You're Upside Down . . . Now What?

First of all, what does it mean to be “upside down”?

It simply means you owe more on your home than it is actually worth. It happens to people who bought at a market peak before prices fell.

A homeowner can still be “upside down” even if they make all of their payments on time. It can feel like a burden they can’t shake no matter what.

How do you know when you’re upside down on your mortgage?

You can ask a local Realtor for comparable sales within the last year in your neighborhood.  Most Realtors are knowledgeable and can help you determine what you house would sell for currently.

So if I’m upside down, what can I do?

If your mortgage is owned by Fannie Mae or Freddie Mac—and many conventional mortgages are—you may qualify through certain lenders like First Bank for the Home Affordable Refinance Program (HARP).

HARP lets you refinance your mortgage to more favorable conditions for an amount greater than the home is worth.

How do I qualify for HARP?

We use the same process we use for any other loan. We look at your income, evaluate your property, look at a minimum credit score, etc. Like other mortgage loans, it takes about 30 days to get in place.

Also, it’s worth noting that HARP won’t impact the way that banks look at you for future loans.

What are some other options for upside-down homeowners?

If your desire to sell is more than your desire to ride out the market to see if values improve, you can contact your current mortgage holder to see if they would agree to a “short sale.”  Simply stated, a short sale means that you would sell your home for less than you owe on it, without bringing cash out of your pocket to the closing table.

Some banks will allow this with no recapture of the balance from the current owners, but many are rolling the balance due into a note that the current owners will have to pay over time. In addition, note that a short sale can impact your credit and ability to get a mortgage for several years.