How to Handle a Home Sale If You Owe More Than the Home is Worth by:Patricia Payne
If you owe more on your mortgage than the home's current market value
, then you are in an "upside down" or negative equity position with your mortgage. How does this happen when mortgage companies generally require a 10% to 20% down payment, giving you an automatic equity in the home?Within the last 20 years or so mortgage, companies have been offering near 100% financing for the purchase of a home. Government-backed FHA guaranteed loans often allow mortgage companies to make these types of loans. The underside to this program is that owners have zero equity in their home when they begin paying on a mortgage. If any shift in real estate values occurs, like it has over the last three or four years, an owner could end up with an "upside down" mortgage, where their home value is lower than their outstanding mortgage balance.
Another reason homeowners find themselves in this situation is when they take out a second mortgage. Say you have a first mortgage of 80% of your home's value. That leaves you with 20% equity that you could use in cash by acquiring a second mortgage, and thus, leveraging as much as 100% of your home in loans.
Have Your Lender Agree To A Short Sale
If you are behind in your mortgage payments and are facing the real possibility of foreclosure, talk to your lender about the option to sell your home at a loss. This is known as a "short sale." In a short sale agreement, your lender would agree to accept what your home actually sells for and writes off the "short" amount that remains on the loan. The upside to this is that you come away owning nothing to the lender. The downside is that you lose your home, but it's better than foreclosure.
Wait to Sell Until Real Estate Values Rise
As historical figures show, real estate values continue to rise over the long term, even though they may decline in the short term. If you wait to sell your home, you can be sure that most likely your home's value will once again rise, and your equity will again be in the black. It may take years, but holding on to your investment is the best option if at all possible.
Wait for Interest Rates to Drop, Then Refinance
Interest rates are continuing to drop due to the economic atmosphere. If you are able to maintain your current mortgage payment and remain in your home, you could wait until interest rates drop to a reasonable level where you could refinance for a lower monthly payment.
Having negative equity is always a precarious position. If you absolutely must sell your home, talk to your lender about options. Working out a solution is a much better option for you than foreclosure or collection on an outstanding loan balance.
This article is intended for general information. Always seek sound financial and legal advice before making any financial decision.
About the author
Helpful mortgage information at http://www.online-home-mortgage.net P. Payne works for OHM Mortgage and Foreclosure Information Site providing answers to all those questions people need to know.
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