You’re upside down in your mortgage. For whatever reason, the amount you owe on your mortgage is more than the house is even worth anymore, which means you have negative equity. This can be a challenge, especially if you intend to move soon or if you find it difficult to make house payments. Fortunately, there are a few things you can do to escape a negative equity mortgage.
Sticking it Out
The first option is to stick it out to the end. If you don’t plan to move anytime soon and if your house payments aren’t a problem, you can try to stay in the house and hope the value increases to match its worth when you first purchased it. If you plan to make improvements to the property, this could work.
For those who are making their mortgage payments and meet other specific requirements, HARP refinancing is a valuable option. The Home Affordable Refinance Program allows those who owe more than they own on their home to refinance without private mortgage insurance. This essentially replaces your unbalanced mortgage with one that corresponds to the value of your home.
If you plan to move out of the home, you can try renting it out. This can help you recoup some of the loss, but renting often depreciates the property—it becomes worn from the use (and potential abuse) of your tenants, meaning the value will most likely diminish further rather than increase.
Some homeowners in this situation simply default on the mortgage and go into foreclosure. This will end the struggle to make house payments, but will also cause a heavy hit to your credit which will last for seven years. If possible, it’s best to avoid defaulting on the mortgage.
The final option is short sale, or selling the home fast for less than it’s worth. This is typically reserved for cases where you can’t make mortgage payments and want to avoid the heavy hit to your credit that would result from defaulting. Your lender will need to approve the sale, but it may be in their best interest to do so since it will help them recoup some of their losses.