3 Solutions For An Underwater Mortgage


An Underwater Mortgage Isn’t The End Of The World

Since the housing crisis, many Americans have found that the homes they took sizeable mortgages out on are not worth nearly as much now as they were when they bought them. In fact, many homeowners have found that what’s left on the mortgages they are currently paying is more than what they can sell their homes for in today’s market. Victims of underwater mortgages might feel like there is no way out of their debt. Luckily, though, there are some steps they can take to solve the problem. Here are three solutions for underwater homeowners. SEE ALSO: The Comprehensive Guide To Private Mortgage Insurance

1. Cash-In Refinance

For those with some spare cash who are looking to refinance and take a chunk out of their debt, a cash-in refinance is a great option. In a cash-in refinance, those with less-than-stellar rates can refinance their home loan to monthly payments they can afford by bringing additional cash to the table. This is a good option for underwater homeowners because it lowers interest rates and helps pay down the excess money that they took out on a property. So, though it costs more money upfront, a cash-in refinance could ultimately save homeowners bundles because of the ability to refinance at a lower interest rate.

2. Home Affordable Refinance Program

If you have a government loan, the Home Affordable Refinance Program (HARP) might be another good choice. Through HARP, underwater homeowners can refinance a loan that is worth 105 to 125 percent of the home’s value. While there are some closing costs attached with this option, HARP can end up saving you hundreds of dollars a month off your mortgage. There are, however, several factors that determine whether or not you qualify for HARP. In order to qualify:
  • The mortgage must be owned by Fannie Mae or Freddie Mac
  • The mortgage must have been sold to one of these agencies on or before May 31, 2009
  • The loan-to-value (LTV) ratio must be greater than 80 percent
  • The owner must be up to date on payments and have a good payment history for 12 months before the application was filed
  • The mortgage cannot have been refinanced under HARP previously, unless it was a Fannie Mae loan refinanced under HARP between March and May 2009

3. Home Affordable Modification Program

Homeowners with a bad payment history, which disqualifies them for HARP, might still be eligible for another government run program. The Home Affordable Modification Program (HAMP) allows homeowners to amortize their mortgages to longer terms, receive a lower interest rate or forgive some of the principal balance of your loan. However, there are a few stipulations. For example, after the sixth year, a borrower’s mortgage rate can increase one percentage point a year until it reaches the current market standards. Borrowers also have to meet strict guidelines in order to qualify for HAMP. Necessary qualifications include:
  • The home must be the borrower’s primary residence
  • The mortgage must be less than $729,750
  • The monthly payment must be more than 31 percent of the borrower’s monthly income
  • The borrower must demonstrate that he or she is having difficulty making payments
SEE ALSO: The Late Payment Timeline Being an underwater homeowner might seem like the end of your financial world, but it doesn’t have to be. By modifying your home mortgage with these tools, you can make your payments more affordable and make keeping your home worth the price.
Date of original publication:
Updated on: November 10, 2015

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