Are You Upside Down on Mortgage?

Many homeowners find themselves upside down on their mortgages. This is common especially when there was a housing market boom and many homeowners refinance their houses and taking cash out. As the value of their homes increase, homeowners get second and third mortgages and pulling more cash out each time. When the housing market slows down, the homeowners can no longer refinance and they can no longer afford the homes they live in. For some homeowners, the mortgages have become larger than the value of the homes. In another word, they are upside down on their mortgages.

Do I have equity in my home?

When a homeowner is upside down on his or her mortgage, he or she owes the mortgage company more than his or her house is worth. For example, if the house is appraised or valued at $100,000 and the homeowner owes the mortgage company $120,000, then the homeowner is $20,000 upside down on his or her mortgage. If the homeowner is upside down on his or her mortgage, there is no equity in his or her home.

A homeowner will only have equity in his or her home if he or she owes the bank or mortgage company less than the house is worth. For example, if the homeowner owes $70,000 on a $100,000 home, then the homeowner has $30,000 worth of equity in his or her home. Usually when there is equity in a home, the homeowner can refinance and pulls some cash out. However, when the homeowner does that, he or she may end up being up side down on his or her mortgage.

What do I do if I owe more than my house is worth?

If you owe more on your home than your home is worth, then putting your home on the market is probably not your first choice. If you can sell your home before the bank takes possession of it in a foreclosure situation, you will probably get less than you owe the bank. That means, you have to come up with the difference on your own. For example, you house is worth $100,000 and you owe $120,000 on it.

You put your home on the market and it sells at the most for $85,000 or lower if you need your home to sell fast so that the bank will not foreclose on your home. You can use the $85,000 to pay some of your mortgage loan off but then where will you get the $15,000 to pay for the rest of the mortgage balance? Since your house is sold, the mortgage company will probably not let you keep the $15,000 because there is no property to secure the loan any longer.

So, what is the best way to deal with owing more than I can afford?

When you get into the above situation, you really want the bank or mortgage company to say, ok we will take the $85,000 you have and be done with it. You especially don't want the mortgage company to come after you for the balance of $15,000. If you are in this situation, your best option is probably to do a short sale. Home Solutions Inc. has experts who specialize in doing short sales with banks and mortgage companies.

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