Individuals who owe more than their homes are worth in a negative equity position, or upside down in their homes. Some people have chosen to walk from their homes, and in California, the only real recourse creditors have is to report it to the credit reporting agencies, where it will show up on the prior owner’s record for at least seven years. Other homeowners wait the situation out or operate with their lender for remedies.
Significance
Being upside down into a house creates a few issues for a homeowner, the largest of which might be the difficulty he might have in selling the house and getting out from under the mortgage without suffering financial losses. To keep her good credit, the borrower would have to pay the difference of their sales cost and what is owed on the house to the lender, which might be a substantial amount of money. Further, people who owe more than their homes are worth cannot tap into the house’s value for an equity line of credit.
Options
Some options exist for homeowners who owe more than the house is valued at. Borrowers can contact their lender to see if they could refinance the house or do a loan modification if the obligations are outside what he could manage. A loan modification will not reduce the principal balance on the house, but it will lessen the interest rate, making the payments less expensive. Some homeowners may qualify for a national program called the Home Affordable Refinance Program (HARP). As of June 2010, people that first mortgages are no more than 25 percent higher than the current value of their house can apply for a refinancing application through their lender, or if the mortgage is owned or guaranteed by Fannie Mae or Freddie Mac, the operator could apply to HUD for refinancing. Homeowners can also contact their lender to see if a short sale could be arranged. A short sale is a good solution for owners who are current on the home payments and have the financial means to continue making payments until somebody else buys the house.
Factors
If the amount you owe on your house is much more than it’s worth and you want to market it because of a move, or in the event that you simply cannot afford the house because your income has diminished, consider negotiating a short sale with your lender. These earnings may take a while to process, even after a deal has come through. In order to do a short sale, the obligations need to be current on the house. The HARP program works for people who have not lost substantial value in their homes and is a fantastic way for borrowers to get long term funding at better conditions than their initial loans might have contained. Loan modifications will cut the interest rate on the loan, and the borrower will need to demonstrate financial hardship prior to the bank will even consider reducing the fee. Being underwater isn’t a sufficient reason for pursuing a loan modification.
Misconceptions
Short sales are not short–they might have a long time for the bank to approve. It’s possible to have a number of buyers who have submitted bids for a house, but until the short sale section at the lender assesses the offers and accepts a bid, the owner remains responsible for the obligations. A short sale will show up on the credit report of the seller and will make a dent in her charge, even though it isn’t nearly as serious as a foreclosure. A loan modification could have a negative impact on a credit score. Virtually all lenders require the owner applying for a loan modification to be overdue on a couple of house payments, which will lower a score. Credit rating agencies may also downgrade credit scores when they see the loan’s first interest was reduced.
Warning
Walking from a house has serious implications. It may be hard to find someplace else to live without creating large deposits, and it will have a profoundly negative impact on a credit score, which might keep someone from getting a job in case a prospective employer demands a fantastic credit score. However, occasionally there’s no other recourse than simply walking, especially when the financial institution will not agree to a short sale or a loan modification. Despite the fact that it’s detrimental to some credit score, staying at a house that is too large or taking decades to recoup the investment does not always make financial sense, especially if suitable housing would cost much less.