Foreclosures. They’re starting to go down, but there are still quite a lot of them in the market.
It is not uncommon for homeowners who are underwater in their mortgages to feel helpless and contemplate walking away altogether. This may seem a temporary relief from the financial burdens of this situation, but it’s a choice that could potentially cause years worth of frustration and stress in the long run.
Are there alternatives to walking away? Yes.
There are extreme circumstances that would warrant walking away as the only viable option, but that is seldom the case. Walking away should really be a last resort for anyone who has hopes of maintaining a healthy financial future.
What exactly is an underwater mortgage? What does it mean to be upside down?
This refers to a situation where homeowners owe more on their mortgage than their house is worth. This is negative equity, and it is caused by declining property values, increases in mortgage debts, or a combination of both.
Before you walk away, consider your options. Talk to your lender. Seek help from a certified counselor with the U.S. Department of Housing and Urban Affairs (HUD).
Here are some alternatives to walking away:
- Refinancing. It can be a tough feat to accomplish, but essentially you are exchanging your current mortgage loan for a new one, and currently, interest rates are at record lows. There are strict requirements for refis including good credit, a FICO score of 720, documented income, etc. This is the best option to take if you are seeking preventative action and are not yet on your last legs financially. If you can qualify for a new loan, FHA refinance programs are a good option for you to consider.
- Mortgage Modifications. This will take your payment down to a more affordable
level by re-negotiating the terms of your existing loan. Lenders generally lower the interest rate, lengthen loan terms or reduce the principal. Sometimes they do a combination of all three. This is an option for both homeowners with good credit and those who are struggling. - Short Sales. This is an agreement between the lender and the homeowner that allows the homeowner to place their home on the market with the understanding that the sale price will be less than is owed on the mortgage.
Modifications and short sales can both impact your credit negatively, but it is much less severe than a foreclosure.
What a lot of distressed homeowners don’t realize is that foreclosing is not a situation that affects only said homeowner. Foreclosures bring down the value of neighborhoods, they reduce home values, and they further weigh down the entire economy. For the homeowner, this will account for more expensive mortgages in the future. While it is sometimes unavoidable, every struggling homeowner should take the time to explore the options available.
Recently, the Obama Administration’s Making Home Affordable Program began offering new options for struggling homeowners who are looking for options before walking away.
