Four Options for Over-Financed, Underwater, Too Much Mortgage?

oldschoolOver-financed, over-mortgaged, underwater, negative equity, or upside down; all of these terms mean the homeowner owes more on the house than what the house is worth. Forbes finds that nearly 6.4 million Americans have borrowed more than their house is worth, despite steady increases in the value of homes over the last two years. Click here for the article. Austin has a litany of homeowners that own homes that have a larger mortgage than the value of the house. Below we list a four options for homeowners in Dallas.

1. Stay in the house

Homeowners can always stay in the house, if the payment is reasonable and the homeowner can afford the monthly burden. Eventually the homeowner builds in equity as they continue to pay down the principle of their mortgage. Home prices have risen in most areas of the country, especially here in the Austin area. However, this doesn’t help the homeowner that needs to be move in the next year.

2. Sell that house, at a substantial loss

Homeowners can sell a house that is over-leveraged, the caveat is that if they do sell the house they will need to come to the closing table, the time of sale, and bring a large check for the difference. This can be costly. Considering that most homes in the Austin area that are over financed by at least 10%; add to the fact that selling a house with a Realtor adds another 10% of closing costs and sales commissions. It would not be uncommon for a Austin homeowner selling a $200k house to bring $40,000 to the closing table. That is a large sum of money to give away to move.

3. Sell the house as a short sale or a foreclosure

A short sale is when a bank agrees to sell the house for less than what the borrower owes. There are a few major problems with a short sale. First, the lender will hit the homeowner’s credit, hard. It will be years before the homeowner can recover from a poor credit score resulting in loss of job opportunities, increase cost of insurance, and increase in interest for credit purchases, e.g. future house and car purchases. Despite the name, short sale, the process is not quick and can take nearly a year depending on the bank and the buyer.

A foreclosure occurs when the borrower fails to make a mortgage payment for three months. The foreclosure process ends with the bank forcing its ownership of the property through the county court. Once the property has been foreclosed the owner, and their property, are forcibly removed from the property by the county sheriff. The borrowers/homeowners credit is destroyed for seven years. Foreclosure is the worst of all options and akin to bankruptcy.

4. Sell the house has a unique program in which we can buy houses that are over–leveraged. We have several programs where we can take over payments, subject to the existing mortgage, or lease the property from the homeowner, would be responsible for all the payments and repairs for the property.