Having an underwater mortgage is a bad thing for anyone, and you may have even heard a real estate person talk about someone being underwater. But what exactly does it mean to have an underwater mortgage and how can it be fixed.
What is an underwater mortgage?
Having an underwater mortgage is not something that you get from a bank or lending institution. It is a financial situation that you can get yourself in when the market value on the house that you are living in goes down to the point that you owe more on the house then the house is worth. If the mortgage is higher then the fair market price if you try to sell it you will have to pay the difference between the two numbers. This is what is meant by an underwater mortgage.
How Can You Get To Be Underwater
A home will never start out being underwater when you first buy the house. It will happen through a variety of different ways and some of which you will not have any real control over.
For example, a homeowner may want to refinance the mortgage. However, when doing so, the lender will use the value of the existing market rather than the market conditions when the first mortgage was made. If the value is low or the equity on the property is small, it could produce an underwater mortgage in which you owe more on the mortgage than what the house would currently sell as.
Another way you can become underwater is by borrowing more on the house then it is worth. Maybe the lender decided to offer you a loan because you had excellent credit, a secure job, or a good financial standing even if the home was not fully paid for. If after this happens the financial situation gets worse due to something unexpected like a job loss, death in the family, etc it can sometimes cause the mortgage to go underwater.
The most common situation with the current real estate market is that the property values have simple gone down over time. The property value was higher when the home was first purchased but now, for whatever reason, the prices has gone down on the house. It can even be something simple like you are in a heavy buyer’s market.
What are some solutions to an underwater mortgage?
The solutions depend on how deep the underwater mortgage is, and it is something that you must discuss with your lender. If you can afford it, sometimes the best solution is to sell the home quickly and then use your personal financial reserves to pay for the difference.
It also helps to talk to your local real estate investors or other companies that buy houses. Real estate investors buy and sell homes as part of their profession and they often have their financial and legal paperwork in order to close a deal quickly. For a homeowner, this could be a godsend since real estate investors are home buyers that can work with you to develop unique solutions to your circumstances. For example, investors may be able to help you pay off your existing mortgage balance or help put sellers back on track by providing back payment options.
There are also organizations out there to help people work through this circumstance. Often this takes the form of creating another loan with that financial organization which covers the mortgage, and then paying this loan off over time at a low interest rate. In the end, each situation is different, so it is best to talk to your lender and see what financial options are specifically available to you.