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?

What if you owe $550k on your house split between a first $440k and a second $110k, but due to home pricing dropping, my house is now worth $400k. What can I do?

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Bill's Answer
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  • Consider a short sale or deed in lieu of foreclosure.
  • Review the FHA Short Refinance program.

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

45 Comments

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  • 35x35
    Feb, 2012
    Jackie
    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?
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      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.
      0 Votes

  • 35x35
    Nov, 2011
    Steve
    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.
    0 Votes

    • 35x35
      Nov, 2011
      Bill
      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.
      0 Votes

    • 35x35
      Nov, 2011
      Steve
      I would like to lower my payment as much as possible since I am on a fixed income
      0 Votes

    • 35x35
      Nov, 2011
      Bill
      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.
      1 Votes

  • 35x35
    Oct, 2011
    Rafael
    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?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      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.

      0 Votes

  • 35x35
    Oct, 2011
    jeremy
    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
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      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.
      0 Votes

  • 35x35
    Jul, 2011
    Krysti
    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?
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      I can't properly answer your question without knowing more about your income, property value, other debts, retirement accounts, etc.
      0 Votes

    • 35x35
      Sep, 2011
      Nobody
      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.
      0 Votes

  • 35x35
    Jun, 2011
    she
    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)
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      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.
      0 Votes

  • 35x35
    Apr, 2011
    Jabriel
    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??
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      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.

      0 Votes

  • 35x35
    Dec, 2010
    Mortgage-Mod-Monster.com
    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.
    0 Votes

  • 35x35
    Oct, 2010
    JC
    I found all of the latest foreclosure and mortgage assistance news Site is updated daily and has a lot of great articles.
    0 Votes

  • 35x35
    Aug, 2010
    Bill
    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.
    0 Votes

  • 35x35
    Aug, 2010
    Eric
    I purchased a condo over ten years ago for 83k. The property value remained steady over the years until recently when values started to plunge. Similar condos in my area are now selling at around 60k. My current loan balance is 63k, my rate is adjustable this year at 4.75%, and the HOA fees keep increasing year after year. (Mainly because many of the residents don't pay their dues, therefore they take it out on those who actually pay their HOA dues each month). My family insists I "walk away" from the condo, as the neighborhood is getting worse with crime. Example, I woke up at 3 am to gunshots outside my window last week. Not something any law abiding, tax paying citizen wants to be around. While "walking away" seems like an option, I don't want my credit score to go in the tank either. I've never missing a payment and have always paid on time. But I don't want to stick it out for another year hoping "it'll get better". Because with every spray of graffiti, and gunshot...my value is slipping more and more. Bill, here is my bottom line. My mortgage(principle, interest and property tax) each month - $475 and HOA dues $200) Total 675 a month. The renting market is okay here with so many people not able to qualify for loans. My chance of selling my condo at my current loan balance is slim, so is renting my condo a better option? If so, should I set this up on my own or speak to a professional who can get good credit/working people to rent my condo? As I've already mentioned, I'm paying 675 total and if I have to pick up a little bit of the slack(lets say the property is rentable for 600 a month) I'd do it. Thanks in advance for your advice.
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    Regarding the $118K loan scenario, I think what you are proposing is a loan modification. That varies by the mortgagee's income, the value of the property, and the mortgagee's credit history. Review the HAMP page I mentioned earlier.
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    Household income is considered, so yes, your co-tenant's income will need to be included in your HAMP eligibility. I am reluctant to offer any observations that would involve the timing of your application. I think it dangerous to make any plans regarding the timing of a HAMP modification because a) you cannot control when you will be re-employed, and b) you cannot control when the mortgage servicer gets around to modifying the loan -- or if it will modify it at all. Mortgage modification has zero impact on your credit score if you continue to make mortgage payments on time. I do not know what you mean by a changed "status."
    0 Votes

  • 35x35
    Jun, 2010
    Terri
    Also, was the 118K loan scenario possible in order to pay the original mortgage down (i.e., get rid of over 6% interest rate)? Then again, would such a 118K loan require a high interest rate anyway?
    0 Votes

