Question
I bought a home with my husband a few years ago. What can we do if the value of our house has dropped and we now owe more on the house than it is worth and our interest rate is 9.75%? We would like to refinance to get a lower rate. What should or could we do?
Answer
Thanks for the question. I know I do not need to tell you that you have a tough situation on your hands. This isn't a great situation, and you are not alone. Many homeowners have similar problems. Some stick it out, work it out, and other simply walk away - all tough choices. You do have a few options which I'll list below, but I do have a few items to ask to make sure that you get your question answered.
- Do you have to lower your rate? Wanting to lower it versus having to lower it are two different things. If you do not have to do anything then you may just have to wait out the down swing in the real estate market until values rebound.
- Are you behind on your payments? If not and you can keep making your payments - don't stop. As long as you are not in an emergency situation like not being able to afford your home anymore then, again, you may have to ride things out.
A Few Mortgage Refinance Options - Including Bankruptcy
1. Have you gone to your current mortgage company and asked them to recast or lower your interest rate? They might be able to do some sort of in house refinance without too much trouble. Often a phone call to your mortgage company might result in an interest rate reduction - especially in these times.
2. Have you called an FHA lender? You may qualify for what they call the FHA Secure loan program. This is a bailout program for adjustable rate loans. Do you have an ARM? I know that your loan balance is greater than your home's value, but FHA Secure can work with this case if you can get either the new mortgage company to approve some sort of second mortgage or if your current mortgage company would allow you to pay down your mortgage to a much reduced balance and restructure their payment etc. This might sound like a stretch, but it is worth making the calls.
3. Do you have a retirement account or any money set aside? Although this might get the retirement planners rolling their eyes at me, you could liquidate some of the money to paydown your mortgage balance if the numbers are not that far off. Of course you will need to look at what the payback of the 401K loan is going to be if you use this account. You may also weigh the penalties of an early withdrawal. All in all, it is imperative you to decide what you want to do about staying in your home. Is it worth bailing out by using resources or paying more than you need to pay? Only you can decide.
4. If you are already behind on payments, you might have the option of filing for bankruptcy protection to slow down any foreclosure process. This all depends on how long you have been in the foreclosure process if you are in it. If you are going to look at bankruptcy then you need to take some upfront education classes as well as give yourself some lead time before they will let you file your paperwork. These are some of the new changes to the bankruptcy law that came out in 2005.
I don't quite know what else to offer you without knowing more about your situation. But if you have an ARM that has already adjusted or is going to adjust, check into the FHA Secure program. If you have any further questions please do not hesitate to ask them.
Also, if you need to be referred to an FHA lender let me know, I can refer you to someone who can work with you in your area. Again, thanks for the question and good luck.
