Refinancing an Underwater Mortgage

If refinancing your home is high on your list of priorities because you’re in danger of foreclosure due to an underwater mortgage, you’re not alone. However, there may be some ways to avoid losing your property. So let’s look at what it really means to be “underwater” and what options you may have for keep your home.

Do I Really Have an Underwater Mortgage?

An underwater mortgage occurs when you are “upside down” or owe more than your home is worth. For instance, you may have financed a home for $400,000; however, the property value may have dropped to $300,000. This means, you owe more than your home is worth. However, if your property value had risen since you bought it then lowered again, you may not owe more than what it’s worth. Say you bought your home for $200,000 and over the years the value rose to $400,000. However, with the recent housing market catastrophe, the value lowered to $300,000. Since you owe less than the property’s value, you’re not underwater.

If you do have an underwater mortgage, however, and refinancing your home before foreclosure is on the agenda, you’ll need to pay down your mortgage below its value. By taking this route you can very likely refinance with your lender.

Options for Avoiding Foreclosure

Now, let’s look at some ways other than refinancing your home that might help you save from foreclosure.

  • Programs to help. There are a few programs created by FHA and Congress that might be able to get you back on your feet – even if you have an underwater mortgage. They are the FHA Secure, Hope for Homeowners (H4H), and Streamlined Modification Program.
  • Sell your home. Another option is to sell your home where you take less than you owe. While it may not be appealing, it will get the responsibility out of your hands.

Not knowing how to handle an underwater mortgage can be difficult, but by exploring the available options, including refinancing your home, you might get better results than you think.