Believe it or not, there are MANY homeowners who are underwater, still, years after the mortgage meltdown. According to Core Logic, 6.1% – 3.1 millions homes – of all mortgaged CA homes have negative equity, as of the first quarter of 2017. Short sales are also increasing recently as many variable mortgages that were obtained back in the heyday before the crash recently reset.
If you are underwater, delinquent with your mortgage payments, or about to be, or if you are making payment on a loan(s) that reset and the increased payments or rates are a struggle, you need to be proactive, and act sooner rather than later.
Here are some options to help you start thinking and researching:
1. Call your lender(s). If you are late on payments or are about to be, you need to call your lender asap. They can help you figure out a plan. They likely will start with the possibility of a loan modification, where your payments can be reduced if you qualify.
Note here that depending on how much your payments are and how deeply underwater you may be, a loan modification may not make sense, but it is still important to go through the motions as a first step to try options.
2. Refinance. This is great in theory but if you are underwater and there is no equity in your home it is not possible. If there is at least 10% equity in your home then definitely find a good mortgage professional (call me if you need a referral) and go this route.
3. Sell the house if you have enough equity. This will allow you to move on and make a smart purchase that fits into your budget, or rent. Of course if you are underwater chances are you do not have equity in your home so this would not be an option for you. But if you can sell your home and make a little money to pay down some debt and get into a rental or inexpensive replacement property, it is best to do that sooner rather than later.
4. Short sale. This is a great option if you are underwater and the loan modification does not work or provide enough financial relief. It will effect your credit but not as badly as a foreclosure. Make sure you speak with a real estate agent who is familiar with short sales and knows how to negotiate with the bank(s), and that you really understand the process and consequences – click here for more information on short sales. There is a timeline for short sales that can help you figure out how long it might take before you would have to move out – click here to access the timeline for California.
4. Other options. If a short sale is not right for you for whatever reason, there may be other options (such as a deed in lieu of foreclosure and possible lender or government programs – there are also specific programs for military members and possibly others so you need to do thorough research) that could work depending on your circumstances. Again, it is important to find an expert who can provide appropriate counsel that will allow you to make informed decisions.
4. Foreclosure. This is a final option if you have exhausted others and there is no relief in sight for getting out of your mortgage obligations. Make sure that before you go down this road you have investigated other options that may apply to you. Foreclosures can seriously affect your credit scores for years.
6. Credit counseling. If your debt issues extend to other areas or credit, such as high credit card balances or trouble paying bills, you should seek counseling to help you get back on track so you can pay down your debt and move on. Don’t focus on the trouble you have, but on improving it so you can be sure not to make the same mistakes again down the road. There are some amazing credit counseling programs and helpers out there – I know of a wonderful attorney who handles this so let me know if you need the referral.
The bottom line is that if you are in trouble with your mortgage and other debt, do not wait until it is too late. The door for other options could close on you, forcing you to foreclose on your home. If you act early you can usually come to a better solution that will allow you to move on without taking such a hard hit to your credit score.