Underwater Mortgage? Here’s Your 3 Best Options

The term “underwater mortgage” means you owe more on your home than what you could sell it for in present market conditions. The situation can seem hopeless – pouring money into a property that will not yield a financial benefit, and which could actually damage your finances instead. However, consumers who find themselves in this situation still have options to explore:

1. Consider a Short Sale

If you do want to sell the underwater home, this is your best bet. You’ll likely want to get expert advice before pursuing this option, but a short sale is when the bank allows you to sell the house for less than what you owe. In some cases, you’ll still be on the hook for the remainder, but banks have also been known to forgive the additional debt under the right circumstances.

2. Renegotiate Your Mortgage Terms

If you don’t want to sell your home, a negotiation will be key. Lenders don’t like to advertise this option, but many are willing to renegotiate your interest rate, the number of payments left, or even the balance due on your loan. Federal government programs to keep people in their homes add to the lender’s toolkit in this area, and may make it possible to start fresh with completely new loan terms that remove you from underwater status. Remember: lenders have a vested interest in homeowners successfully paying off their home loans.

3. Take On Tenants

You likely never considered sharing your home with renters when you purchased it, but taking on tenants in the basement or even in a single room of the home could provide the extra income you need to cover your traditional mortgage expenses. It may even enable you to put more toward your loan in an effort to pay down the mortgage debt more quickly.

Remember, even though you may feel stuck, an underwater mortgage doesn’t have to be a hopeless situation.

Image via Flickr/barryblackman