Are you a homeowner in Cherokee County who owes more on your mortgage than your home is currently worth? If so, you may feel overwhelmed and anxious. But don’t despair – you have options. In this article, we’ll explain what an underwater mortgage is, how it happens, and the main options available to you.
What is an Underwater Mortgage?
An underwater mortgage, also known as an upside-down mortgage, is a mortgage loan where the principal owed is more than the home’s current market value. This situation usually occurs when property values drop dramatically, causing the home’s worth to decrease. Regardless of the reason, homeowners must still pay the original loan balance.
How Does an Underwater Mortgage Happen?
Homeowners who are underwater on their mortgage usually get there because of two reasons: a decrease in property value and missed mortgage payments.
For instance, if you purchase a home for $200,000 and take out a mortgage of $160,000 with a down payment of $40,000, you will need to pay monthly installments. If, a few years down the road, your neighbors are having trouble selling their homes, they may lower their selling prices to sell, causing property values to drop. This drop may result in your home being worth $120,000, but you still owe more than that, putting you in an underwater mortgage.
Another way to reach that state is by missing mortgage payments. Initially, most of the payments go toward interest, and as time goes on, you pay less interest and more toward the principle. However, if you miss payments, the interest accumulates, and it takes longer to pay down the principal, eventually leading to an underwater mortgage.
Main Options for Homeowners with an Underwater Mortgage
If you’re a Cherokee County homeowner with an underwater mortgage, you have options other than foreclosure. Here are some of those options:
- Refinancing Your Home Traditional refinancing is not possible for homeowners who are underwater, as most lenders require at least 20% equity before they allow refinancing. However, you may be eligible for the Home Affordable Refinance Program (HARP). HARP was created in response to the housing crisis of 2008 and can provide a way for you to refinance even when you’re underwater.
To qualify for HARP, you must have made your mortgage payments on time over the previous six months and no more than one late payment over the past 12 months. Also, the program applies only to mortgage loans originated before May 31, 2009.
- Selling and Paying Off What You Owe Another option is to sell your home and pay off the mortgage debt. If you were planning to sell the house anyway, this is a viable option. However, because you’re underwater, you’ll be selling at a loss. You will have to make up the difference between what is owed and what the home is worth with cash out of your pocket.
Before taking this step, consult an experienced Cherokee County agent to determine whether this is your best option. You can contact an agent at 770-280-4560 for more information.
- Staying in Your Home and Building Equity The final option is to stay in your home and work to build equity gradually. However, this requires discipline and patience as you will have to increase your income, cut expenses drastically, and budget carefully. You may have to get a second job or find ways to earn extra income to pay down the principal gradually.
As you pay down the principal and build equity, you can do a traditional refinance when you reach 20%. The point is not to give up and keep chipping away at the mortgage.
Where to Turn for Assistance
So if you find yourself underwater, you do have options other than foreclosure. But for most homeowners, it’s difficult to determine which option is best for their particular circumstances. And that’s where an experienced Atlanta agent can provide invaluable assistance. If you’re among the Atlanta homeowners who are underwater in their mortgage, be sure to contact us at 770-280-4560.
FAQs
Q: What is an underwater mortgage?
A: An underwater mortgage is a mortgage loan for which the principal is more than the home is worth on the market. It is also known as an upside-down mortgage.
Q: What are the causes of an underwater mortgage?
A: A dramatic drop in property values is a typical cause of an underwater mortgage. However, missed mortgage payments can also lead to an underwater mortgage.
Q: What are the options for homeowners who are underwater on their mortgage?
A: Homeowners who are underwater on their mortgage can consider refinancing their home through the HARP program, selling their home and paying off what is owed, or staying in the home and working to build equity.
Q: Can homeowners who are underwater on their mortgage refinance their home?
A: Technically, homeowners who are underwater on their mortgage can’t refinance their homes in the traditional sense. Most lenders require that you have at least 20% equity before they’ll allow refinancing. However, homeowners may qualify for the HARP program, which was created in response to the housing crisis of 2008 and can provide a way for you to refinance even when you’re underwater.
Q: What is the HARP program?
A: The HARP program was created in response to the housing crisis of 2008 and can provide a way for homeowners who are underwater on their mortgage to refinance their homes even when they don’t have 20% equity. However, to qualify for the HARP program, you must have made your mortgage payments on time over the previous six months and with no more than one later payment over the past 12 months. In addition, the program applies only to mortgage loans originating prior to May 31, 2009.
Q: Can homeowners who are underwater on their mortgage sell their home? A: Yes, homeowners who are underwater on their mortgage can sell their home and pay off what is owed on the mortgage. However, because they’re underwater, they’ll be selling at a loss, and they’ll have to make up the difference between what is owed and what the home is worth with cash out of their own pocket.
Q: What should homeowners do if they find themselves underwater on their mortgage?
A: Homeowners who find themselves underwater on their mortgage should not despair, as they have options besides foreclosure. They can consider refinancing through the HARP program, selling their home and paying off what is owed, or staying in the home and working to build equity. They can also consult an experienced agent to determine which option is best for their particular circumstances.