What To Do If You’re “Upside Down” On Your Home and Owe More Than It’s Worth

Last fall, Economy.Com reported that one out of every six homeowners owned more on their home than what it was actually worth. This is primarily because these homeowners bought their homes when the market was near its peak and prices have declined since then. This doesn’t mean that everyone in this situation is in major trouble and needs to panic, but it does mean that they’ll have a lot of difficulty if they want to sell the home that they’re in. If you find yourself in a situation where you owe more on your home than it’s worth and are unable to pay the payments, there are some options for you to consider.

First, you could consider a short sale. This process involves selling the home for whatever its worth, and then the bank which provided you the loan will simply take a loss on whatever money that you owed and were unable to pay. Before you can sell your home at a loss in a short sale, your bank will need to approve the sale. If you have both a first and second mortgage, it’s unlikely that your short sale will get approved because short-sales typically end up leaving second-mortgage holders high and dry.

The second thing you could do is try to get your mortgage company to renegotiate the terms of the terms of the loan. Rather than taking a major loss by doing a short sale, many lenders are much more willing to extend your payment term and lower the monthly payment you make each month so that you don’t get behind on your payments. Sometimes this will involve doing a refinance and other times, they will simply do a modification of your loan.

The third thin you can do is visit the Hope Now alliance website and setup an appointment with one of their counselors. It’s a group of corporations that are working with HUD to help people avoid having their homes foreclosed on. They’ll refer you to one of their counseling organizations that will help you avoid foreclosure. They can often get a reprieve on payments for a few months, reduce your monthly payment or provide temporary assistance with your monthly payments. The Hope Now Alliance isn’t a miracle organization that’s going to solve your problems, but they will be more likely to talk constructively to you than a customer service agent on the other end of an 800 number.

If you’re facing getting behind on your payments, don’t just let it happen and get foreclosed on. Make sure your budgeting priorities are in the right order (food, lights, mortgage, transportation then everything else). You shouldn’t be caught up on your VISA and behind on your mortgage payment. You should also contact your bank and see what they can do to help you, and contact the HOPE Now alliance for foreclosure prevention assistance counseling.