What Are My Options If My Mortgage Is More Than My Home’s Value?

Question:
I am upside down on my mortgage and my home value, what are my options to refinance or a loan modification? My mortgage is an ARM and soon due to adjust. I am current with my mortgage payment.
Answer:
You really have few options if you are upside down and current with your mortgage. The following list covers some possible solutions for you. Some may apply while others do not.

Options If You Are Upside Down With Your Mortgage Balance And Home Value

The loan modification programs that are underway at this point are targeted at the most at risk homeowners – those who are more than 90 days past due on their mortgage.

Unfortunately, being upside down and still making your payments on time is a low priority case for your mortgage company. If you are looking to sell your home you may be able to get your lender to take a short sale (this is where the lender agrees to release your home for less than what you owe on it).

If you have a second mortgage, you may be able to refinance the first mortgage if the loan balance is below your appraised value. You will have to contact the second mortgage company to get their agreement. I have heard that some companies are approving it and some aren’t. You may just have to see what they say if this situation applies to you.

You may also have to liquidate some retirement account money to pay down your mortgage if you really do have to refinance. Although this isn’t a good thing to do, you may have to do it if you need to refinance out of necessity. I suggest that you talk to your financial advisor if you have one about your options here.

In any situation, if you can show hardship of some sort, you may be able to get your lender to listen, or perhaps a HOPENOW.com counselor to listen. But again, if you are not behind on your mortgage you will have a tough time getting a loan modification at this point.

Have you calculated what your mortgage payments are going to go to when your ARM adjusts? If you are still able to comfortably make those payments based on your income, you may be stuck even longer paying on your current mortgage. But, if you can show that the new payment will hurt you financially, you may get your lender to do a loan modification ahead of time. You will have to be patient and persistent with them if you can show a case for looming financial hardship.

Since you have an ARM that is due to adjust, it is possible that your lender will come around at some point as they catch up on the most serious delinquencies. You may have to wait a year or so until the next round of ARM adjustments with Alt A ARMS and Option ARMs hits to get on your lender’s radar.

If you are looking at refinancing with the rates being so low, which is a great reason to refinance, but you don’t really have to because you have sufficient income to be ok, you may find yourself stuck having to watch and wait for a while. Rates are probably going to stay low for quite some time to come.

Do Not Let Your Mortgage Payment Slip Just To Get Loan Modification
The thing that you do not want to do is let your payment go bad just to get the loan modification program. This will certainly get no help from your mortgage company. People are doing this and getting burned as the lender will make you prove the hardship that caused your payment to go bad. If you can’t prove it, you are out of luck.
I’m sorry that I don’t have better news for you, but this is an extraordinary time in our housing and economic history and you may just have to wait it out.
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