  • 35x35
    Jun, 2010
    Terri
    I don't necessarily want to move as I love where I live; I'm planning based on options. It is true that I could likely rent. If I choose to stay put (become unemployed as a result), I will easily qualify for HAMP (if underemployed) or even UP (unemployed), more appropriately. Also, I have joint tenancy with my 84 yr-old mother. Does her monthly income apply in a HAMP eligibility calculation up until "something happens" where those dollars are no longer coming in? Scenario: I choose lay-off rather than moving, my income lowers to point where mortgage exceeds 31% threshold for HAMP eligibility (or UP's eligibility), I refi then get job where I am once again not eligible due to new income if I were to apply. I would think that my new situation (income after lay-off/low income) would not cause me to suddenly have to have my HAMP or UP refi scrutinized. Do you happen to know how that works? Also, would the fact that this ever happened (refi of these types) lower my credit and/or lower my "status" in any way?
    0 Votes

  • 35x35
    Jun, 2010
    Terri
    I owe 171K up from 169K due to opting to pay less $ per month making my mortgage go in the opposite direction (obviously). I have 25K second mortgage. Home was worth ~168K not long ago, now est. value is 148K. Will this work?: Get 80% LV on 148K (curr value) which is 118K (with this loan second-in-line - don't know if that will work!), then take 118K and pay on principle of 171K loan. Est payment for 118K loan $850 mo. Then have 58K left on primary loan and pay lowest option (enabling me to pay new $850 mo. loan and still pay 2nd mortgage 25K loan). Could this work or is it impossible due to 118K loaner being in second position. Or maybe I should try to refinance second mortgage. Any basic advice about refi of second mortgage or does that have to be done with 1st mortgage considered. I'm still able to pay my bills, but I may need to move due to changing job conditions: transfer or divestiture of part of company.
    0 Votes

  • 35x35
    Jun, 2010
    Bill
    I do not understand why you would consider a mortgage refinance or mortgage modification if you plan to leave the area to follow your job. Perhaps you hope to rent your residence. If so, look at the market rates for rentals in your area to see if this is a viable option economically. If relocation is in the cards, and if rental is not an option, then consider a short sale or deed in lieu of foreclosure. See also Is the HAMP Program Right for You?
    0 Votes

  • 35x35
    Jun, 2010
    Phil
    If you are experiencing financial hardship and are upside-down on your mortgage, a short sale can often be worked out.
    1 Votes

  • 35x35
    Dec, 2009
    Bill
    Contact the mortgage company to learn more about the process and if your father qualifies. Each lender has its own rules for approving a short sale or deed in lieu of foreclosure. The typical requirements are a) the residence must already be on the market for a certain number of days (90 days is typical), b) there can be no liens on the property, c) the property cannot already be in foreclosure, d) the offer of a deed in lieu must be voluntary, e) for a short-sale, the seller must have a hardship, f) the house must be priced reasonably. See also Should I Do A Short Sale On Our Home?
    0 Votes

  • 35x35
    Dec, 2009
    Michael
    My Dad is 85 and in failing health. He lives in a condo in Florida and has become upside down in the past few years. His mortgage is about $70,000 but the market value of his unit has dropped to $45,000. His assets arefew but he gets Soc. Security and Veterans Disability paymnents that provide him with a modest manageable income. He recently completed cancer treatments which have made him very frail. On top of this his memory is starting to fail him. It seems that it would be best for him to move into an assisted living facility at this stage of his life. He would need to sell his unit knowing that if he is able to find a buyer, the selling price will not cover the exisitng mortage balance. Since his health requires him to move, it would not be prudent to try to refinance as he no longer will be living in the unit. What are the chances that his mortage lender would accept a 'short sale" proposition?
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    I don't know what your question is. If you are looking for a personal or signature loan you may want to contact your local bank and ask if they will lend you the amount you are looking for so you can payoff your second mortgage, if that is what you want to do. Again, I don't know what you are trying to ask, or if you are trying to ask a question.
    0 Votes

  • 35x35
    Nov, 2009
    Daniel
    My job has transferred me to a new city. Im a upside down on my house by $80,000.00. The good news is that my employer will purchase my house at fair market value which is probably $70,000.00 or $80,000.00 upside. When I purchased my house I utilized the 10/10/80. I believe the pay off from eployer will cover the 80% and I would then loose my 10% down payent. However I would like convert the remaining 10% 2nd mortgage from a different bank to personal loan. I have never been late with any bill.
    0 Votes

  • 35x35
    Aug, 2009
    Bill
    1. Consider renting the property.
    2. Consider Making Home Affordable although to qualify for this program you need to reside in the property.
    3. Try negotiating directly with the lender about a mortgage refinance.
    4. Talk with your bank about a loan for the $15,000 balance.

