What to Do If You're Upside Down on Your Home

IN THIS ARTICLE:

• Assessing Your Home's Value
• Making Home Affordable (MHA)
• Options for Homeowners

If you're upside down on your home, it means you owe more on your loan than your home is worth. Another term for this is negative equity. Below is a quick reference guide for people in this situation.

Assess Your Home's Value

The first thing you need to do is assess whether your value will recover or not. There are two components of estimating value:

1. Estimate the value of the home itself. This automated estimate is a good starting point, then you can find a local real estate agent and ask them to provide you with a free value estimate, which will help you fine tune your value assessment.
2. Estimate the value of your area by entering your city name. This will give you average prices and rents, detailed analytics accessing market health, pricing history, foreclosure stats, and the ability to drill down to neighborhood.

Completing these two steps will help you determine the probability of your home's value rising to and above your loan amount in a reasonable time. If this probability looks high, you may choose to stay, especially if your family's jobs and schools are nearby.

Making Home Affordable (MHA)

If you determine that your value will take too long to recover, your next step is to contact Making Home Affordable (MHA), the U.S. government's program to help upside down homeowners. You can do so by visiting MHA online or calling them at 888-995-HOPE to assess your options. Starting with this official government resource is the best way to avoid scams targeted at upside down homeowners.

Options for Homeowners

Working with MHA (or a government-approved housing counseling agency they refer you to) will result in the following options:

• Short sale to avoid foreclosure: When you're upside down and need to sell, the transaction is called a short sale. You need your lender's approval to do a short sale because they'll be accepting less than they're owed at closing. Our short sale guide explains how a short sale works for sellers and buyers.
• Loan modification to keep your home & reduce cost: A loan modification is when your lender evaluates your hardship situation and may agree to reduce the balance of your loan, reduce your rate, reduce your payments, or some combination of the three. Applying for a loan modification is a lot like applying for your original mortgage, but you'll specifically be asked to explain and document why you can't afford your payments.
• Rent your home to keep it & offset costs: If you're intent on keeping your home until its value returns, and can find a cheaper home to rent in the interim, you can sometimes offset the cost of your home by renting it out. You can get rent estimates for your home's area and a new target area to determine if this option is viable for you.