Dave Ramsey: 4 Things To Do Now If You’re Underwater on Your Mortgage

Mandatory Credit: Photo by Mark Humphrey/AP/Shutterstock (6378435j)Dave Ramsey Financial talk show host Dave Ramsey works in his broadcast studio in Brentwood, Tenn.
Mark Humphrey/AP/Shutterstock / Mark Humphrey/AP/Shutterstock

How do you know when you’re underwater with your mortgage? 

On his website Ramsey Solutions, money expert Dave Ramsey defines an underwater mortgage as a mortgage loan which is more than the current property value. Underwater, and upside-down, are two terms used to describe owing more on a home than what the home is worth. 

If you find this term is applicable to your situation, you do have options to turn around an underwater mortgage. Do these four things if you’re underwater on your mortgage.

1. Pay Down More of Your Home’s Principal

If you want to stay in your home, consider staying put and paying down more of the principal. 

At a minimum, this option requires hard work, sticking to a lean budget and discipline. The post on Ramsey Solutions recommends homeowners look into working a side hustle or second job for additional income to help pay off the home. Those who commit to doing it will be able to not only keep their home, but build equity and eventually refinance for a lower monthly payment. 

2. Find Out If You Qualify For the HARP Program

Homeowners which are underwater on their mortgage may qualify for the HARP program. According to Ramsey Solutions, the HARP program provides those underwater on their mortgage with a way to refinance their homes. 

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What are the qualifications? The post on Ramsey Solutions says eligibility requires making on-time mortgage payments over the past six months with no more than one late payment in the past 12 months. Your loan must have originated before May 31, 2009, and you must have less than 20% equity in your home.

3. Sell Your Home and Use Your Savings To Pay Back the Amount You Owe

Those underwater on their mortgage have the option to sell their home. If you’re underwater and trying not to lose money when selling your home, the post on Ramsey Solutions says you need to have cash to make up the difference between how much you owe and the worth of your home.

4. Use a Short Sale To Sell Your Home

Homeowners who cannot afford their monthly mortgage payments, don’t have cash on hand to make up the difference and have a home which is worth less than their mortgage balance may explore a short sale as an option. 

There are certain terms homeowners must agree to before deciding on a short sale. According to Ramsey Solutions, they first need to prove to their lender they cannot afford their monthly mortgage payments or catch up on these payments. If a lender agrees to a short sale, the homeowner must partner with an experienced real estate agent to get the home on the market. The lender will also determine if an offer is approved or not, taking the process out of the seller’s control.

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Two Last Resort Options: Foreclosure and Bankruptcy

Two additional options are presented to homeowners: foreclosing on their home and declaring bankruptcy.

However, the post on Ramsey Solutions says foreclosure and bankruptcy should only be considered after exhausting all other options — and even then, these are two options homeowners should try to avoid.

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