Home > Avid Law Center, Bankruptcy, Loan Restructuring > 5 Tips for Underwater Borrowers

5 Tips for Underwater Borrowers

Number of Underwater Mortgages on the Rise

Unfortunately, the Home Affordable Refinance Program hasn’t helped as many homeowners as planned – with nearly 29 percent of homeowners with mortgages owing more on their loans than their homes are worth. With that in mind, here some tips underwater borrows should consider now before their situation worsens.

1.)    Wait it out – If you can afford it, you’re not behind on payments and you want to stay in your house for the long run, waiting it out  until the market recovers is an obvious, yet, difficult options to consider, especially since you’ll be paying more in interests than you should be. According to a recent study by CoreLogic and the Associated Press, the average underwater homeowner is paying an interest rate that’s nearly 40 percent higher than they could get if they bought a home today. That translates to paying an extra $200 a
month on a home valued at $250,000, according to the report

2.)    Foreclosure is never the best or only answer – there are many ways to fight to keep your home. Underwater borrowers who don’t qualify for HARP should try to negotiate a loan modification with their mortgage lender. If restructuring the loan is not an option, ask about the possibility of a short sale — which means selling your house at market value, with the remaining loan balance forgiven by the lender.

3.)    Don’t stop making payments – some so-called experts would advise you to stop making payments until the bank forecloses on the property – also known as “strategic default.” The consequences of walking away from your home are severe. Your credit scores will plunge, your lender could sue you, and it may be up to seven years before you can get another home loan – or any other line of credit.

4.)    Declaring Bankruptcy – in extreme cases and as a last resort, bankruptcy is an option that shouldn’t be ruled out. There are two basic types of bankruptcy: chapter 7, where you simply declare you can no longer pay and your debts will be discharged, and chapter 13, where you will be able to pay off your debts over a period of time. However, being underwater on your mortgage by itself isn’t a reason to file bankruptcy. Before taking this drastic step, consult an attorney for the details and ramifications.

5.)    Renting your home – If you decide to put your house up for rent, you might make enough each month to cover your mortgage. That would free you up to live somewhere else. Keep in mind there will be expenses involved with managing your property. Also, many homeowners’ associations regulate or prohibit renting homes out.

Also remember you are not alone so feel no shame in asking for help from qualified experts.  Realtors are not always equipped to provide you with all your legal options. With very rare exceptions, real estate agents aren’t trained or licensed to give legal advice.

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