During the housing crash in 2008, millions of Americans saw the values of their homes decrease dramatically causing them to owe more on their mortgage than their home was actually worth.
According to Zillow, a housing market tracking firm, there are currently around 13 million Americans who owe more than their homes are worth. This constitutes nearly a quarter of all homeowners in the United States. With rising home prices and job growth that is beginning to resemble pre-recession levels, the situation has begun to improve for many, but significant obstacles remain.
For example, an additional 18.2 percent of Americans who managed to build up positive equity still don’t have enough to pay for the cost of selling their homes. If they do want to sell then a large bulk of the costs will often come directly out of pocket, leaving them effectively trapped with their mortgage.
Stan Humphries, a chief economist at Zillow, explains: “Things such as real estate agents’ fees and a down payment for the next home traditionally come out of the proceeds from the prior home’s sale. Without enough equity, these costs will instead have to come out of a homeowner’s pocket, leaving many still stuck. Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven’t yet translated into more homes for sale.”
There are options available if you happen to find yourself stuck paying more for a mortgage than the home is actually worth. Even if you’ve been delinquent on recent payments, then you still may be able to qualify for one of these programs.
1. The Home Affordable Refinancing Program (HARP) can help you refinance to a lower rate.
HARP allows homeowners to refinance their home loan in the event that it is between 105 and 125% of the home’s original value. However, this option only applies to buyers that are qualified. In order to qualify for a HARP refinance, you must not be delinquent on any of your mortgage payments. Even missing one payment within the last 12 months will automatically disqualify you from being able to refinance through HARP.
Also, the loan must be owned by either Fannie Mae or Freddie Mac. If you are unaware of who owns your home loan, then you can find out by going to the government’s Making Home Affordable website. Moreover, HARP takes into account your credit score and specific lender guidelines.
2. The Home Affordable Modification Program (HAMP) can help you modify the terms of your home loan.
HAMP allows you to qualify for a lower rate even if you don’t have the best credit score and have missed payments on your mortgage. It is an excellent second option to explore in the event that you don’t qualify for refinancing through HARP.
In order to qualify for HAMP, the home loan must also be owned by either Fannie Mae or Freddie Mac. And you must be able to demonstrate that you’re experiencing financial hardship that puts you in imminent danger of going into default.
What distinguishes HAMP from HARP is that you don’t refinance through HAMP. Rather, it modifies the terms of the home loan that you already entered into. Michael Goldstein, a bankruptcy attorney and partner at Goldstein and Clegg, explains: “HAMP is not a refinancing program, it’s a change to the contract terms… but it can lower your payments for up to 60 months.”
Going into foreclosure can be one of the most difficult things that a person can go through in their life. Not only will your credit be negatively affected for years to come, you will ultimately end up losing the house that you’ve invested so much in, both emotionally and financially. Taking action with one of these government backed programs can help prevent that if you find yourself in an underwater mortgage. At the very least, it never hurts to find out what you qualify for.
