How to Refinance an Upside Down Mortgage

It is a phenomenon that in today’s economy is becoming all the more common, you buy a home and the value of it continues to fall. An upside down mortgage is when you as a homeowner owe more in terms of mortgage payments than what the house is even worth. Nearly 35 percent of Americans that have purchased homes during the last five years are now in debt for more money than their home is worth.

Even if you are financially healthy enough to make house payments, it is still frustrating to feel as though you are throwing money away. Maintaining a negative home equity can feel like swimming with weights that make it harder and harder to swim. If you have decided that enough is enough, one of the refinancing methods below can be your life raft:

Request to modify you mortgage – This option is a great first choice for those with upside down mortgages. A mortgage modification is carried out directly through your lender. When calling the lender, ask to be transferred to the loss mitigation staff. The loss mitigation staff are the only people at a company that will be able to help arrange new terms and conditions on your mortgage. Lenders do have the right to accept or deny a modification request depending on their own set of criteria. Good things to request include a change of interest rate or a change in the mortgage term (length of the mortgage in months or years).

Reduce your price – It is natural to believe that your home is worth more than what a neutral third party believes, but this does not mean you are correct. If no one is buying your home, consider going lower. Many home owners watch the price of their home fall month after month because they try to desperately hold onto the highest price possible. By lowering the price you can at least make sure you sell the home to get out of the spiral and rectify the negative equity. With the money left over, you could then buy a newer affordable property.

Rent it out – A common strategy is to begin renting out the property as a way to gather up enough funds to then purchase a cheaper property. This does of course depend on whether your property is suitable to rent out, and whether that revenue will be enough to cover the new mortgage and the old mortgage. The most important thing about this method is that it will provide you with the means to boost your cash and begin treading water. The idea is to continue renting out the property at least until the market improves your bid price.

HARP – This is the Home Affordable Refinance program. It is a mortgage program organized by the federal government, set up to assist people with problems like an upside down mortgage. It is important to note that in order to qualify for this program you must have a mortgage provided Freddie Mac or Fannie Mae. Find out who your lender is online at “Makinghomeaffordable.gov”.

No matter your situation it is important that you first understand your mortgage and your mortgage rate. Once you have all the facts you can then make the best decision for you and your family on what to do.

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