Negative Home Equity: What are the options?
An increasing number of homeowners have found themselves in a difficult
situation in which they owe more on their mortgage balance than their
home is actually worth as a result of a variety of different factors.
Falling home values, neighborhoods that continue to deteriorate and a
large number of homeowners who have taken out home equity loans have all
combined to create a situation in which numerous homeowners are now
'upside down' on their home mortgages. Extricating themselves from negative home
equity situation has proven to be difficult at best and typically
involves the homeowner being forced to sell their home for a price that
is less than the loan's value. Homeowners who find themselves with
negative home equity do have a few options available to them.
Taking Advantage of a Short Sale
A short sale is an option for homeowners with negative equity if there
is only a small difference between the mortgage balance and the sales
price or if the seller can afford to pay a larger difference. When a
seller exercises a short sale they must be prepared to appear at the
closing with the funds to pay off the loan balance. In the event that
the seller is not able to pay the balance but must still sell the home,
they will need to arrange a short sale through the mortgage holder.
The most difficult aspect of a short sale is often getting the lender to
agree to a short sale and maneuvering through the massive amounts of
paperwork. Homeowners who are considering a short sale should be aware
that the entire process can be quite time consuming. In the event that
the home in question is covered by PMI or private mortgage insurance,
then it is typically necessary for the insurer holding the policy to
become involved as well, which can lead to more paperwork and time.
Is Foreclosure an Option?
While foreclosure is usually not the first option that a homeowner wants
to consider, in some cases it may be the only viable option left,
particularly if the homeowner would ultimately end up owning the bank
money even after the property has sold. Foreclosure is very serious and
homeowners should certainly consider it carefully before deciding that
it is the right option for them due to the serious consequences it can
have on one's credit rating.
While foreclosure is certainly not the best option, it could be that
when all other options are considered it is the best option that makes
sense, depending upon the amount of money the homeowner would still owe
on the home even after a short sale. If the amount is too large and it
would be too difficult for the seller to repay the money then
foreclosure can be a solution that allows the homeowner to be relieved
of the burden of the mortgage if they truly can no longer afford to
continue making the payments.
Considering Other Options
Before considering either a short sale or foreclosure, it is a good idea
for homeowners to look at any and all other options that may be
available to them as well. Even if there is negative equity in the home,
if the homeowner is able to continue making the mortgage payments, the
best option would certainly be to remain in the home and stick it out
until the market improves. At that point, it would be hoped that the
home could then be sold for a higher price, if the homeowner wished to
sell, that would at least cover the mortgage balance.
There are also other options that homeowners might consider as well that
would allow them to bring in a sufficient amount of income to cover the
mortgage payment while they try to make it through until the market
improves. One option that many people are exercising is to simply move
to a smaller home or an apartment and then rent out the house in order
to cover the mortgage payment. While prices on homes are lower than
they've ever been many buyers are still reluctant to buy in the current
market and as a result they are often looking for homes to rent,
providing an opportunity for homeowners who consider using this option.
Another option would be to take in a roommate to help cover the cost of
the mortgage payment for the current time. If you have extra space in
your home this could certainly be an option you might wish to consider.