    The difficulty with this loan is that you are moving, and lenders like to lend money to people who have lived in one place for a long period of time, AND the loan would be unsecured. However, $15,000 is not an absurd amount to borrow assuming that your debt-to-income ratio can handle it.

    0 Votes

  • 35x35
    Aug, 2009
    Brad
    My job is being moved to out of state and I want to move with my job. I am flipped on my house by about $15k. What do I do? What help can I get? Will one of the banks I owe let me set up a payment plan to pay off the amount? I will not have the money at close.
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    Tony, Marie - Refinancing will be difficult considering that you are upside down on the home value vs. the loan that you owe, you should see if you qualify for a loan modification based on the new initiative announced by the present Government. You can check to see if you qualify here: http://www.makinghomeaffordable.gov/
    0 Votes

  • 35x35
    Jun, 2009
    Marie
    I owe $173,000 on my purchased new 2004 home, that I'm now told it's worth $88,000, are hit hard by foreclosures and unfinished communities. I'm an entrepreneur,the business is located 2 hours away from the home. I have requested a new loan at the current value from my mortgage company. Lost $20,000 on the down payment. Good credit, pay on time. Sick to my stomach, no options sound good.
    0 Votes

  • 35x35
    May, 2009
    Tony
    We are keeping up with our payments but have two payments because we didn't put anything down on our house, but our rates are high, the house value is not worth what we paid, our interest rate will change in the near future. I would love to pay less interest on both of our rates. Any suggestions?
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    That is a difficult proposition considering that your debt to income ratio is turning out so high. Refinancing is the only way for you to transfer this only in your name.
    0 Votes

  • 35x35
    Apr, 2009
    John
    I currently co-own a townhouse, and my room mate is getting married and I am trying to get his name off the title and put the mortgage in my name. I tried to refinance but the loan was denied because the appraisal came back 5,000 under the remaining on the mortgage. Due to the type of loan, I can't get an Assumption either. I have never missed a payment. If I am able to get his name off the title, my percentage of income to mortgage would be around 40-45%. Any suggestions? Thanks.
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    You should visit this website to see if you qualify for a refinance based on the new plan announced by President Obama: http://www.financialstability.gov/makinghomeaffordable/refinance_eligibility.html
    0 Votes

  • 35x35
    Mar, 2009
    Kim
    Divorced 9/2008 per decree, I had 6 months to refinance home into my name. Due to being upside down, I am unable to do that. Loan is not assumable. I have a 15 year term on mortage. I'm able to afford current payment, but it's hard. Not behind with excellent credit/good income. Ex husband has since bought a new home and would like his name off this home. About 40,000 in negative equity which I do not have. Is there anything at all I can do?? Any information would be greatly appreciated. Thanks you.
    1 Votes

  • 35x35
    Mar, 2009
    Bill
    Discuss your situation with your lender and insurance carrier. What does the lender suggest? Did you have fire insurance? If so, have you talked to a claims adjuster? Is disaster relief available? Worse case scenario, you might be faced with foreclosure.
    0 Votes

  • 35x35
    Feb, 2009
    nelson
    house burndown due to Sylmar-Sayre fires...rebuild..but,now loan is bigger than actual home, which is currently none existing...what should i do?
    1 Votes

  • 35x35
    Feb, 2009
    Bill
    Bill, I totally empathize with you, but there is only so much help available out there and every program has their specific requirements. My only suggestion is to keep looking and researching.
    0 Votes

  • 35x35
    Feb, 2009
    Joe
    I also owe more for my home than is worth,i see all the help out thare for those whom stop paying..and getting help by lowing thier home to meet thier needs.What happens to us that keep paying? no help.i'm just in my last leg..not sure what to do any more....why can we get any help???
    1 Votes