What do you do if you can’t sell your house for the amount that you owe on the mortgage? In the current economy, this is a common problem. When you owe more than your house is worth, you are considered to be “underwater” or “upside down”. Another name for this situation is “having negative equity”. This post is the first of two about homeowners in underwater mortgages. In this post, I will discuss some of the options that are available for homeowners who are able to save their homes.
Live there and continue paying your mortgage. If you can afford your mortgage payments, and you don’t have to move, then you should stay in your house and continue to pay your mortgage. Try not to focus on your home’s financial value. Instead, focus on the fact that you have a place to live, and that eventually you will have your house paid off.
Rent it out. If you absolutely have to move, and you can’t afford to sell your home, you can become a landlord and rent it out. The rental income may not be enough to cover all of the expenses, so you should be prepared to have to pay some money out of pocket. You also might want to hire a property management company to maintain your rental property for you.
Some cities require you to have a rental license, and you will also want to look into getting insurance. You should also make sure that your mortgage and your townhouse or condo association allow you to rent out your property.
If you decide to rent out your house, you should be prepared to do some legwork on your own. I also recommend consulting with an attorney who specializes in landlord/tenant law before deciding to become a landlord.
Making Home Affordable Plan Refinance or Modification. Because of the current housing crisis, the Obama administration launched the Making Home Affordable plan. Under this plan, certain homeowners qualify to refinance or modify their mortgages despite being underwater.
If you determine that you may qualify for a refinance or modification under this plan, you will need to contact your mortgage servicer or lender. This will likely require a great deal of patience, but it will be worthwhile if you are able to get your mortgage refinanced or modified under the program.