to maintain our home and property. We have no off time to enjoy life. Then the worst thing happened. The neighbors from hell moved in next door. The property was vacant all these years. We have a lovely home and take pride in it. We are so discouraged and feellike our world is caving in on us. Mt spouse has 2 years left in active duty military. We tried to sell our home when it was listed for 6 months during the fall/winter however the market has hurt us and so has the neighbors from hell. We need to be together, and we refinanced twice to build equity and do some remodeling in the last 12 years as we have an older home. Our interest rate is 9% and we tried to refinance again to get it down to 4.5%. Due to the amount of homes up forsale and the hard marketout there, we can not get the refinance. We are in such a hard place.The state we live in has one of the worst economies. My husband will need to get a new job when he gets out of the military in 2 years. Finding a job here is near immpossible. We have to sell our house. We cannot rent it for what our mortgage payment is. We do not want to do a short sale or forclousure as our credit is good and we do not want to move in a bad direction. We had to already spend money to take our neighbors to court for a few terrible things. What cn we do to get out of here and sell our home? Will I ever be abe to be with my husband on a permanebt basis or will this housing market ruin us.(Not to mention the bad neighbors)
Bills.com
June 24, 2011
Answering your question is difficult because you ruled out a short sale or foreclosure. If you are in financial distress, your only options are a short refinance or finding a way to augment your income, such as renting out a room in your home.
Jabriel S.
Hyattsville, MD  |  April 20, 2011
I am unpside down on my Mtg. house is currently rented, but the worth is about 40% of my loan! I have refinanced once before, but don't think another refiance would help. I have made all my payments on time for 5 years, even if they would consider doing a short sale, nothing will sell!! What to do??
Bills.com
April 20, 2011
You have four options:
  1. Continue with the status quo. In other words, keep making your monthly payments.
  2. Sell the property under a short sale or deed in lieu of foreclosure. Consult with your mortgage servicer to explore this option.
  3. Investigate an FHA short refinance.
  4. Consider a strategic default.

Click on the links I just mentioned to find the Bills.com resources that discuss these options. If you want to keep the house, options No. 1 and No. 3 are your choices. The fourth option, strategic default, is the least desirable from liability and credit score perspectives.

Mortgage-Mod-Monster.com D.
Grand Junction, CO  |  December 03, 2010
The HAMP lenders are expected to follow the Principal Reduction guidelines for HAMP-eligible mortgages after the first of the year. The Rest Report will calculate PRA eligible mortgages using their software.
JC .
October 28, 2010
I found all of the latest foreclosure and mortgage assistance news Site is updated daily and has a lot of great articles.
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Bills.com
August 17, 2010
Regarding your neighborhood, is it ripe for gentrification, or is your area in a long-term decline from which it will never recover? If the fundamentals of the area are strong, then I would either stay in the property or use it as an investment, as you suggest. If you are in an area where the economy will not recover for a very long time (I am thinking of a Detroit-like scenario), then you are smarter to stop spending good money after bad and either short sale the property or if that does not work then strategically default.
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